Status of Women Committee on Nov. 5th, 2009

[The Acting Chair, Conservative, Dave Van Kesteren]

Order. Good afternoon, everybody.

Welcome to the 39th meeting here at the Standing Committee on the Status of Women for our study on women and pension security.

We have with us today, from the Organisation for Economic Co-operation and Development, Edward Whitehouse, head of pension policy analysis, social policy division; from Towers Perrin, James Pierlot, senior consultant, and Steve Bonnar, principal; and as an individual, Beverley Smith, member of the Care of the Child Coalition.

We will commence. We later have a motion to deal with, so we will have to stop for that sometime after 5 p.m.

Welcome to all of you. Welcome from the world of technology. We're glad you could all make it.

We will begin the meeting with presentations from our witnesses. You have 10 minutes, and we'll try to keep you within that timeframe. I'm sure we'll have a number of questions.

We'll ask the Organisation for Economic Co-operation and Development to begin.

[Edward Whitehouse, Head of Pension Policy Analysis, Social Policy Division, Organisation for Economic Co-operation and Development]

Thank you very much, Chairman, and thank you for standing in at the last minute to take over this committee.

It was my great pleasure and privilege yesterday to talk to the Senate finance committee. I must apologize to the members of this committee for the fact that I was earlier supposed to give evidence by a video conference link from Paris but was unable to do so because I was suffering from the flu.

At OECD we have just begun a research project on women and pensions, exactly following the topic that you are studying in this committee. I must first of all thank Human Resources and Skills Development Canada, who have made a voluntary contribution towards that research. As I have said, that research is just beginning, and therefore I'm not really in a position today to be able to give particularly concrete results of that research but am more able to set out the areas of interest and concern that we are exploring.

If we think about pension systems from first principles, if we have a world where we have men who go out to work and women who stay at home and look after children and have those caring responsibilities, then it is quite easy and simple to devise a pension system to suit that world of the single male breadwinner. If men and women participate in the labour market on equal terms, if they have similar hours of work, similar earning levels, and they work a similar number of years over their career, then equally it is very simple to devise a pension system that suits a world of that form.

The trouble is, most countries are in a transition. Countries have been moving at different paces, but they are all moving in the same direction away from the single male breadwinner model towards a model of much more equality in the labour market between men and women. But our preliminary analysis suggests that we are still quite a long way from a position of there being equality between men and women in the labour market.

It is the experience in the labour market that very much affects, almost determines, people's incomes in retirement. Women tend to work fewer hours than men do. They have career breaks caring for children, caring for elderly relatives, so they have a shorter career in total than men do, and women still have lower hourly wages generally than men.

There is also an issue about access to pensions. In countries such as Canada, but also the United States, the United Kingdom, and Ireland, we have pension systems that are very much dependent on voluntary private pension provision, often through occupational schemes, through employer-run schemes, with the registered retirement plans in Canada being the case. We find when we look at the data that women tend to work for employers and in the occupations and industries where coverage of those private pensions is much lower than it is for the population as a whole.

We have also looked in great detail at the situation of today's retirees and the incomes and poverty rates among today's retirees. Overall we find marginally higher rates of old age income poverty for women than for men, but only slightly more. I think for the OECD countries as a whole, the old age poverty rate is about 10% for men and about 13% for women. So there is a small difference, and when we look in closer detail at the information, it's mainly the position of very old widows who are the remaining pocket of poverty among older people.

Canada is, in terms of old age poverty, one of the highest-performing of OECD countries. It has the fifth-lowest old age poverty rate among the 30 OECD countries, around 4%, compared with the OECD average of around 13%.

These issues are not currently a huge problem, I think, for Canada, but they may well be in the future. We are going to be in a world where we're rather more dependent on private pensions for our incomes in old age, and so that's the issue of the coverage of private pensions of women, I think, and obviously there is concern.

There are also social developments, particularly the increasing prevalence of divorce. We are, compared with past generations, going to see many women moving into retirement who have been divorced or have been lone parents and so maybe have not been able to build up much pension in their own right because they have not been able to work quite so much whilst their children have been at young ages. I think those are very important issues that we need to look at.

The issue of divorce, of course, brings us into a very complex set of areas. I am an economist, not a lawyer, and would not claim to be an expert on divorce law, but that, I think, is an issue that needs to addressed as we go into the future.

I'll wind up my brief opening statement there. I look forward to your questions. We'll try to answer them.

[The Acting Chair, Conservative, Dave Van Kesteren]

Thank you, sir. That's given us a little bit of extra time.

James Pierlot, I believe you are giving the presentation for Towers Perrin.

[James Pierlot, Senior Consultant, Towers Perrin]

Thank you.

As a point of order, do we have 10 minutes in total or 20 minutes?

[The Acting Chair, Conservative, Dave Van Kesteren]

Ten minutes in total.

