:
Thank you very much, Madam Vice-Chair and committee members, for inviting us today
My name is Dominique La Salle. I'm acting senior assistant deputy minister for income security and social development at HRSDC. I understand you're most interested in being provided with an overview of Canada's retirement income system, the dropout provision of the CPP, registered pension plan coverage, and governmental roles in relation to pensions.
I will do a brief presentation. My colleague Thomas Shepherd, who is director of the division of retirement and aging at HRSDC, will follow up. I am also thankful that my colleagues Heather Bordeleau, who is director of CPP policy, and Nathalie Martel, who is director of OAS policy, are here today. Each of them is responsible for over $30 billion of spending annually, and they will help me get out of any trouble I get into.
I will provide a general overview of the retirement income system and speak to the public elements of the system.
[Translation]
The primary role of Canada's retirement income system is to provide Canadians with adequate and stable income in retirement. The system aims to accomplish two key objectives. The first is to prevent and alleviate low income among Canadians 65 years of age and over, and the second is to help Canadians avoid a significant decline in their standard of living when they retire.
Canada's retirement income system is made up of three pillars. The first, Old Age Security, is a virtually universal non-contributory public pension provided to 98% of Canadians 65 years of age and older. Some 4.4 million seniors receive the OAS benefit annually; 2.5 million women and 1.9 million men.
OAS pensioners with little or no other income are also eligible for the Guaranteed Income Supplement. In 2008, there were 1.6 million recipients of GIS; one million women and 0.6 million men. The current average monthly benefit for OAS is $489 per month and the average monthly benefit for GIS for a single individual is $447 per month.
The Canada Pension Plan and Quebec Pension Plan make up the second pillar of our RIS. these plans are mandatory contributory pensions for workers, funded in equal parts by the employer and employee. In 1980, there were 8.4 million contributors to CPP, of which approximately 5.1 million were male and 3.3 million were female.
By 2007, the number of workers contributing to the program had risen substantially to approximately 12.5 million. The increase was more pronounced for women, who rose to 5.9 million contributors. Women now constitute 47% of all contributors. With regard to recipients of CCP retirement pensions, as of July 2009, 50.5% were women and the average monthly benefits provided are $578 for men and $368 for women.
The first two pillars of our system that I have just described play an essential role in reducing poverty among seniors. In this area, Canada is a world leader. The public system, made up of these two pillars, constitutes a modest retirement income base to build on.
My colleague will talk about the third pillar, which is voluntary and consists mainly of registered pension plans and registered retirement savings plans.
[English]
Let me turn to how the public system assists women.
Canada's public pension system recognizes the contributions that all Canadians make to society. It recognizes the important contributions made by those who forgo participation in the paid workforce to stay home to care for their children and other dependants. Historically, this group has largely been made up of women, and while more men are also providing care, it is still the case today. Both the OAS and the CPP contain several design features that are of particular relevance in helping to protect the financial well-being of women. I will expand on these elements after providing a general overview of Canada's public sector programs.
The OAS benefits are intended to provide partial income security for senior Canadians in recognition of the contribution they have made to Canadian society and the economy. As employment history is not a factor in determining eligibility, those who have had limited or no engagement in paid work can receive OAS benefits. This feature is particularly helpful for women who may have had frequent interruptions in their labour market participation or for women who worked at home instead of the paid labour force.
The benefits under the OAS program include the basic monthly OAS pension, the guaranteed income supplement for low-income seniors, and the allowance for low-income spouses and common law partners of GIS recipients, or survivors aged 60 to 64. The GIS is an income-tested benefit under the OAS program that ensures that the overall income of seniors does not fall below a specific threshold. All benefits are indexed quarterly to ensure that the value of OAS benefits is maintained over time.
OAS benefits help all seniors, but women in particular. Women constitute more than half of OAS pensioners, two-thirds of GIS recipients, and 90% of allowance recipients. In fact, the purpose of the allowance is aimed directly at life events that impact women more frequently, given their higher likelihood of becoming widows.
In 2007 the GIS earnings exemption was increased from $500 to $3,500, which allowed GIS recipients to keep more of their GIS benefit. Women constitute over half of those who will benefit from this measure.
Turning to the Canada Pension Plan, it provides contributors and their families with basic income replacement upon retirement, disability, or death of a wage earner. It covers workers in ail sectors of the economy, including those working in non-standard arrangements and the self-employed, both of which are important sectors for women.
In providing coverage to contributors, there are several provisions within the CPP that recognize the value of unpaid work. These include a general dropout provision, the child rearing provision, credit splitting, pension sharing, and the surviving spouse's pension. Women are the primary beneficiaries of many of these benefits and provisions.
The CPP's general dropout provision allows 15% of the months or years of lowest earnings to be excluded from the calculation of pension benefits. This provision is intended to compensate for times out of the paid workforce for any reason. It therefore helps caregivers offset the negative financial impacts on their CPP retirement pensions of reduced time of paid work. Last week, legislation was tabled in Parliament to increase this provision to 16% in 2012 and 17% from 2014 onwards, up to a maximum of eight years of benefit protection from reduced or no contributions to the plan.
