A new research report by Schroders—a global investment management company—says that Canada’s rapidly aging population will create challenges for future GDP growth if left unchecked.
In the report, co-authors Virginie Maisonneuve, head of global equities at Schroders, and Katherine Davidson, research associate at Schroders, examine the economic effect of Canada’s retiring baby boomers.
While Canada has been quick to recognize its impending demographic transition and adjust its institutions accordingly, the only ways to break the relationship between reduced labour supply as baby boomers retire and lower GDP growth is “to increase immigration or raise participation rates, especially of older workers,” says Maisonneuve.
Canada is doing just that; however, this will not be enough to meet the growth challenge. Future growth will have to be driven by improvements in labour productivity. Furthermore, Canada is expected to face the highest age-related spending of any OECD member state. “The challenge for Canada today is to manage the costs of a rapidly aging population without compromising its superior health status and further worsening standards of service,” the paper states.
With a strong record in controlling costs, Canada is well placed to meet this challenge. For example, it spends 10% of GDP on health care versus the U.S. at 16%. There is also a lower reliance on the state for pension provision with private pensions and other investments providing over 40% of retirement income, compared to the OECD average of 20%.