Human Resources Committee on Feb. 20th, 2007

[The Chair, Conservative, Dean Allison]

Pursuant to the order of reference of Tuesday, January 30, 2007, Bill C-36, an act to amend the Canada Pension Plan and the Old Age Security Act, I want to call the meeting to order.

I want to welcome Ms. Scotti and her team. We're going to give you a few extra moments today to outline what you have for us, and then some rounds of questions will proceed afterwards.

Ms. Scotti, if you would like to just proceed, take all the time you need.

[Susan Scotti, Assistant Deputy Minister, Social Development Sectors Branch, Department of Human Resources and Social Development]

Thank you very much, Mr. Chair.

I'm very pleased to be able to be with you today to provide an overview of the amendments to Bill C-36. We have prepared some presentation material, so I'm going to walk you through that material. It essentially does several things.

But before that, I'd like to introduce my colleagues who are with me here today.

Madame Marla Israel, director, international policy and agreements, Seniors and Pensions Policy Secretariat; Nancy Lawand, director general of the Canada Pension Plan Disability Directorate; and Réal Bouchard, senior adviser, Department of Finance.

There are three things I would like to do today with this opportunity to speak to Bill C-36. First is to tell you a little bit about the circumstances that led us to develop the proposed amendments that you are considering today. Second is to provide you with a brief overview of some of the basic eligibility criteria for the OAS and the CPP. I'm sure that many of you have received calls, sometimes good, sometimes not so good, about our programs. As there's some complexity attached to them, I thought, with your indulgence, it might be an opportunity to give you a little bit of background on them.

Third, I just want to walk you through the proposed amendments, first under the CPP and then under the OAS, and then I'll discuss the amendments that apply to both. Then, of course, I'll take your questions.

First, why are we changing the legislation?

In large part, many of the amendments proposed in Bill C-36 began with suggestions that we received from Canadian citizens, through their letters, through meetings that we've been having with seniors organizations, and through the interactions that they have with all of you as parliamentarians.

Amendments to the CPP and OAS don't happen frequently, given that both pieces of legislation are quite complex. We took the opportunity to bundle a number of amendments together. The first trigger for these amendments was the triennial review of the Canada Pension Plan, which was completed this past June. As many of you know, federal-provincial-territorial ministers of finance who are joint stewards of the plan recommended two significant changes, which I'll come back to in a moment.

In addition, we had some observations from the Auditor General regarding the compliance provisions in the Old Age Security Act with respect to the Financial Administration Act. These two events provided the impetus for changes to both pieces of legislation. While the changes that are being brought forward are largely of a technical nature, they do represent very important changes that will improve the administration of benefits and remove some of the anomalies that have caused frustration for our clients in the past. They will also improve access to the benefits for seniors and streamline the delivery of those benefits in order to strengthen the accountability and fairness within Canada's public pensions.

If you go to slide 8, I'll move to a description first of the old age security program. The old age security program goes back to 1952 and is the first of the three tiers of Canada's retirement income system. It provides a basic pension to the majority of Canadians who are age 65 and over and is funded from general tax revenues of the government. There are three related low-income benefits that are tied to the OAS, the guaranteed income supplement, the allowance, and the allowance for the survivor. The latter two benefits are available to persons between the ages of 60 and 64. In 2005 and 2006 benefits were provided to over four million Canadians who received close to $30 billion through these programs.

On slide 7 there's a little bit of information on the basic rules of eligibility of the program. In order to qualify for an old age security benefit, a person must be over 65 and have acquired at least 10 years of residence after the age of 18, if applying for the benefit from Canada. If applying for the benefit from outside the country, a person must have acquired 20 years of residence after the age of 18. The only exception to these rules is if a person has lived or worked abroad and has received benefits through our 50 social security agreements that are now in place and that allow the pooling together of periods in both Canada and other countries in order to meet the minimum eligibility requirements of the OAS and CPP. The supplement is a low-income supplement that is paid to those who are receiving GIS and whose annual income is below a minimum threshold, which is at $15,000 a year for a single individual excluding OAS and $20,000 a year for married or common law pensioners.