[James Pierlot]

That's what we thought.

[The Acting Chair, Conservative, Dave Van Kesteren]

You can split your time.

[James Pierlot]

Thank you.

What we wanted to talk to you about today is the current state of the retirement savings system in Canada and where it's expected to go, according to three themes: coverage, meaning who has access to a pension plan; adequacy, meaning how many people are likely to have saved enough; and pension benefit security. I'll be covering the first two points and my colleague, Steve, will cover the third.

I've also brought with me some statistics from Statistics Canada on what we can expect women, as compared to men, to have accumulated in retirement savings.

The questions for retirement income security in Canada really are: what are you going to get from government pensions; how many Canadians have pension plans, and who are they; how much does a person need to save for retirement; and how much have Canadians saved?

Government benefits cannot be expected to provide an individual with more than about $15,000 to $20,000 a year in lifetime retirement income. That's income from the Canada Pension Plan, the old age security program, and the guaranteed income supplement, and the allowance, if you get it. In most parts of Canada, $15,000 to $20,000 is not enough to have saved for a comfortable retirement.

Pension plan membership in Canada is heavily weighted towards the public sector, where about 2.8 million workers, or 85% of all public sector workers, are members of a defined benefit pension plan. In the private sector, it's under 20% of workers who have a defined benefit pension plan, and those plans typically tend to be much less generous. As for private sector employees, 75% of them—over 11 million people—do not belong to a pension plan and they rely heavily on RRSP savings. In the public sector, a slight majority of women belong to pension plans; but in the private sector, among those who actually have pension plans, it's about 58% to 60% male.

In terms of the retirement income that people need, the question is how much do you have to save during your lifetime? I'm just going to put some numbers out here so that you have an idea of how expensive it is to provide for a good retirement income at typical retirement ages. When I say “typical”, I mean an age of 58 in the public sector, which is the median retirement age. In the private sector, it's 62. And for self-employed people, it's a bit higher than that.

So if you want a pension, payable at age 60, and you want that pension indexed and with a spousal survivor benefit, every dollar of pension is going to cost you $21. If you want that pension at age 65, it'll cost you a bit less, or about $18.50. What that means in practice is that if you want to have a $20,000, $40,000, $60,000, or $80,000 pension, it is going to cost you a minimum—for the $20,000 pension at age 60—of $420,000. If you want a $40,000 pension, it will cost you $845,000. And if you want a $60,000 to $80,000 pension, it's going to cost you $1.2 million to $1.7 million.

I think it's fairly obvious to everyone here that people are not saving this much, particularly in the private sector. In the public sector, saving rates are very good, but in the private sector they do not approach that. According to Statistics Canada, median family retirement savings are $55,000 in families where the major income recipient is between the age of 55 and 64 and where they only have an RRSP; $225,00 for those families who have a pension plan only; and about $250,000 for those families with a pension plan and an RRSP. That $250,000 isn't even enough to buy you a pension of $20,000 a year. It's important to remember that these numbers I've quoted are for family retirement savings.

Now, there are other sources of income that you can receive in retirement. There are non-sheltered savings, home equity, etc., but many people rely heavily on their sheltered savings.

The conclusions that we draw from this are that if you rely on pension benefits from government sources, you're going to be poor; that Canadians are not well prepared for retirement; and that more Canadians need to be in better pension arrangements.

Some other facts to keep in mind are that women live longer than men, three to four years longer on average, which means they need to save more; that men outnumber women overall in pension coverage; that women earn less per hour worked than men do; that twice as many women as men are in part-time employment; that women, obviously, participate in the labour force at lower rates: women take time off for child care.

Women receive less in Canada Pension Plan benefits than men. Women in Canada are saving less than men, even though they need to save more. They cannot save as much as men because they don't make as much, as a proportion of income. This means that women are more likely to experience poverty in retirement than men are.

There was a University of Waterloo study that suggested that by 2030, two-thirds of Canadian retirees will not have enough to live on. That's the picture globally between men and women that we're looking forward to. We know, based on women's income and their participation in the labour force, etc., that they will be in an even worse position than men.

[Steve Bonnar, Principal, Towers Perrin]

I'm going to talk for the next little while about security of pension benefits.

As background, James took you through some of the numbers concerning people in Canada who participate in pension arrangements in the public sector and the private sector. I will take a separate cut at this and look at the number of people who participate in defined benefit pension plans. Those are benefits whereby you basically come to retirement, a formula is run through, and an amount of income is provided to you for the rest of your life. Roughly speaking, in Canada there are about 4.5 million people covered by those kinds of pension arrangements.

There are almost half a million other people who are covered by combination types of arrangements that are part “defined benefit” and part “defined contribution”. Defined contribution is something that works just like your RRSP. So there are about five million working Canadians who are covered by a pension arrangement that provides a known level of income for the balance of their life.

