Canada more equipped to handle aging population compared to other nations

The Royal Bank of Canada has released a report stating that fully funded Canada Pension Plan (CPP) and immigration will help lower the financial hit caused by the costs of an aging population. The report highlights that Canada is better equipped to handle these challenges compared to other countries.

As the population ages, there is a shift in the workforce, leading to an imbalance between demand and production. This imbalance can result in labor shortages, inflation, and higher interest rates. Additionally, governments face larger funding gaps due to increased demand for healthcare and social services coupled with a decrease in income tax revenue.

In the United States, the future unfunded liability is almost US$80 trillion, significantly higher than the current government debt. However, Canada’s unfunded liability is comparatively lower, thanks to the fully funded CPP established in 1997.

Immigration plays a crucial role in offsetting the effects of an aging population. Canada’s population hit a record high in 2023, with a significant increase in the working-age population. The influx of immigrants has helped lower the median age in Canada and support economic growth.

While immigration has been beneficial, there have been concerns about strains on housing and services, leading to government-imposed caps on international students and non-permanent residents. Despite these caps, Canada’s population continues to grow, with a migration rate almost double that of the United States.

The report emphasizes that countries not proactively targeting immigration to address aging population challenges will face consequences in the future. Canada’s proactive approach to immigration and a fully funded CPP position the country well to navigate the financial impacts of an aging population.