Income is reassessed every year through income tax information provided to us by the Canada Revenue Agency. A maximum OAS benefit is close to $500 a month and is paid to individuals who have acquired 40 years of residence.

[The Chair, Conservative, Dean Allison]

Ms. Scotti, if I could just mention, I think that our numbers are slightly different from yours. It may be causing some of the members some confusion.

I believe we're on “Canada Pension Plan”, which is page 6 for us. It's just so everyone is on the same page. We're all moving along. We just have different numbers, I believe.

[Susan Scotti]

Okay. I'll just refer to the title of the page so that we can follow on the same page.

[The Chair, Conservative, Dean Allison]

Perfect. Thank you very much.

[Susan Scotti]

I'm now on the slide called the “Canada Pension Plan”.

My apologies for the confusion.

The Canada Pension Plan is the second component of Canada's retirement income system, the third being the private pension plan, RRSPs. As I said earlier, the plan was created in 1966, and the federal and provincial governments are its joint stewards.

The different types of benefits under the Canada Pension Plan include a retirement pension, disability, survivor, and children's benefits. In 2005 about 4.6 million people received benefits from the Canada Pension Plan, of which retirement benefits totalled $16 billion, disability benefits about $3 billion, almost $4 billion was paid out in survivor benefits, and $500 million paid out in death benefits.

The next slide outlines a few more details on the Canada Pension Plan. Unlike the OAS, the Canada Pension Plan is funded from contributions that are made to the plan that are shared equally between the employer and the employee. Presently, the contributor rate is fixed at 9.9% of earnings from a minimum of $3,500 to a maximum of $42,100 in 2006. A self-employed worker pays the full amount of both these contributions on gross earnings.

The plan is funded by employer-employee contributions, as well as revenues from investments and earned interest, all of which is managed at arm's length by the Canada Pension Plan Investment Board, which was created in 1998 as part of the wider package of CPP reforms that ensured that the plan continued to be on a sound financial footing for future generations. One point to note here is that if this legislation passes the House of Commons and the Senate, orders in council from the provinces will still be required to bring the new legislation into effect.

The next slide looks at the summary of the proposed amendments to the CPP. I will quickly walk you through some of those.

The first recommendation relates to the existing financing provisions of the Canada Pension Plan. Under current legislation, there is a requirement that for any new benefit or any change that enhances benefits, the enhancement must be paid as the benefit is earned by the contributor. If it is not, it must be amortized and paid for over a limited period of time in order to avoid having future generations of Canadians cover the costs for the existing generation of contributors. These provisions came about in the 1998 reforms.

However, the current legislation does not have sufficient detail to be able to describe how to calculate the full cost of benefit enhancements, or to establish how the costs of a brand-new benefit would be estimated in the future, if this were to happen. The purpose of the proposed amendment is to provide the government with regulation-making authority that would set out the detailed calculation of how the existing full funding provisions would be applied. It would set out the public reporting of these costs, and it would clarify the contribution rate setting when such costs are present.

While this may appear to be a relatively minor adjustment to the CPP legislation, it is one that is very important to the mathematician of the plan, the chief actuary, in order to facilitate the actuarial work and make it easier to explain to Canadians in a transparent manner any proposed changes to the plan and how they would be funded.

The next change relates to these disability benefits. In 1998 a series of measures were adopted to enhance the sustainability of the Canada Pension Plan. At that time, the rules around the qualifications for CPP disability were changed so that a person had to have four valid years of contributions to the CPP out of the last six years in order to qualify for benefits.

In the process of the triennial review, federal-provincial ministers recommended that the present eligibility requirements for long-term contributors to the CPP be modified so that anyone who has had 25 years of contributions to the plan would be able to qualify for a disability benefit with three years of contributions in the last six years, instead of the present four-out-of-six requirement.

The proposed change could potentially expand disability coverage to some 80,000 contributors and result, to use a rough estimate, in about 3,700 contributors and 840 of their children receiving disability benefits by 2010.

