Status of Women Committee on Nov. 3rd, 2009

[The Chair, Liberal, Hedy Fry]

Good afternoon, everyone.

Pursuant to Standing Order 108(2), we're studying women and pension security.

We have today a lineup of witnesses who we hope will help shine light on some of the pressing questions we need to have answered before this committee comes up with a set of public policy recommendations.

The Office of the Superintendent of Financial Institutions Canada is one of the witnesses; the individual, Tammy Schirle, is another; the Canada Revenue Agency is your third; and the Department of Finance has four people with them.

I should just say to the witnesses that you're going to be treated as four groups, and each group has ten minutes to make a presentation. You have already obviously decided amongst yourselves who is going to present for you.

I will begin in order, with the Office of the Superintendent of Financial Institutions Canada.

Monsieur Ménard.

[Jean-Claude Ménard, Chief Actuary, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions Canada]

Good afternoon Madam Chair, honourable members of the committee. Thank you for the opportunity to appear before you today to address the issues related to women's retirement income security.

The primary role of the OCA is to provide actuarial services to the federal and provincial governments who are Canada Pension Plan stakeholders. While I report to the Superintendent of Financial Institutions, I am solely responsible for the content and actuarial opinions reflected in the reports prepared by my office.

The OCA conducts statutory actuarial valuations of the CPP, Old Age Security Program, and pension and benefits plans covering the federal public service, the Canadian Forces, the Royal Canadian Mounted Police, federally-appointed judges and members of Parliament.

Whenever a bill is introduced before Parliament that has a significant impact on the financial status of a public pension plan falling under the statutory responsibilities of the chief actuary, the OCA must submit an actuarial report to the appropriate minister. The most recent report assessing the financial impact of the proposed changes for the Canada Pension Plan included in Bill C-51 was tabled before Parliament on October 19, 2009. This report confirmed that if the current plan is amended, with current economic conditions taken into consideration, a legislated contribution rate of 9.90% for years 2010 and thereafter would be sufficient to financially sustain the plan.

The status of women within the Canadian pension system is not the same today as it was 30 or 40 years ago. Historically, women had more interrupted work history, lower earnings, and as a result lower retirement pensions as compared to men. Presently, the gap in CPP pensions between males and females is narrowing even if it is not expected to disappear completely.

Labour market participation for women has increased over the years. Based on the most recent CPP actuarial report, the overall labour force participation rates in Canada from 1976 to 2006 clearly show a narrowing of the gap between male and female rates. While this gap was 32% in 1976 it has narrowed to 10% in 2006, and is expected to narrow further but at a slower pace. This trend is also well pronounced in the registered pension plans' coverage. The proportion of female RPP members increased from 35%, 20 years ago, to 49% in 2007. In 2007, 2.9 million females participated in the RPP as compared to only 1.7 million in 1987. For all paid workers, the proportion of female RPP members is now higher than for men, a situation that had not been seen before 2005.

The gap in employment earnings between women and men has also narrowed over the last 40 years. The ratio of female-to-male average employment earnings stood at about 48% in 1996 and was 71% in 2006. The 23^rd CPP actuarial report projects that this ratio will further increase to 84% by 2050. As a result of these trends, it could be expected that future generations of female retirees will have access to more adequate retirement income.

I will now continue in English.

The Canada Pension Plan contains several features that are designed to promote higher retirement income security for women. The CPP provides benefits that are largely determined by how much and for how long a contributor contributed to the plan. As such, it is important to ensure that an individual's average career earnings are not affected by a certain number of years of unusually low earnings, which occur in most people's careers.

The dropout provisions of the CPP, in particular the child-rearing dropout and the general low-earnings dropout, allow for the exclusion of years with low earnings and help an individual to qualify for a larger pension. The child-rearing dropout provision was introduced in 1978. It benefits individuals caring for young children, mainly women. The general low-earnings dropout supplements the child-rearing dropout and permits 15% of the years of low earnings to be dropped from the benefit calculation.

Virtually everyone benefits from this dropout provision. I've heard that the impact on women's pensions is higher, due to lower earnings and a more uneven work history.

