Good morning. We're pleased to be here to support you in your study looking at poverty reduction. Collectively my colleagues and I will address all of the income security programs and savings vehicles that were mentioned in the description of pillar three of your poverty reduction study.
As you know, on October 4, Minister Duclos appeared before you and tabled the discussion paper “Towards a Poverty Reduction Strategy”, with the intention of opening a conversation across Canada on poverty. The discussion paper highlights a range of areas that effect and are affected by poverty, including housing, income, employment, and health. It also talks about how poverty affects educational opportunities and social mobility.
Income- and asset-based approaches to poverty reduction are widely used, both within Canada and internationally. Income supports provide those living in low income with immediate assistance, while asset-based approaches and programs that encourage people to save help prevent poverty in the future and help prevent the transmission of poverty from one generation to the other.
The programs my colleagues and I will speak to you about are key supports that both contribute to lifting low-income Canadians out of poverty and help them join the middle class.
Let me begin by talking about the first pillar of Canada's public pensions, that is, the old age security program, or OAS for short. The OAS program is a non-contributory, residence-based program financed through general tax revenues. The program's objective is to ensure a minimum income to Canada's seniors and to mitigate income disruptions at retirement.
It has three components: the OAS pension, which is provided to all seniors aged 65 and over who meet the residence requirements; the guaranteed income supplement, or GIS, for low-income seniors; and an allowance to low-income individuals aged 60 to 64 who are the spouses or common-law partners of GIS recipients, or who are widows or widowers. Currently a single senior with no other income receives a maximum of about $17,300 per year in OAS and GIS benefits. For couples, the maximum amount is about $26,300 per year.
Budget 2016 introduced two significant changes to the OAS program. First, the government cancelled the increase in the age of eligibility for the OAS pension and the GIS from 65 to 67, which was scheduled to begin in April 2023. Because vulnerable seniors depend heavily on OAS benefits, the increase in the age of eligibility would have otherwise raised the number of seniors aged 65 and 66 living in low income. Budget 2016 also increased the GIS for the most vulnerable single seniors, effective July 2016. Specifically, the GIS top-up was increased by $947 per year for the lowest-incomes single seniors.
Finally, the government is also committed to ensuring that OAS and GIS benefits keep pace with the cost of living faced by seniors, and is examining ways a seniors price index could be developed.
The second pillar of Canada's public pensions is the Canada pension plan. It is a contributory social insurance program that replaces a portion of earnings of contributing workers in the event of retirement, disability, or death. The CPP plays an important role in preventing moderate and middle-income households from sliding into poverty in retirement. In combination with the OAS program, it helps lower-income workers achieve high levels of income replacement in retirement.
The plan is particularly beneficial for low-income earners in two ways.
First, as an insurance plan, the CPP pools contributions. This keeps costs low and allows beneficiaries to receive a higher level of income protection than they would if their benefits were based strictly on their own contributions. The disability and survivor benefits reflect the plan's strong social insurance component and help reduce poverty. For example, a 2011 evaluation of the CPP disability program found that while 22% of CPP disability beneficiaries had an income below the low-income cut-off, this would have been 40% without the program.
Second, the CPP benefits low earners by exempting the first $3,500 of earnings from contributions, even though it provides income replacement from the first dollar of earnings. This means that low earners receive a higher return on their contribution, which is proportionally greater than that received by higher earners.
The enhancement of the CPP, agreed to recently by the federal government and the provinces, can further assist the federal government to reduce poverty. The enhancement will increase the replacement rate provided by the CPP retirement pension from one-quarter of pensionable earnings to one-third of pensionable earnings. This means workers at all income levels will receive more income in retirement. It will also increase the amount of survivor and disability benefits. In this context, the government is also increasing the working income tax benefit for low-income workers. This will help protect the disposable income of low-income families who contribute toward an enhanced CPP during their working years.
Before concluding, let me speak briefly to the registered education and disability savings plans.
The Registered Education Savings Plan, or RESP, assists families to save for their children's post-secondary education. The Government of Canada provides incentives to save in an RESP in the form of the Canada education savings grant and the Canada learning bond.
Canada learning bonds, which are federal contributions that do not require personal savings, are of particular benefit to low-income Canadians. Research shows that it is the presence, rather than the amount, of savings that creates aspirations for post-secondary education. In this context, RESPs play an important role in the Government of Canada's efforts to reduce poverty in Canada. Research shows that students with savings in RESPs are more likely to attend post-secondary education, independent of parental income, parental education, and other factors. Recent studies confirm that post-secondary credentials support the long-term economic success of Canadians in terms of increased earnings, reduced unemployment, and other benefits.
The registered disability savings plan, or RDSP, similarly is a tax-assisted, long-term savings plan. In this case it helps people with severe and prolonged disabilities and their families to save for retirement. Like the RESP, to help savings grow, the federal government deposits grants and bonds into the RDSPs of eligible Canadians with disabilities. Earnings accumulate tax free until the money is withdrawn.
The government is committed to promoting these savings vehicles and ensuring that they are accessible to all individuals and families who are eligible for these programs. Various outreach activities are undertaken to enhance the take-up.
I will now turn to my colleagues from the Department of Finance.
Thank you.