The next change is about the statement of contributions online. Because we had this opportunity to open up the legislation as a result of the CPP triennial review, we also put forward a number of administrative measures to modernize service delivery and streamline access to benefits under both the Canada Pension Plan and the Old Age Security Act.

The first such example is to enable Canadians to view online their statement of contributions to the Canada Pension Plan. Currently the legislation specifies that a record of earnings can only be requested once a year. This does not exactly conform to what citizens want or to the fact that we now have advances in modern technology that make the statement of contributions available online to Canadians. In order to better conform with what citizens want, there's no longer a need to restrict access to the statement of contributions to once a year only. Canadians will now be able to view their own contributions as often as they wish and request their statement of contributions more than once a year, whether by paper or electronically.

The next slide is about credit splitting. This is a provision in the legislation allowing pensioned credits to be divided equally between two partners whose legal marriage or common law union has ended. This division is called credit splitting.

For persons divorced before 1987, the legislation provides divorced couples with the opportunity to waive existing time limits and to initiate a credit split, as long as both spouses agree to do so in writing. However, the provisions for common law partners are not the same as those for married spouses. If you take John and Sally, for example, whose common law relationship broke up in 2003, the existing CPP rules state they only have until 2007, or four years, to initiate a credit split. Because some have found this requirement frustrating and rigid in its application, we're proposing to change the provision to allow the existing time limit to be waived, as long as both partners agree to do so in writing, and thereby to treat married and common law partners in the same fashion.

I'm going next to the old age security amendments.

The proposed amendments are divided into four areas: simplifying access, achieving equitable benefit entitlements, implementing recommendations of the Governor General, and clarity of legislation in both official languages.

On the next slide, simplifying access to and delivery of benefits, the first significant change relates to accessing the guaranteed income supplement. I know that this committee has heard a lot about the frustration that citizens have around the access to the guaranteed income supplement. One of the issues is the fact that under the current legislation citizens now have to apply separately for the OAS and the GIS, and seniors are currently forced to reapply whenever their income changes and their income level has affected their eligibility. When a person's income goes above the allowed threshold, the person is no longer entitled to receive the benefit, and again would have to reapply in writing in a subsequent year when they became eligible.

To explain this better, I'll give you an example. Let's take Mary, who at age 65 received GIS benefits until the age of 68, at which time she received a windfall inheritance that changed her income level. Because her income rose, she was no longer entitled to a GIS benefit until the age of 80, for example, when her income went down again. Under the current rules, Mary would have had to reapply for the benefit in writing, and it's possible that she could have fallen through the cracks because Mary might not have known that she had to reapply for this benefit in writing.

Under the proposed amendment, Mary will be able to use a new common application form to apply for the OAS and the GIS at the same time. Not only that, Mary will also be able to let us know that she would like to receive the GIS benefit for the rest of her life as long as she remains eligible. Once an initial combined OAS-GIS application has been made, this will assure her continued eligibility for the rest of her life. So long as we can obtain income information and information about the marital status of an individual applicant from their income tax records, the benefit would be paid to pensioners in any year that they meet the income requirements. This amendment will largely prevent seniors from falling through the cracks. We want to simplify the administration of the benefit and reduce the paper burden so that seniors can receive all of the benefits to which they are entitled.

I'm moving on to the next slide now, which is simplification of access to and the delivery of benefits. This amendment is about enabling the federal government to enter to agreements for the administration of certain provincial low-income benefits. While current legislation allows the federal government to administer provincial benefits--that is, we pay low-income GIS benefits and provincial low-income benefits on behalf of the province of Saskatchewan and the Northwest Territories--we do not now determine the entitlement to those benefits. Doing so would simplify the administration of low-income benefits for many provinces that already rely on the GIS eligibility to determine the eligibility for provincial benefits. The proposed amendment would permit the federal government to determine eligibility and to calculate the benefits for a senior with respect to both provincial and federal low-income benefits. The provision would rely on agreements that would be signed between the interested provinces and the federal government that would establish the terms and conditions for these arrangements.

