Sunday, February 21, 2016

The evolution of public pension plans in Canada

At the beginning of the 20th century retirement was not an option. If a person became ill and unable to work, the prospect was to rely on family for support or else face living the remainder of life in poverty.

By 1908, in response to the demand to help the elderly poor, the government began a program of annuities. It was built on the belief that individuals must plan for their future and shoulder the cost of their retirement. However, the program was not successful since those for whom it was designed did not have the means to purchase the annuities.

It was not until 1927 that the first public pension legislation (the Old Age Pensions Act) became law. The pension was available to those who passed a means test. It was also restricted to British subjects aged 70 and over who had lived in Canada for at least 20 years. The maximum pension amount was $20 per month.

Old age pensions became increasingly restrictive during the Depression. In addition to the means test, provinces passed their own legislation to limit those who could qualify.

After World War II the economy began to boom, and most individuals saw an increase in their standard of living. However, because old age pensions did not allow for cost of living increases, their value eroded over time. Many seniors again found themselves living out their last years in financial hardship.

In 1952 the Old Age Security Act became law, establishing the first universal, federally funded pension for all men and women aged 70 and over. An Old Age Assistance allowance was also introduced. The allowance was designed for seniors between the ages of 65 and 69 whose income was below a certain threshold.

Despite these programs, many seniors still had little. During their working years, most had not had jobs that offered an employee pension plan. Even those who had paid into such a plan were often unable to collect because the contributory periods were very long or the plans were not portable from one employer to another.

In response, the federal government introduced the Canada Pension Plan (CPP) in 1966. (The Quebec government had previously launched its own Quebec Pension Plan [QPP].)** This was a compulsory, contributory program for both employees and the self-employed between the ages of 18 and 70. The plan provided a source of income for seniors as well as insurance for families in the event of death or disability of the principal wage earner.

The next year the Guaranteed Income Supplement was established. It was tied to the Old Age Security pension for those who retired before they could take advantage of the C/QPP.

Between 1968 and 1989, the CPP underwent a variety of modifications designed to recognize changes in society as well as in economic conditions. Some of these included the lowering of the age of eligibility, the indexing of benefits, and the clawback of Old Age Assistance beginning in 1989. As a result of concerns about the long-term viability of CPP, the system moved in 1998 from pay-as-you-go to fuller funding. This resulted in a phase-in period of increasing contribution rates.

Today's income support programs for seniors have changed enormously from the original 1927 Old Age Pensions Act. For example, in 1998 just over 2.5 million seniors received a CPP retirement pension averaging $407 per month. In the same year, almost 3.7 million received Old Age Security benefits averaging $398 per month; about 1.4 million of these received an average monthly payment of $293 under the Guaranteed Income Supplement program. In addition, most provinces have their own income support programs.

The OAS application form informs seniors of the availability of income support under the GIS and invites them to apply for the benefit. The application further asks if the client would like additional information on the GIS sent to them. While individuals are responsible for applying for benefits, the legislation allows for greater retroactivity in certain cases. For example, where the applicant was unable to apply because of incapacity or in specific cases where an administrative error was made or incorrect advice was given to a client.

Extending the current retroactivity payment period would be a major departure from the retroactivity provisions of other provincial and federal income support programs.

Provincial and Federal Examples:
British Columbia
Seniors Supplement - One year

Widow’s Pension Act - One year
Seniors Benefit - Eleven months

Income Plan - One year

55 PLUS Program (Income Supplement) - Three months

Guaranteed Annual Income (GAINS) - One year
Drug Benefit Program - One year

Shelter Allowance Program - None
Family Allowance - One year

Seniors Benefit - Six months

Nova Scotia
Special Social Assistance – None

New Brunswick
Low Income Seniors Benefit – None

Prince Edward Island
Seniors Drug Cost Assistance Plan - Six months

Government of Canada
Canada Pension Plan - One year

Government of Canada
War Veterans Allowance – None

**Canada Pension Plan and the /Quebec Pension Plan milestones
1966: The plans came into effect. The federal government and nine provinces agreed on CPP while the province of Quebec opted to operate its own plan.

1970: The first disability pension was paid.

1974: Annual adjustments were introduced to reflect the full cost-of-living increase as measured by the Consumer Price Index.

1975: The CPP no longer required persons aged 65 to 70 to retire from regular employment before receiving benefits. The QPP followed suit in 1977.

1976: Full retirement benefits became payable on the plans' 10th anniversary. From 1967 to 1975, 10% of the potential maximum retirement benefits were paid.

1978: Splitting of CPP pension credits earned during a marriage was allowed in the event of a divorce or annulment
1980: Employment of a spouse in an unincorporated family business was considered pensionable employment if the remuneration was deducted under the Income Tax Act.

1987: Persons were allowed to claim reduced benefits at 60 or increasing benefits after 65 up to age 70. Also, the contribution rate began to increase.

1988: Contributions were changed from a tax deduction to a non-refundable tax credit of 17% of contributions.

1998: The CPP Investment Board was created to manage and invest accumulated savings and contributions not used to pay benefits.

1999: The QPP extended benefits to common-law (including same-sex) surviving partners. The CPP implemented this provision in 2000.

Source: Anderson, Robert D. 2003. "Canada and Quebec Pension Plans." In Canada's retirement income programs: A statistical overview (1990-2000). Chapter 2B. Statistics Canada catalogue no. 74-507-XIE. Ottawa.

For more information on the history of Canada's public pension plans see the Canadian Museum of Civilization's Web site

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