The CPP child rearing provision helps parents who had periods of low or no earnings associated with caring for children under the age of seven by excluding those years in the calculation of their CPP retirement pensions. This is, of course, particularly beneficial to women who are more likely to reduce labour force participation to care for their young children.
The CPP allows for credit splitting, which is the division of CPP contributory credits upon divorce or separation of married spouses or breakdown of a common law union. It enables former spouses and partners to equally share CPP credits earned during the period of cohabitation. Through credit splitting, the CPP recognizes the contribution to families and society made by both spouses through paid employment, unpaid work in the home, or both. It ensures that former spouses receive their equal share of the CPP credits earned through their joint efforts. In 2005, 95% of all credit-splitting applicants were women, the vast majority of whom benefited from the provision.
For couples already receiving CPP retirement pensions, pension sharing is permitted. Spouses and common law partners in an ongoing relationship may share their CPP retirement pensions equally, taking into account the period of their cohabitation. In situations where one spouse or partner had significantly higher earnings than the other, this could result in tax savings for the couple. In cases where a woman had made few or no contributions to the CPP, pension sharing creates a payment in her own name.
As well, the CPP provides a survivor's pension to eligible spouses in the event of a contributor's death. Criteria such as the age of the survivor, whether the survivor is maintaining any dependent children, or has a disability are considered in determining eligibility and the amount of the pension benefits. In 2008, 84% of survivors were women.
As a social insurance plan, the CPP strives to strike an affordable balance between protecting women for periods of low or no earnings and the requirement for contributions. Given its universality, portability, long-term financial sustainability, price-indexed benefits, and family-friendly policies, the CPP is a world-class pension program.
Its financial footing is solid. At the current contribution rate, the chief actuary of Canada has attested that it is sustainable for the next 75 years.
I will now turn to my colleague Thomas Shepherd.
:
I will speak to how the system has performed as a whole in achieving its objectives, focusing on the situation of women. Then I'll delve further into the private pillar and the questions you had about pension coverage and DB and DC plans.
In general, income levels for seniors have been growing. In 1980 the median after-tax income for seniors in a family of two or more was $33,600. This increased to over $40,000 in 2005. For unattached senior women, median after-tax income increased from $13,300 in 1980 to $19,100 by 2005. For unattached male seniors, the increase was from over $14,000 to over $20,000 in that same period.
The incidence of low income among seniors has decreased sharply for all family types since 1980. The percentage of seniors living below the after-tax low-income cut-off in 1980 was 21.4%, and by 2007 it had decreased to 4.8%. When we look at seniors living alone, men and women experienced a similar trend. In 1980 the percentage of unattached senior women living in low income was 57%. It was 47% for unattached men. By 2007 only 14.3% of unattached women lived below the low-income cut-off. Unattached men were doing slightly better at 13%. Looking to the future, this downward trend could continue among women, given their increasing participation in the labour force and contributions to CPP, registered pension plans, and RRSPs.
Sources of retirement income differ by age. Women rely more heavily on the public system than men, but the makeup of women's retirement income has been changing over time. There has been a general shift within the income sources in retirement that basically reflects paid labour force participation. Between 1980 and 2005, women's reliance on the public system remained the same, around 52%; however, it shifted from primarily OAS and GIS to work-related pension. It went from 13.7% from the CPP in 1990 to 20% in 2005. In other sources of income women have also experienced a shift, with increased income from registered pension plans and RRSPs, from 11.6% in 1990 to 27.3% in 2005.
Changes in labour force participation have played the primary role in the changes in the composition of women's retirement income. In 1976, 46% of women aged 15 or over were part of the paid workforce. By 2008 this had increased to 63%. For men the trend is a slight decrease in that time period, from 78% to 73%, but most striking is the increase in women aged 25 to 44 participating in paid labour: 54% in 1976, up to 82% in 2008.
With these increases in labour force participation we have seen increases in registered pension plan coverage and RRSP contributions for women. In 1979, 36.1% of women working in the labour force were members of an RPP. By 2006 this had increased to 38.9%. However, overall RPP coverage for workers dropped from 45.8% to 38%. This is because men's coverage has fallen from 52% in 1979 to 37.5% in 2006. Basically, the RPP coverage rate among women has surpassed that of men in 2007.
Perhaps more important, when you look at the length of time workers contribute to an RPP, using the Lifepaths microsimulation model, we see that 15% of women aged 65 in 1990 had contributed to an RPP for at least 15 years, compared to 29% for men, a substantial gap in 1990. Since then, however, this gap has been shrinking and is projected to continue to do so. This model projects that by 2017, 33% of women aged 65 will have contributed to an RPP for at least 15 years compared to 36% of men, a much smaller difference.
When we look more closely at RPP coverage, there are different trends when comparing defined benefit plans and defined contribution plans. DB plans provide more predictable lifetime benefits, generally based on years of service and usually as a fixed percentage of salary. Defined contribution plans are individual accounts into which employers and employees contribute. The pension received by an employee in a DC plan depends in part on the investment returns earned. Overall, DB coverage has declined from 43.5% in 1979 to 30.6% in 2006, while coverage in defined contribution plans has grown from 2.4% in 1979 to 6% in 2006. In 2006, 32.3% of women in the labour force were members of a defined benefit plan compared to 29.1% of men. So again, it was slightly higher than among men.