The next slide is on simplifying the reporting of income for couples and seniors. This is something that we call options. It is a complicated provision at the moment, which we are trying to simplify. The legislation currently allows seniors who retire or who suffer a loss of earnings or a reduction in pension in a given year to provide an estimate of their current income in order to qualify for the low-income benefits. Applicants are required right now to estimate income from all sources, whether it's employment, interest from investments, or pension income. This process can be very cumbersome because it is difficult to accurately predict all of your income from all sources.

The proposed legislation would limit the estimated income to pension and employment income only, which is much easier to predict on an annual basis and predict accurately.

It will also extend the time limit for seniors to submit an estimate of their income, because the current deadlines can be very tight. This change, we think, will be very welcomed by low income seniors, because it will mean fewer adjustments, and it will simplify the administration by greatly reducing the complexity of this provision.

The next slide is “Application Withdrawal”. Currently, the Old Age Security Act does not allow for a person to withdraw his or her application for benefits once it has been submitted and payments have started. Seniors have asked us to look at this, because they would like to have some additional flexibility.

For example, sometimes seniors have miscalculated what they can expect to receive in OAS payments and they may want to defer the receipt of their pension to another year. Or they may have received additional income from dividends and may not want to increase their overall income at age 65 because they may still be working, or may want not to apply for the OAS benefit just yet, in order to keep their income relatively modest for income tax purposes.

While this appears to be a minor fix, it's relevant to seniors who want the ability to withdraw their application if they so choose.

The next slide is about “Achieving Equity in Benefit Entitlements” through two proposed changes. The first is about income-tested benefits and eligibility for income-tested benefits.

These income-tested benefits are provided to seniors to help them meet their daily living needs; however, the current legislation allows an estate to also make an application for GIS benefits on behalf of the deceased. This provision would be changed to only allow the living person to benefit from the supplement to which he or she is entitled.

The second relates to income-tested benefits for sponsored immigrants. As I explained earlier, the OAS benefits are not based on a person's citizenship but on a person's residence. Currently, there are provisions that allow the payment of an OAS pension to someone with less than ten years of residence if they lived or worked in a country with which we have a social security agreement.

In 1996, the legislation was amended to recognize the financial obligation of sponsors to look after a family member during the length of the sponsorship, for persons receiving benefits under social security agreements. However, the words “Canadian citizens” were left out of the drafting of the original legislation, which inadvertently created a difference in treatment between permanent residents and those who become Canadian citizens during the period of their sponsorship, allowing the latter to receive pro-rated GIS benefits during the sponsorship period.

The proposed legislation is designed to respect the integrity of the residence-based OAS program by treating all categories of persons the same, regardless of citizenship. Pro-rated GIS benefits are still available to non-sponsored immigrants from agreement countries, as well as sponsored immigrants whose sponsors have passed away, become bankrupt, or become incarcerated.

I just have a couple of more slides, and then I will end. The next is “Implementing the Recommendations of the Auditor General”.

There is a series of amendments to both the OAS and CPP; these are the common amendments to both legislation.

The first relates to observations of the Auditor General, who recently noted that the Old Age Security Act and by extension the Canada Pension Plan were not in compliance with the provisions of the Financial Administration Act, because unlike what the Financial Administration Act states, neither the OAS nor the CPP collects interest on overpayments.

The proposed legislation will formally recognize that the government does not wish to charge interest to seniors and will exempt the OAS program and the CPP from the provisions of the FAA that oblige the programs to charge interest.

The Auditor General also recognized that the existing penalty provisions in the OAS Act were never brought into force. Penalties were supposed to be assessed in cases of deliberate misrepresentation or fraud. The proposed provisions would ensure that both acts are in compliance, as recommended by the Auditor General.

There are some other proposed common amendments. They are identified on the next-to-last slide. These relate to broader access by Canadians to electronic services that would provide the ability to apply for benefits online, which current legislation does not allow for.

Another proposal would ensure that information can be shared with third parties other than those who have been specifically listed in legislation--for example, advocates and lawyers. The amendments would enable seniors to share information with family members in order to facilitate the application process and the administration of their benefits throughout their lifetime.

Finally, some of the provisions propose to update the French translation of certain sections that have been noted not to be coincident with the English versions in the past.

