Halifax –The rush by governments to ban mandatory retirement doesn’t protect older workers, in fact, it eliminates options and threatens benefits.
Contrary to popular belief, government did not create mandatory retirement. There is no government legislated or appointed time to retire, and even the CPP does NOT require people to stop working at age 65.
In Mandatory Retirement: Why governments should quit banning it, Morley Gunderson, the CIBC Chair on Youth Employment at the University of Toronto and a Fellow of the Royal Society of Canada, examines the unintended consequences of banning mandatory retirement. The Commentary is the third in a four part Labour Market series published this month by the Atlantic Institute for Market Studies (AIMS).
Mandatory retirement was created through bargaining between employees and employers because it is mutually beneficial. It allows employees to achieve job security and income predictability, and to engage in tax deferral and career planning while giving the employer cost predictability, succession planning and access to committed employees.
Professor Gunderson finds that banning mandatory retirement now will hurt new entrants into the workforce (lower income potential, fewer promotion opportunities). It will also penalize employers by stripping them of the benefits of mandatory retirement agreements after they have already paid out the costs, and it will allow many older workers to continue to receive premium pay relative to productivity.
He concludes that mandatory retirement policies will adjust to the new demographic reality without government’s assistance (55% of companies with current mandatory retirement schemes already plan on eliminating them in the near future). Governments should instead focus on the real barriers they have created that keep older workers out of the workforce.
They need to eliminate:
- clawbacks of old age security, guaranteed income supplements and age related tax credits
- penalties for people who delay taking CPP
- requirements to “substantially cease working” in order to get early CPP
- the requirements to draw down registered retirement plans at the age of 71
- the age cap on human rights protections while exempting bona fide pension and retirement plans
Gunderson says mandatory retirement is not an oppressive policy imposed by “mean-spirited employers on disadvantaged employees with no individual or collective baring power”.
“Jobs subject to mandatory retirement tend to be “good jobs” characterized by higher wages, long-term stable employment relationships, often with the protection of a collective agreement or a formal personnel policy, and invariably accompanied by an employer-sponsored occupation pension plan to sustain a reasonable level of income upon retirement,” says Professor Gunderson. “They are commonly negotiated by powerful unions as part of employees’ retirement packages.”
Gunderson finds mandatory retirement is beneficial to both parties where both are well-informed and mutually agree to the arrangement. It helps facilitate such personnel issues as succession planning, pension plans, health benefits, job promotions and even salaries.
“There is little reason for governments to override mandatory retirement, a mutually agreed-upon contractual arrangement,” he says. “Governments might reasonably require additional safeguards, such as ensuring that potential employees are well informed of the practice. Governments also might reasonably close the “loophole” that allows mandatory retirement through an age cap in human rights codes, effectively denying the normal protection of those codes to workers beyond age 65.”
“All too often governments react to a dilemma with a quick fix for instant political gratification, rather than investing the time to comprehend the issue and find the best solution,” said AIMS President Brian Lee Crowley. “Banning mandatory retirement is government’s quick fix, without understanding the reasons such arrangements are made. This Commentary provides alternatives that are long term solutions.”
To read the complete Commentary,click here.
To read the first of the Labour Market Commentary Series on Mandatory Wages,click here.
To read the second of series on Payroll Taxes,click here.
For further information, contact:
Brian Lee Crowley, AIMS President
Charles Cirtwill, AIMS Executive Vice President