1. Aging and the Economy Gero 300 Chapter 14 Nov 2008

2. Introduction The pension system in Canada makes significant contributions to the income of older people-2004 28.6 billion dollars. Retirement is a recent concept and relies on a pension system as part of the “Welfare State” benefits in this country. Govt transfer payments make up 47.7 % on income of people over 65 cf 34% from private pensions. In essence this is to protect, foster equality, and provide social security in the form of universal benefits.

3. Social Assistance OAS Act 1951 to prevent the elderly going on to relief. CN had a compulsory pension plan in 1874 which had mutual contributions and kept a worker attached to the company. It was forced savings and a form of corporate control. Canada’s first pension act 1919 was applied to soldiers. The early plans did not include women (unpaid family laborers) OAP came in 1927-see p 364 bottom. By 1951 less than 50% of aged received benefits.

4. SA to SS Social Insurance-under OAS all Canadians 70+ paid a flat rate of 40 dollars/month-no means test. Age and citizenship only criteria. Old Age Assistance 65-69, means tested. By 1965 OAS reduced qualifying year to 65 where it is today. Benefits were to provide a “Safety Net” not to replace market income. Individuals were to build their own savings and retirement plan. A COLA related to Consumer Price Index was added in 1972

5. CPP CPP added in 1965-compulsory contributions with benefits linked to those contributions. Open to all Canadians, somewhat redistributive, GIS is income tested and a form of SA introduced in 1966. Added in 1975 is the income tested Spousal Allowance for partners of GIS recipients Two tiered government programs supplemented by private pension incomes or other investments

6. The Pension Debate Third tier pensions have not live up to expectations 48% of workers covered by 1980 only ¼ women covered. No coverage for self- employed or part time workers and anticipated a linear life course. Low income cut offs-68% of Canadians over 65 had incomes below LICO. These numbers were higher for unattached women and men. Read p368

7. Current Pension System See Fig 14.1 page 369 OAS-flat rate fully taxable, 65 or older, Canadian citizen residing in Canada for at least 10 years after the age of 18. Means tested and claw-back arrangements. CPI adjustments are in place four times yearly. 2005 4.2 million Canadians received 2 billion dollars in payments GIS-means tested non taxable available to OAS recipients-see 14.2 page 371 for benefit rates. In 2005 1.55 million beneficiaries 80% single females

8. Pension System Only 41% of those eligible for GIS applied in 2001. Low take up and barriers to application are a problem with such benefits. This would cost the Feds an extra $300 million if all applied. Spouse and Survivors allowances. The “Allowance” 60-64, lived in Canada 10 years after 18, be within established income limits p372 and spouse/CL or same sex couple. Spouse allowance-90% female in 2005-see limitations page 373

9. Pensions CPP/QPP-see top page 374 for details of calculations. Replaces approx 25% of worker’s pre-retirement income averaged over lifetime earnings. 50% men and 49% women receive benefits although women’s benefits are lower. Program is portable and with reciprocal arrangements in other countries. Benefits are taxable except death benefit. Adjusted yearly with CPI. Review table 14.4 page 377

10. Employer Plans 2004-5.6 million workers covered by occupational pension plans. Two types of plan- non-contributory –employer makes all contributions. Contributory- shared contributions-58% of plans in 2003 were contributory-read bottom 379-380 for details on calculations. Benefits are often locked in(age 55), portable, vested(time frame when employer starts to contribute). Not good for low income earners-lower contributions and payouts, lower tax breaks.

11. RRSP’s 38% of all eligible tax filers contributed to RRSP’s in 2004- $25.2 billion. 45-64 biggest contributors. Can contribute up to 18% of earned income up to a max of $18,000 in 2006 if no private pension plan in place. Draws after retirement in annuities save on tax payments. Median contributions-males $3,000 females $2,200. RRSP’s can be used to finance a first home purchase and education and training.

12. How are we doing in Canada? 2003-17.7% of unattached single persons 65+ lived below the after tax LICO. Income before tax-poverty figures are 38% of older unattached persons. Overall poverty has been reduced, but older unattached people are still poor but in a stable state. Wealthy are still in an advantaged position over poor males and females by any number of measures. Read pages 385-387

13. Looking Forward 49% of widows who had previously worked lived below the low income levels. Women over-represented in service industry sectors and part-time work, non-unionized low wage employment-See middle page Women off work to raise families and provide eldercare. Strategies for the future-raise age of retirement, introduce flex-time and job sharing, shift pension costs to the private sector Increase contribution rates and reduce benefits