Finally, another feature of the Canada Pension Plan that mitigates the impact of low earnings is that no contributions are taken from the first $3,500 of employment earnings. This is called the year's basic exemption. The application of this provision provides a better return on contributions for lower-earning individuals. Once again, even if this is a universal provision, women benefit more from it because of their generally lower earnings as compared with men.

The cost of providing retirement income depends largely on life expectancy. Life expectancy is another aspect that differentiates women from men. Women are living longer than men; therefore, they are expected to receive their retirement income for a longer period of time. At the inception of the Canada Pension Plan in 1966, women at age 65 lived for an average of another 17 years. Today they are living for 21 years and are expected to live for 24 years by 2050. Indeed, women live about three years longer than men after they reach retirement.

In conclusion, the combination of old age security, the guaranteed income supplement, and the compulsory contributory pension plans—the Canada and Quebec Pension Plans—has contributed significantly to reducing poverty among seniors over the past three decades. The OECD and the Luxembourg Income Study Research Institute consider Canada to be the country that has the least difficulty ensuring the economic well-being of retirees. To quote the research institute: “The choice of policy is crucial, as shown for instance by the low cost but highly target-effective Canadian efforts in fighting elder poverty.” Canada is in an enviable group of countries that includes, in particular, the Netherlands, Denmark, Norway, and Sweden, where the incidence rate of low-income seniors is less than 5%.

I hope I have succeeded in providing you with some facts regarding women's retirement income. I wish to thank you again for the opportunity to appear before this committee. We'll be pleased to answer any questions you may have.

Thank you, Madam Chair.

[The Chair, Liberal, Hedy Fry]

Thank you very much, Monsieur Ménard. You did that in seven minutes and a bit. That's very good.

I will now ask Ms. Schirle, assistant professor in the Department of Economics at Wilfrid Laurier University. Ms. Schirle is present by video conference.

Ms. Schirle, you have ten minutes to present.

[Dr. Tammy Schirle, Assistant Professor, Department of Economics, Wilfrid Laurier University, As an Individual]

Thank you for having me.

My objective today is to provide you with some background about women's pension security, based on the research that I've been doing for several years. Specifically, I want to give you a picture of how retirement incomes have changed over the past decade, how women are currently faring relative to men in retirement income, and how we might expect retired women to do in the near and distant future.

The past 10 years have seen some dramatic changes for women entering retirement. This starts with a group of women who were born in the 1940s. This is the first group of women to have had full access to the birth control pill. They are much more educated than their mothers. They have fewer children and they've spent a lot more time in the labour force. When you take these changes into account, the nature of their retirement is also very different from their mothers' retirement.

First, the most recent women who are retiring have had longer and more stable careers than those of earlier generations. This has led to more retirement-age women having both Canada or Quebec Pension Plan benefits and employer-sponsored pension plan benefits.

I want to put some numbers on this. In 1996, 25% of senior married women received some sort of RPP income. In 2006, 43% of these women received RPP income once they were over the age of 65. For senior men, there was also some increase in the likelihood of receiving a pension as seniors. But the increase is not nearly as large. It goes from 66% of senior men in 1996 to 74% of men in 2006.

The increase that we saw in RPP receipts for women has benefited all women—those from low-income families, middle-income families, and high-income families. Everyone seems to be benefiting. When we combine it with the increases that we've seen in men's pensions, we can explain a very large portion of the general increase in seniors' income over the past decade.

There is also better access to the Canada Pension Plan. In 1996, only 56% of senior women picked up CPP. It's hard to say exactly how many were eligible and just didn't pick it up. In 2006, 73% of these older married women picked up CPP, and this raised their family income. What makes this a bit different is that the changes in the CPP receipt drove income increases for lower- income and middle-income seniors, more so than for those with higher incomes.

What might we expect for the upcoming retirees? Here we're thinking of the baby boomers as a large group that is currently entering retirement. If you look at the population as a whole, the percentage of paid workers that have pension plan coverage is generally decreasing. Most of that decline happened in the 1990s. From 1992 to 2007, overall pension coverage among paid workers fell from 45% to 38%, which obviously does not bode well for our future retirees. That falling trend, however, has been driven mostly by men and not by women.