Of the balance of working Canadians, about one million participate in defined contribution pension plans--that is, pension arrangements from their employer that work like your RRSP balance. The remaining 11 million-plus Canadians either have nothing or save for retirement through RRSPs. So you have over 12 million Canadians in total who are not participating in defined benefit pension plans; that's over two-thirds of the working population.

There are a number of issues for that group. For women in particular, we need to think about the fact that they live on average longer than men. Their requirement for savings through these defined contribution arrangements is larger than that for men. That's an additional risk, separate and apart from the fact that as individuals save for retirement through defined contribution arrangements, they need not to consider that they'll live the average length of time, but to consider how long they as an individual will live, which in essence tends to require over-saving: if you live longer than the average, you're in trouble if you've saved to live just for the average length of time.

Let me put some numbers around this. We've heard about the financial troubles of pension plans, particularly as we went through last year. But we've had a couple of perfect storms in the financial markets in this decade alone, in which we've seen defined benefit pension plans move from a situation where they had on average, at the end of 2000, more than enough assets to provide for their liabilities—about 108% assets relative to liabilities at the end of calendar year 2000, and this is from public company financial statements—to, at the end of last year, about 85% assets relative to liabilities. So we've had a 25% drop in the average.

[The Acting Chair, Conservative, Dave Van Kesteren]

You're over time. I'm going to give you a couple of minutes because Mr. Whitehouse was pretty quick, but try to wrap it up as quickly as possible.

[Steve Bonnar]

I will.

The point I want to make is that this is focusing on defined benefit pension plans, and they've gone down in value. That's been front page news. Everybody's RRSP account balance and defined contribution account balance has gone down in a similar fashion over that period of time. It reflects the reduction in the benefit you would expect to receive out of your defined contribution account balance.

With that, I will leave it.

[The Acting Chair, Conservative, Dave Van Kesteren]

That's very good. Thank you.

Ms. Smith.

[Beverley Smith, Member of Care of the Child Coalition, As an Individual]

Thank you.

Is this audible to everybody?

[The Acting Chair, Conservative, Dave Van Kesteren]

We read you loud and clear.

[Beverley Smith]

Thank you.

I'm in Calgary; thank you for letting me be part of this. The financial well-being of women is a long-time concern of mine.

Government and private pensions are tied to paid labour, and these formulas are inappropriate for unpaid work. I want to thank the gentleman who spoke ahead of me, who defined the problem very well. Since it is mainly women who take time from paid careers to tend the young, sick, handicapped, elderly, or dying, it has been women who are paid less over the course of a life. As seniors, these penalties add up. Since women outlive men, we get a large population of senior women in poverty. Our system keeps women poor for life.

Traditional economics assumes that only men's work matters and ignores the equally vital role at home in the economy. I take issue with the term one of the speakers was using, saying “women don't work as much as men”. That's a problem of definition. Though we let women into the paid work sphere, we still say unpaid work has no value. We have, however, lately had two revelations.

First, as women were pressured to leave the home, suddenly government was asked to foot the bill for their roles back there. Costs of formal elder care and child care were reaching the billions. Second, women, tired after a long paid workday, still had to do housework and tend children. Men, asked to pitch in, also noticed how intense this care role was.

Women now outnumber men on university campuses and in the paid workforce in the United States. This shift may be seen by some as a boon for women's rights, but it is not unless it is accompanied by a realization that someone still has to do the care roles. It may be men now doing them, or paid staff, but we notice the value of what used to be invisible.

Pensions are given upon retirement, but women never retire. They go on cooking, cleaning, and tending others until they die. The terminology that traditional economics arranged into nice categories of work and leisure do not apply. We must create for caregivers a particular pension. The paradigms for paid work are not appropriate, and neither is the assumption that the tasks are over.

So I make four suggestions.

MP Ted Menzies says Canadians must save for their own retirement. But unpaid workers have nothing to save. We need funding for the care role when it is happening; then we'd have money to save. There should be a universal birth bonus, universal maternity benefit, a benefit per child until age 18, and income splitting.

Having the spouse fund the pension of the caregiver sounds like an option. It sounds good, for RRSPs. But it does have a flaw. The earner may not be able or willing to contribute for the spouse; the woman is forced into dependency. We should not make women so vulnerable, since their caregiver role continues, like a clock ticking in a thunderstorm. With pension splitting we did recognize the care role, because it treated both parties as equals.

A key resource to raise pensions is to ask employers to provide better ones. But those policy changes apply to paid labour; for caregivers, there is no employer. So government has a role to play, and mainly out of a debt to women.

For years government has had a free ride. Women provided every new generation of children to become taxpayers; they provided free care of the sick to get them back to health without a hospital stay; they provide care of the elderly and handicapped to keep them out of costly institutional care; by attention to emotional needs and presence, women kept down the costs in the criminal justice system. The state never paid women for this. It got the labour free. It owes women.