We've also seen an increase in RRSP contributions for both men and women since the 1980s. The proportion of women aged 35 to 39 contributing increased from 9% in 1981 to 31% in 2001. During that time period, the proportion of men aged 35 to 39 contributing rose from 21% to 38%. So although there remains a gap between men and women, it has been narrowing significantly over time.
Now I'll just speak briefly to your questions about the role of government within the system.
[Translation]
The Government of Canada is responsible for the first pillar of the RIS and shares responsibility for the second and third pillars with the provinces. The Government of Canada is a co-steward with provincial governments of both CPP and the CPP tri-annual reviews. Administering or delivering the plan is the Government of Canada's responsibility.
For the third pillar, the Government of Canada, through the Department of Finance, is responsible for setting the overall incentive structure for RPPs and other savings vehicles through the tax system. RPP regulation is divided among the two levels of government. The Government of Canada, through the Office of the Superintendent of Financial Institutions and the Department of Finance, is responsible for all federally-regulated employer plans (approximately 7 % of all plans currently) while the provinces are responsible for the remainder of plans in Canada. Examples of federally-regulated plans include: pension plans for some federal crown corporations, banks, companies involved in inter-provincial and/or international transportation, and communications companies. More detailed information on this issue is available from officials with the Department of Finance.
In conclusion, to date, Canada's retirement income system has done very well in achieving its key objectives, and in increasing pension security among all seniors, both men and women. Looking at women specifically, the overall trends are positive. Senior women's incomes have been growing and their poverty rate has declined dramatically over the last two to three decades. It is a fact however, that the majority of seniors remaining in low income are women, largely given their lack of past labour force participation. For example, in 2005, 80% of unattached low-income seniors were women. Nonetheless, the situation is likely to improve over time given that more and more Canadian women are contributing to and benefiting from work-based pensions such as the C/QPP as well as employer-sponsored pensions and RRSPs. As we have indicated, the pension coverage and savings gaps between women and men have been shrinking and are likely to continue to do so.
[English]
Madam Chair, and members of the committee, this concludes our opening remarks, and we welcome any questions.
:
Thank you, Madam Chair.
I want to say thank you very much for coming here and providing all of this information.
You ended your presentation on a positive note, but I've been doing a lot of background reading, and it seems that there has been a shift from defined benefit retirement programs to defined contributions and, in the last, I don't know, 20 years, another shift to RRSPs.
In light of what's going on right now, with “too big to fail”, General Motors failing, with the number of companies that we see entering into bankruptcy, it seems that the precarious nature of pensions is very much with us. I noted that with DC plans, the shift is to workers taking the risk, and even at that, 60% of people have no private pensions.
I am wondering, are we facing a reversal of the pension gains that you described in your presentation? I'm very, very aware that stock markets are wonky at the best of times, and we've experienced that in the last little while. People have complained about losing and being afraid that their pensions are not secure. Do we have to be prepared for some very serious consequences in the next few years?
:
Thank you very much, Madam Chair.
I am making this motion today because I'm extremely concerned by the situation in first nations communities, particularly with regard to women and especially young women. In Kitigan Zibi, right near here, in Maniwaki, two 16 and 17-year-old girls disappeared in September 2008. However nothing has been said about them, either on television, radio or in the papers.
A 16-year-old boy disappeared in the Saguenay region last spring, and we're still talking about it today. The search is ongoing. It's being talked about on the radio and television. I don't want to take away the right of parents whose child has disappeared to advertise their disappearance, but I think there is a lack of balance. Something needs to be done. It is not normal for young women, no matter what their profession is, to disappear or be killed and for there to be no investigation.
With regard to this file, Canada must be equitable, fair and responsible. We need to take measures, investigate, to prove to first nations communities, to whom we apologized last year, that they deserve to have the same rights and same freedom of action as everybody else, that they can go anywhere they so wish. At present, they do not have that right, and quite often they feel lost as soon as they leave their communities or reserves. Something needs to be done.
:
Thank you, Madam Chair.
I'd just like to echo what my colleague has said. I applaud for bringing this to committee. I think we're putting the cart before the horse, and I would agree with what Bruce has suggested, that we look at this report.
I was in British Columbia this summer and I travelled Highway 16, and the signs are up. It's a tragedy. It's not just a tragedy within the native community; people are talking about it inside the other towns too. They're all very concerned. People are more than concerned; they're somewhat frightened about what's going on.
I think there needs to be some investigation, and should this committee decide to look at that report, I would be in favour of that. That makes sense.
But I'm somewhat apprehensive about being directed by an outside organization, outside our Canadian federation, that would dictate and tell us we need to go in this direction or that direction. We are fully capable of doing those things, and I believe we have the will here to do the right things. And specifically, this tragic incident...it's a national tragedy.
My recommendation would be that should the committee decide, we should first look at this report and then possibly move from that report.
Thank you.