There are a few numbers here to think about. In 1992 and 2007, roughly the same number of men, about three million, were members of registered pension plans. The number of female members increased from 2.2 million in 1992 to 2.9 million in 2007. The percentage of women covered by an RPP has remained fairly constant since the early 1990s, roughly around 34%. Keep in mind, we have more women participating in the labour force. The percentage of female paid workers, all employees with pension coverage, fell from about 42% to 39% over this period. That's a much smaller decline than we've seen for men.

One important thing I think to note when you're looking at women in the labour force is that, proportionally speaking, more women have pensions than men. Overall, the data suggests that the retirement future for women now looks better than it does for men.

There are a few other gender differences that I think are worth mentioning. First, women who are members of pension plans, private pension plans, are more likely than men to be in the public sector, and they're much more likely than men to have defined benefit pension plans. That usually goes with the public sector plans. Of course, these are the plans that provide people with security during a recession. You're not as concerned about stock market fluctuations with these plans.

Men, on the other hand, are much more likely to be in defined contribution plans in the private sector, and these are subject to general fluctuations in stock prices. Effectively, a defined contribution plan can be thought of as the same as investing in stocks and bonds yourself, and having to deal with the market. Here again we have some indication that women appear to be in a better position than men when entering retirement in the near future.

The only real difference that remains a concern is in the dollar amount that men and women are contributing to their pensions on an annual basis. Typically men have higher salaries and they're saving more in dollar amounts, even though they have the same savings rate if you look at the portion of their income that goes towards their pensions.

I would expect that the gap in pension contributions will close in the near future, just as we've seen the gender gap in wages slowly closing over time. If you look at wages right now, the average wage of a woman today is roughly 85% of a man's, and that's largely due to differences in the types of occupations that women have been entering historically. We see women's attachment to the labour force improving and increasing. In part this trend could be due to the availability of longer parental leaves, such as the Employment Insurance maternity and parental benefits, and in part it is due to the fact that men are taking on more household responsibilities. As this trend continues, we should expect the gap in wages to close, which I think will lead to the gap in pension contributions closing over time as well. Overall I think we have reason to be very optimistic.

To summarize all this with a blanket general statement, in recent years women retirees are faring very well relative to earlier generations of women. We should expect this trend to continue for some time. I think the evidence is there to give us reason to believe that. Furthermore, when we compare women to their male counterparts, I think women retirees are faring relatively well.

Thank you.

[The Chair, Liberal, Hedy Fry]

Thank you very much, Madam Schirle.

Now I will turn to Madam Laflèche, from the Canada Revenue Agency.

[Danielle Laflèche, Director General, Legislation, Policy and Regulatory Affairs Branch, Canada Revenue Agency]

Good afternoon, Madam Chair and members of the committee.

My name is Danielle Laflèche and I am the Director General of the Registered Plans Directorate at the Canada Revenue Agency. Accompanying me is Janice Laird. Ms. Laird is the Director of the Actuarial and Policy Division within the Directorate. Between Ms. Laird and I, we will do our best to answer your questions.

I want to thank you for inviting us to attend your meeting.

To set a helpful context for the discussions today, I would like to briefly describe the role of the Canada Revenue Agency, specifically the role of the registered plans directorate in the administration of the third pillar of the Canadian pension system, which consists mainly of registered pension plans and registered retirement savings plans.

As you know, the Department of Finance is responsible for developing and evaluating federal tax policy and the legislation through which policy becomes law. As administrator, the Canada Revenue Agency is responsible for the functions of implementing these laws, including providing information to the public and to stakeholders, establishing processes through which individuals and businesses may meet their tax obligations and receive benefits, and of course carrying out our compliance activities to help ensure that everyone respects the law as intended by Parliament.

The role of the registered plans directorate is to ensure that pension plans and other tax-assisted retirement savings vehicles are administered in accordance with the Income Tax Act. I can thus speak about the administration of the Income Tax Act for pension plans and other tax-assisted retirement savings plans.

The Income Tax Act allows individuals to save for retirement with various retirement vehicles, such as employer-sponsored pension plans and retirement savings plans. Under the Income Tax Act, individual contributions to retirement savings and pension plans are tax deductible. The plan assets, including the accumulated investment returns, are not subject to income tax until they are withdrawn.

