Interim Report on the Impact of Increasing Earnings Inequality on Retirement Decisions and the Distribution of Social Security Benefits

Peter T. Gottschalk Minh Huynh

WP#1999-5

Abstract

Cutting pensions for the elderly is a difficult task for any government. The elderly are a large, politically active group, and they are viewed sympathetically by the rest of the electorate. In pension programs that are based on a system of contributory social insurance, a sense that benefits have been “earned” adds to recipients’ perception of entitlement and inviolability of prior commitments. Moreover, even those who are too young to receive old age pensions currently may view themselves as being indirectly hurt by cutbacks, either because it will lower their benefits in the future, or because it will force them to give additional help to elderly relatives. Yet reform of public pensions has been very much on the agenda in both Canada and the United States. The first section of this paper outlines the common pressures that have given rise to pension reform initiatives in the United States and Canada, and discusses how differences in political institutions and policy legacies that might lead to different policy outcomes. The middle two sections review the experiences of the two countries with pension retrenchment. The final section reflects on and tries to draw lessons from these experiences about the political limits on pension reform specifically and loss-imposition generally in the two political systems.