A pension for caregivers is similar to a pension for service in the armed forces. The time spent benefited the nation and came at a price of self-sacrifice.

These suggestions challenge traditional economics, but this should not frighten us. It would be recognition of the half of the economy that we have been blind to. It has always been there, and it's just time to open our eyes.

[The Acting Chair, Conservative, Dave Van Kesteren]

Thank you, ma'am. Again we've gained a little time; that's great.

Our first round of questions will be of seven minutes. I'll ask that those who present the questions do so as quickly as possible.

And could you follow along with our time limit, please? I will give you a warning when you're becoming a bit lengthy.

Mr. McCallum, you, sir, are first.

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you, Mr. Chair.

Thank you very much to all of our witnesses for being with us this afternoon.

What I'd like to do, at least in the first part of my time, is focus on the issue of unpaid labour and how best to ensure that women—or men, but mainly women—in such positions receive an adequate retirement income.

Perhaps this could be done through the Canada Pension Plan, on the theory that women should be compensated for time spent caring for young children or older people. My understanding is that right now Canadians can exclude 15% of the years of lowest earnings when the CPP pension is calculated.

My first question is to Ms. Smith. Perhaps 15% is not enough, but do you think increasing that percentage might be part of a solution, so that if a woman, for example, had a substantial number of years as a caregiver, the percentage could be—I don't know—35%, 40%? Would that improve the situation significantly?

[Beverley Smith]

I appreciate your trying to work within the system. I'm a little more of a revolutionary. I think the Canada Pension Plan is designed to value paid labour and is out of sync with what women do. The dropout provision has bad optics because it looks like “we will forgive you for being a caregiver”. I don't want to be forgiven; I want to be valued.

If you have to work within that system, which I believe is a flawed system, then yes, of course, raise the limit.

[John McCallum, Liberal, Markham—Unionville, ON]

I think we could find alternative words. I don't want to get too hung up on semantics. I value unpaid labour, but I'm trying to find a solution. Do you have any idea what the appropriate percent would be—from 15% to what?

[Beverley Smith]

You said 35% or 40%. Let's go with that; I like it.

[John McCallum, Liberal, Markham—Unionville, ON]

I just took the numbers out of my head.

Well, now perhaps I can turn to people who know more about pensions than I do and ask both of our groups of witnesses.

If the objective is to be fairer to women, on the grounds that women—I have to choose my words carefully—devote more time to unpaid labour than men do, in terms of caring for the young and the old, and we want to compensate women in a fair way for this fact of life and want to do it through the CPP, then—let's start with Mr. Pierlot—would you agree that raising the 15% number would be an appropriate way to go, or would you have some other solution?

[James Pierlot]

It's one approach. One of my concerns with it would be that the Canada Pension Plan in many ways isn't really a pension plan. It's a kind of hybrid vehicle that provides disability insurance and pension income insurance and that started out as a pay-as-you-go system and then was transitioned into a funded system. It really operates under a very delicate balance right now. If you wanted to increase the earnings dropouts for people, then you would need to increase the contribution rates.

I'm not saying it's a bad idea, but I bear in mind that Canada Pension Plan benefits are not very large, and they are determined by reference to earnings. I'm not sure this would be a complete solution to the problem Ms. Smith raises.

[John McCallum, Liberal, Markham—Unionville, ON]

Mr. Whitehouse, are other countries experienced, perhaps, in this area?

[Edward Whitehouse]

I would start by saying that the Canada Pension Plan is not the only thing that's happening in provision of retirement incomes in Canada. Canada has old age security and the guaranteed income supplement, and those are particularly significant sources of income for women in their old age. Yes, Canada Pension Plan and the private pensions that people have are very much tied to earnings and therefore to paid work, but old age security is simply tied to residency in Canada, and the guaranteed income supplement to residency in Canada and to the position of having a low income.

The fact that Canada has this very redistributive retirement income provision compared with those of many OECD countries, where even public pensions are much more strongly tied to individuals' earnings and to individuals being in paid work, makes an extraordinarily large difference. We can't simply take CPP on its own and say it must be adjusted—

[John McCallum, Liberal, Markham—Unionville, ON]

No, I'm not trying to do that. OAS and GIS are critical parts of the system for men and women, but they are equal for men and women. I'm trying to look for a mechanism that would compensate women for the fact that they have a higher proportion of their life in unpaid work.

To Mr. Pierlot, I think the proposal to expand the CPP, coupled with moving, say, from 15% to 30%, would by definition improve the situation for women more. But let me ask you, without tying your hands in any way: just overall, if someone asked you what the most effective way would be to compensate women for the fact that they have more years of unpaid work, how would you answer that question?