In the case of an employer who sponsors a pension plan, the employer can make contributions to the pension plan and claim an income tax deduction. However, to be able to claim such a deduction, the employer must first have the pension plan registered and the amount of contributions approved by the registered plans directorate of the Canada Revenue Agency.

The employer must apply for registration, submit the plan text and an actuarial valuation report to the registered plans directorate, and demonstrate that the plan is established and will be administered in accordance with the Income Tax Act. The actuarial valuation report, which is prepared by an actuarial consulting firm at the request of the employer, specifies the amounts that the employer is required to contribute to meet the pension benefits promised.

The registered plans directorate reviews the plan text and the actuary's recommendation to ensure that the provisions of the Income Tax Act will be respected and that the contributions made by the employer on the recommendation of the actuary are reasonable. The determination of reasonableness is generally based on average age, average salary, and average years of service, not on gender.

The registered plans directorate also monitors and audits pension plans and other retirement savings vehicles to ensure that they continually comply with the provisions of the Income Tax Act. In addition, the registered plans directorate provides information services for other types of retirement and savings vehicles, including written responses and telephone services.

The directorate also develops and publishes on the Canada Revenue Agency website material intended for plan administrators, actuaries, and practitioners. Other areas within the Canada Revenue Agency provide telephone services, respond to written requests, and publish documents on the website to assist individuals in understanding their tax obligations and entitlements and in complying with the Income Tax Act.

The Canada Revenue Agency website includes specific portions with information for seniors and for individuals about registered retirement savings plans and other registered plans. I have brought some of these publications available on the website to assist you. These documents are: the guide for registered pension plans, which provides information for employers and plan administrators about the registration requirements of the plans; the guide for registered retirement savings plans and other registered plans for retirement for individuals; and the information sheet entitled “Death of an RRSP Annuitant”.

Madam Chair and members of the committee, this concludes our opening remarks. We're ready to respond to your questions.

[The Chair, Liberal, Hedy Fry]

Thank you very much. That was wonderful. You've just done it in five minutes again. These are great witnesses.

Now we have the Department of Finance. You're going to begin, Mr. Forbes.

[Chris Forbes, General Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance]

Yes, and maybe before I start, I'll lower the bar, as I might go over five minutes.

Good afternoon, and thanks for the invitation to appear before you today. As was mentioned, I'm Chris Forbes from the Department of Finance. I am the general director of the federal-provincial relations and social policy branch at the department.

As the chair noted at the beginning, I have three colleagues with me: Jeremy Rudin, assistant deputy minister, financial sector policy; Louise Levonian, assistant deputy minister, tax policy; and Ian Pomroy, the senior tax policy officer in the personal income tax area of the department.

We're here today to answer your questions about Canada's retirement income system, specifically as it pertains to women. I'd like to start first with a little bit of an overview of what the department's role is in that regard.

We have four main responsibilities. First, jointly with HRSDC, we have responsibility for the development of policies relating to the Canada Pension Plan, for which we share joint responsibility with the provinces and territories. We are also responsible for the legislation governing federally regulated private pension plans. We're also responsible for tax legislation, and for general advice to the minister as it relates to the federal budget.

The overall objective of Canada's retirement income system is to provide a basic income guarantee and basic level of earnings replacement to alleviate poverty. It also allows for opportunities for additional tax-assisted savings to maintain living standards in retirement. The system is based on three pillars.

The first pillar is the Old Age Security Program, which provides a basic monthly income of $517 per month to virtually all seniors who meet residency requirements, regardless of their work histories. In addition to the basic OAS pension, low-income seniors may also qualify for the Guaranteed Income Supplement, which provides a monthly benefit of up to $652. Low-income spouses and common law partners of GIS recipients, who are aged 60 to 64, can receive the allowance. For low-income survivors aged 60 to 64, there is the allowance for survivors. Old Age Security benefits are indexed to inflation. The program is funded from general revenues and spending for 2009-2010 is expected to be $36 billion.

