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Why do I have to collect my pension already?

Summary:
Ontario's Ford government has a plan to induce professors over 71 to retire. I wrote a column in the Globe and Mail about it. Here's a sneak peak: Nearly one in 10 Ontario university professors is over the age of 65. As of 2016, these professors were earning, on average, 4,947 a year. Moreover, because federal legislation requires all taxpayers to start drawing down their retirement savings at the age of 71, septuagenarian professors can collect a six-figure pension on top of a six-figure salary. It sounds expensive – and it is. A report from the Higher Education Quality Council of Ontario on universities’ fiscal sustainability estimated that, if mandatory retirement was still in place, and Ontario universities had been able to replace all of their professors over 65 with junior

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Ontario's Ford government has a plan to induce professors over 71 to retire. I wrote a column in the Globe and Mail about it. Here's a sneak peak:

Nearly one in 10 Ontario university professors is over the age of 65. As of 2016, these professors were earning, on average, $184,947 a year. Moreover, because federal legislation requires all taxpayers to start drawing down their retirement savings at the age of 71, septuagenarian professors can collect a six-figure pension on top of a six-figure salary.

It sounds expensive – and it is. A report from the Higher Education Quality Council of Ontario on universities’ fiscal sustainability estimated that, if mandatory retirement was still in place, and Ontario universities had been able to replace all of their professors over 65 with junior scholars, their annual salary costs would be $89-million lower, and more than 1,200 new PhDs could have been hired.

In its April budget, the Ontario government committed itself to ensuring “a more sustainable postsecondary sector” and “employee renewal.” The details of the government’s plans are not yet known. However, a discussion paper released earlier this year reported that “the ministry is giving consideration to a policy that would … require institutions to reduce salary payments so that salary and pension payments combined are not greater than the employee’s salary prior to pension payments commencing.” Professors aged 71 and older would have their salary clawed back, giving them every incentive to retire.

The rest of the article is here. In it I talk about the various objections to the Ford government's plan, and what I see as a reasonable alternative. One thing I couldn't fit within the 800 word limit, however, is the answer to the question, "Why do I have to collect my pension already?" Why couldn't the problem of double-dipping be solved by allowing septuagenarian professors to defer their pensions. Here I explain why this will not, and should not, be an option.

Canada has income supports in place for Canadians over the age of 65. If older Canadians were allowed to choose when to start drawing their pension, and how much to draw out, they could simply choose not to withdraw that income, and thereby take advantage of means-tested benefits to which they would otherwise not be entitled. Allowing high-wealth taxpayers to collect Old Age Security, and take advantage of other means-tested benefits, would not be equitable, even if said taxpayers had low taxable incomes.

Furthermore, any time someone defers their pension, they defer paying tax on their pension income. The returns earned on retirement savings can then be re-invested, and used to generate higher investment income in the future. There are good reasons to give pensions some preferential tax treatment. It makes it easier for people to save for their own retirement, for example. However there need to be some limits on that preferential tax treatment in order to prevent excessive tax avoidance.

For these reasons, every taxpayer over the age of 70 is required to convert any Registered Retirement Savings Plans (RRSPs) they hold to Registered Retirement Income Funds (RRIFs) and start collecting investment income from those funds. Similar rules apply to every form of tax-deferred retirement savings, including employment pensions. It would be highly undesirable to eliminate these rules entirely.

But why not claw back professors' pensions instead, and give that retirement income to someone else?

Canadian pension plans are partly funded by an employee's own contributions. In that sense, employees "own" a share of their pension plans. They are entitled to receive back the funds that they have invested in the plan. Allowing employers to claw-back professors pensions could, potentially, undermine the principal that employees are entitled to the pension they have earned.

For these reasons, ending double-dipping by allowing professors to defer their pensions, or ending double-dipping, is not a desirable solution to the problems created by the elimination of a standard retirement age.

Frances Woolley
I am a Professor of Economics at Carleton University, where I have taught since 1990. My research centres on families and public policy. My most-cited work is on modelling family-decision making, measuring inequality within the household, feminist economics, and tax-benefit policy towards families. I hold a BA from Simon Fraser University, an MA from Queen’s, and completed my doctorate at the London School of Economics, under the supervision of Tony Atkinson.

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