Nick Noorani Website

–Unique demographic profile an issue for policy makers, investors

–Baby boomer retirements seen as ‘more material’ for Canada than other countries

–Higher productivity and immigration needed to lower impact on economic growth

By Monica Gutschi
Of DOW JONES NEWSWIRES

TORONTO (Dow Jones)–Canada has a unique demographic profile that makes the looming issue of an aging population a critical one for policy makers and investors, a new study argues.

The country had a larger baby boom than other developed countries, and had a larger baby ‘bust’ as well, making it ‘atypical,’ study author Virginie Maisonneuve said in an interview.

Indeed, the study produced for Schroder Investment Management where Maisonneuve is head of global equities, argues that baby boomer retirements will be far more ‘material’ for Canada than other countries. It noted the ‘dependency ratio’–or number of retirees to workers–will rise by 8% over the next 20 years compared to 4.5% in the U.S.

According to the latest actuarial report on Canada’s Old Age Security, the ratio of people aged 20 to 64 to those over 65 is expected to fall to 2.2 in 2050 from about 4.4 now. The number of beneficiaries of the basic OAS is expected to double to 9.3 million by 2030 from 4.7 million now, while those who will receive the Guaranteed Income Supplement and other benefits will grow to 3.3 million from 1.7 million.

The unusually large boom and bust seen in Canada is also likely to have an impact on economic growth, Maisonneuve’s study argues, unless there is a major increase in immigration, labor productivity or participation rates by older workers.

As well, the study says the composition of Gross Domestic Product will change, with the healthcare and financial sectors increasing their share, while the contributions from education, manufacturing, construction and retail will fall. National savings are also expected to decline as retirees live off their investments, potentially leading to wider trade surpluses and a greater need for capital inflows.

But the study also finds that Canada has done a relatively good job of preparing for the demographic change ahead, with its public-pension system expected to remain solvent until 2050. That stands in marked contrast to the U.S., which faces a permanent shortfall beginning in 2016 and could run out of funds by 2039.

While health care costs are also expected to rise with an aging population, Maisonneuve’s study says Canada is also in good shape on that front, with a solid record of keeping healthcare spending under control.

Canada will also be helped by its strong fiscal position, the study says.

Also, the resource-based country will be supported by another global theme Maisonneuve has identified: the rise of emerging economies and their ongoing demand for commodities such as oil, wheat, and iron ore.

“Those two things put together create a profile for Canada that is very very special,” Maisonneuve says.

Canada’s fertility rate–or number of births per female–soared as high as 3.9 in the years following World War II, compared to 3.7 in the U.S. and below 3.0 in western Europe, she notes. Moreover, the country accepted a wave of young immigrants in that time period. The boom went on for longer than in the U.S. due to slower uptake of the contraceptive pill and lower female employment.

The baby ‘bust’ was also greater than in the U.S. or Europe, Maisonneuve’s study finds, with fertility rates falling to under 1.6 and remaining there. A country’s fertility rate needs to be at least 2.1 to maintain a stable population.

-By Monica Gutschi, Dow Jones Newswires; 416-306-2017; monica.gutschi@dowjones.com

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