The second pillar is the Canada Pension Plan, which is a mandatory public pension plan that operates throughout Canada except in Quebec. The Canada Pension Plan provides a basic level of earnings replacement to workers. It is financed by contributions from employees, employers and the self-employed. In 2007, there were 12.5 million workers contributing to the Canada Pension Plan, including 5.9 million women. Federal, provincial and territorial ministers of Finance, as joint stewards of the Canada Pension Plan, are required to review the plan every three years. Ministers completed the most recent triennial review this year and confirmed that the current contribution rate of 9.9% is sufficient to sustain the plan over the long term. I will return to the changes that the ministers proposed to the Canada Pension Plan coming out of the triennial review.

The third pillar is tax-assisted private savings in registered retirement savings plans, or RRSPs, and employer-sponsored registered pension plans, or RPPs. These plans help Canadians bridge the gap between public pension benefits and their retirement income goals. The deferral of tax on savings in registered pension plans and registered retirement savings plans is a valuable benefit that encourages and assists Canadians to save for retirement, as it allows individuals to grow their savings more effectively compared to savings outside of registered plans. The contribution and benefit limits for RPPs and RRSPs are designed to permit most individuals to save enough, over a 35-year career, to obtain a pension equal to 70% of pre-retirement earnings. The RPP and RRSP limits are integrated and provide comparable savings opportunities to Canadians whether they save in an RPP, an RRSP or a combination of both.

Canada's retirement income system is highly regarded internationally—I think Monsieur Ménard made a few points in that regard—for its adequacy and its financial sustainability. It has been effective in meeting its objectives of poverty alleviation and earnings replacement.

The incidence of low income for seniors is very low compared to other OECD countries, and the retirement income system also provides broad coverage to most Canadians. Virtually all seniors receive the OAS regardless of their work histories, and low-income seniors can receive, in addition, the GIS. It's worth noting that women constitute more than half of OAS recipients, two-thirds of GIS recipients, and 90% of allowance recipients.

In addition, all retired workers receive income from the CPP or QPP. So for low-income Canadians, the OAS, GIS, and the CPP/QPP together replace a significant portion of pre-retirement earnings.

Middle- and higher-income workers can also use RPPs and RSPs to increase their replacement rates. For example, 5.9 million individuals were covered by an RPP in 2007—I think that was the statistic that Professor Schirle mentioned. Of these, 3 million were men and 2.9 million were women. It's worth noting, I think, as was done previously, that the proportion of female members increased from 44% in 1997 to 49% in 2007.

Finally, I'll turn to a few steps the government has taken in recent years to strengthen the retirement income system. With respect to the first pillar, which is OAS and GIS, there was an increase to monthly GIS benefits made in two installments in 2006 and 2007. In addition, in budget 2008 the amount that can be earned from employment before the GIS benefit is clawed back was increased to $3,500.

With respect to the CPP, federal, provincial, and territorial Ministers of Finance recommended a number of changes this spring that will achieve three things. First, they will increase the flexibility by removing the work cessation test and increasing the low-earnings dropout in the pension calculation from a maximum of seven years to a maximum of eight years. On average, women will benefit more from this increased dropout room.

Second, they will extend CPP coverage to individuals who work and concurrently receive the CPP retirement benefit.

The third part of these changes was to restore actuarial fairness in the adjustments that are made to CPP pensions that are taken early—i.e., before age 65—or late, after age 65.

On the third pillar, the government launched a consultation last January to improve the legislative and regulatory framework for federally regulated private pension plans, and these represent about 7% of the pension plans in Canada. On October 27 the Minister of Finance announced a significant reform to this framework, including measures to enhance protections for plan members, reduce funding volatility for the defined benefit plans, make it easier for participants to negotiate changes to their pension arrangements, improve the framework for defined contribution plans and for negotiated contribution plans, and modernize the rules for investments made by pension funds.

The government has also taken a number of measures recently to improve the tax treatment of pensions and retirement savings. I'll give you a short list here. The amount of eligible income that can be claimed under the pension income tax credit was doubled to $2,000 in 2006. The age by which Canadians must convert an RRSP to a registered retirement income fund, or RRIF, and begin receiving pension benefits from an RPP was increased to 71 from 69 in 2007. Pension income splitting was also introduced in 2007. And tax changes were introduced to permit employers to offer more flexible phase retirement programs in order to retain older, experienced workers and ease succession-planning pressures as of 2008.

