Thank you, Mr. Chair and committee members, for the opportunity to appear before you today.
My name is Clay Gillespie. I'm currently a member of the CALU board of directors. CALU and our sister organization Advocis represent approximately 11,000 insurance and financial advisers who in turn provide financial advice to millions of Canadians.
Joining me today is CALU's president, Kevin Wark. I may call on him to answer some of your more detailed questions relating to our long-term capital proposal.
CALU is advancing two recommendations that we believe will improve Canada's taxation regime and perhaps more importantly will assist Canadians as they retire and enter their ever-extending retirement years. The boomer generation has had and will continue to have a significant socio-economic impact in Canada. Notably, the first boomers turned 65 years of age in 2011. Over the next 20 years this group will expand the number of Canadians above the age of 65 to 23% of the population.
As Canadians retire and age, two of their greatest concerns are receiving quality health care and the possibility of outliving their personal savings. CALU's two proposals are focused on encouraging Canadians to be more financially self-sufficient during their retirement years and thereby reducing their reliance on public programs and institutions for support.
Our first proposal relates to the registered retirement income funds, or RRIFs. Owners of RRSPs are required to either annuitize or transfer the funds into a RRIF by the end of the year in which they turn 71. If a RRIF is selected, a minimum amount must be withdrawn on an annual basis. For example, at age 71, 7.38% of the RRIF balance must be withdrawn; this increases to 20% by age 94.
The RRIF minimum formula was put in place in the early 1990s, when long-term interest rates were in the range of 8% and average life expectancy was approximately 80 years. Since then, interest rates have declined dramatically, while life expectancies continue to increase.
Insurance companies have recognized these dramatic changes in the pricing of annuities. For example, in 1992 a 71-year-old male with $100,000 in an RRSP could purchase a life annuity and receive $10,000 a year, guaranteed to age 90. Today, the same person would only receive $6,000 a year in annuity payments, a 40% decrease; however, the RRIF minimum formula remains unchanged.
CALU is therefore recommending that the RRIF minimum rules be modified to help Canadians retain more of their savings and protect them from longevity risk.
I would now like to turn to our second recommendation. As noted, a significant portion of the Canadian population is moving into their retirement years. As this group ages, the likelihood of their requiring long-term care increases exponentially.
The C.D. Howe Institute recently released a report that estimates that the total cost of long-term care will more than double, to $140 billion, over the next 20 years. The logical question to ask is, who will bear this additional cost? The C.D. Howe report concluded that the provinces will need to shift more of the cost to those who can afford to pay. This will be an additional financial burden during retirement that most Canadians are not currently planning for.
We believe that long-term care insurance can play an important role in helping address this funding gap. Long-term care insurance provides a cash allowance to individuals who are unable to perform certain activities of daily living, such as bathing and eating. Greater ownership of this type of insurance coverage is critical to help manage private costs associated with long-term care services.
CALU believes that the time to deal with this issue is now. Further, we believe that the federal government needs to take a leadership position in preparing Canadians for what lies ahead. How? By educating Canadians about their financial obligations relating to long-term care services, by working with the provinces to develop a more unified approach to determine who qualifies for subsidized access, and by ensuring that the tax rules encourage more Canadians to own individual long-term care insurance.
I thank you for your time and attention. We would be pleased to respond to any questions you might have in relation to our submission.