I've come to the end of a very long presentation. You have my apologies for the length of it.

In conclusion, I'd like to say that we think Bill C-36 will provide greater access to pension benefits, strengthen the administration of the program, hopefully simplify some of the red tape that's involved in it now, and implement many of the suggestions and recommendations for improvements that have come from Canadians and from your committee.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Dean Allison]

Thank you, Ms. Scotti.

We're now going to move to our first round of questions. Mr. Savage will start.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Thank you, Mr. Chair.

I suspect I might split my time with Ms. Dhalla; I'll try not to use all the time.

Thank you very much for coming and presenting the recommended changes and the reasons for them.

I'd like to ask some questions on old age security. How many Canadians are on GIS, and how many are on the allowance now?

[Susan Scotti]

Our estimate is about 1.5 million GIS recipients. I'm not sure about the specifics for the allowance.

[Marla Israel, Director, International Policy and Agreements, Seniors and Pensions Policy Secretariat, Social Development Sectors Branch, Department of Human Resources and Social Development]

There are 67,000 females who receive the allowance and 5,000 males who receive the allowance.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Did you say 1.5 million on GIS?

[Susan Scotti]

That's right.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Did you say it's $15,000 for a single and $20,000 for a couple?

[Marla Israel]

Different thresholds are available for the GIS. I have the table of rates right here. It would make it a little easier and simplify it, if you want to see that.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

It looks like a Lotto card.

[Marla Israel]

They're for everybody, but one of the most important things to note is that if a person who is single has an income above $15,000 a year, the person is no longer entitled to receive the GIS. Then there are different categories, and the thresholds differ with respect to whether a GIS recipient is married to a non-pensioner, or if the GIS pensioner is married to another GIS pensioner. The income thresholds will vary in those cases.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

I suspect the committee has looked at this before, but being new to the committee, I'll ask how many Canadians would be eligible. I know it's an estimate, but is it a significant problem with Canadians who are eligible for a GIS and the allowance but don't access it, for a variety of reasons?

[Susan Scotti]

There have been different estimates of those numbers over the years. I think this committee in 2001 estimated that potentially 200,000 Canadians might be eligible for the GIS—

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

I'm sorry, how many?

[Susan Scotti]

In 2001 it was...300,000 who were not accessing the GIS benefit.

I think currently our estimates are that it might be closer to about 100,000. It's difficult to get into the numbers game, because there are a variety of reasons that individuals either might not apply for the benefit or might not be eligible to receive the benefit.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

What kinds of efforts does the department make to reach those people?

[Susan Scotti]

There are many and different extensive efforts that we undertake to reach as many Canadians as we possibly can who we think are eligible for the GIS—outreach activities, actually sending out people to remote and rural communities where there are aboriginal populations, or in areas where there are immigrant populations where literacy might be an issue. So it's a very proactive, concerted effort in that regard. We mail out information to individuals.

Since 1999, I can say that as a result of the mail-out of the pre-filled GIS applications, we've been able to add 250,000 seniors to the benefit. This is since 2002, and these efforts continue very actively. We have many active partnerships with aboriginal communities and homeless Canadians, so the vulnerable populations are very much a focus of our outreach activities. We're constantly looking for innovative ways by which we can reach the non-tax-filers, because we know that we can reach everyone who files an income tax return, but very often, if the individual has not filed a tax return, we do not know who they are or where they might be.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Will waiving the reapplication have an impact on that at all? Should it be helpful?

[Susan Scotti]

We think it will have quite a significant impact, because it will mean that people whose income might fluctuate and might forget to reapply would be captured as a result of the single filing of the single application form. The onus would then be on us to get the financial information through the income tax forms. We think that measure will go a very long way to closing the gap.

[Michael Savage, Liberal, Dartmouth—Cole Harbour, NS]

Okay.

Towards the end of your presentation, you spoke about information sharing, proposed changes, expanding the group of third parties. You mentioned advocates and lawyers. You're talking about advocates on behalf of the pensioner, as opposed to any other third party that might get more information from this? There are no privacy implications on this bill?