In addition, most seniors are benefiting from the $1,000 increases in the age credit that were introduced in 2006 and 2009. As well, the schedule of increases in the RPP-RSP dollar limits introduced in 2005 continues to be implemented, and those contribution limits are indexed to average wage growth starting in 2010 and 2011.

My final point will be that the new tax-free savings account will provide additional tax-efficient savings opportunities to all Canadians.

Thank you. That concludes my opening remarks. I'd be happy to take any questions.

[The Chair, Liberal, Hedy Fry]

Thank you very much.

Now we move to the second part of the meeting, in which we will have questions. The first round of questions has seven-minute questions, and that includes the question and the answer. If we want to look at really giving everybody an opportunity to speak, I think I would like to stick as closely as possible to the time. I've allowed people to drift slightly on occasion.

We will start with Ms. Neville.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Thank you, Madam Chair.

Thank you to all of you for being here today. And Ms. Schirle, you too—I'm pleased you were able to participate.

My first questions are to the Department of Finance. I have a number of questions. Let me just ask the questions and then you can give the answers.

I want to know what portion of taxpayers contribute to the maximum amount of RRSPs and I want to know the difference between men and women. I also want to know the numbers who contribute, period, to RRSPs and the difference between men and women. And I have a general question. Do you have disaggregated data on everything you have brought forward as it relates to the differences between men and women?

Then my other question relates to the information you gave us about the changes that the federal, provincial, and territorial ministers recommended, and you tell us on October 27 the recommendations that the Minister of Finance put forward.... What I am wondering is whether a gender-based analysis has been done on each and every one of these recommendations. And if so, can we see them?

[Louise Levonian, Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Madam Chair, to answer the question generally, we have a lot of disaggregated data. Basically our database is.... Do you know the T-1 form you fill out when you do your taxes?

[Anita Neville, Liberal, Winnipeg South Centre, MB]

We all do, yes.

[Louise Levonian]

We have access to that T-1 data, and so we can do a lot of analysis on a gender basis by splitting that by men and women. We don't have everything disaggregated, but we do have a lot of information.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Can I ask you whether you have it disaggregated by region as well? Can you give us the breakdowns between men and women across the country, if there are differences? I'd be interested to know that as well.

[Louise Levonian]

We have the information by province but not by city or—

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Okay, that's good enough.

[Louise Levonian]

But my colleague has the data. Just generally speaking, in the RRSPs there's a significant amount of room that's not used. Generally speaking, the amount of room that's not used is at the lower income levels and, generally speaking, that of course could be because individuals who have lower incomes don't have as much access to savings, but also a contributing factor to that could be the fact that GIS is available. So there are measures for low-income individuals, and a lot of the retirement income necessary for those individuals is available through other means. So you tend to see that the savings take-up is not as high and it is difficult to say specifically what the reason for that is.

But generally speaking, do you want to give the information on the total take-up, the amount of unused room, proportionally?

[Ian Pomroy, Senior Tax Policy Officer, Social Tax Policy, Personal Income Tax Division, Department of Finance]

Sure. Generally, at most earnings levels, there is unused RRSP room, meaning that people are not constrained by the limit. At the middle and lower earnings levels, it's even over 90% of people who have unused RRSP room. So not very many, less than 10%, are constrained by the 18% limit. That goes down a bit at the higher earnings levels but still, there are quite a few earners with unused RRSP room. If you're looking at over $125,000, about 70% of those people have unused RRSP room, so again it's a minority who are constrained by the maximum limits.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Could you give us a breakdown of that? You determine the income groups, but could you give us a breakdown on what portion is unused by income groups?

[Ian Pomroy]

Yes, we have that.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

And again, I'd like to see male and female, married and single.

[Louise Levonian]

We don't have that here right now.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

No, I'm not asking for it right now, but if you could provide the clerk or the chair with that, that would be very helpful.

[Louise Levonian]

So, unused room by—

[Anita Neville, Liberal, Winnipeg South Centre, MB]

By income group, male and female, and marital status.