Thank you.
I promised your translators that I would try not to speak too quickly. If I do, give me a flag.
I am a labour economist. For those not familiar with me, a lot of my work revolves around issues of poverty and inequality, and I like to work on policy that relates to both retirement and gender equity. That gives you a sense of what my background here is.
What I would like to do today is discuss ideas on how we might recreate our income security system to better help our most vulnerable seniors while maintaining, and possibly improving, support for a broad range of seniors.
The income security system we have for seniors was largely developed in the late 1960s and 1970s. Central to this system was the introduction of the Canada Pension Plan, the old age security pension, and the guaranteed income supplement, for which the eligibility age was reduced to 65 in 1967.
A patchwork of programs and tax expenditures further help select groups of seniors. For example, the allowance and survivor’s allowance help widows and married seniors as early as age 60. A non-refundable tax credit for the age amount reduces the tax liability for those over age 65 with modest incomes. The tax deductions for the pension income amount and pension income splitting benefit those with eligible pensions, particularly those who are married with high income. Also, various programs at the provincial level further supplement income and assist with the costs facing seniors. In Ontario, some examples are GAINS, which offers a small income supplement; the public transit tax credit for seniors; and a home renovation tax credit, among other programs.
With that, the rate of poverty among seniors is quite low, enviably so across OECD countries. Unfortunately, we lack a good measure for senior poverty in Canada, and I would recommend that this committee consider the merits of devoting resources to better measures. Using our existing measures of poverty, we see that the highest poverty rates are among single seniors. In 1976, unattached elderly women had a poverty rate at 68%. In 2015, this fell to only 13%. However, the poverty rate for women who are in “economic families”—who by and large are married—is only 1%. Where are the gaps?
First, the OAS and GIS combined do a good job of bringing the incomes of married couples closer to the poverty line. In fact, the GIS expansion in 2006 and 2007 brought married couples up to the after-tax low-income cut-off. GIS does less for unmarried individuals, whose maximum benefits remain $4,000 to $5,000 below the poverty line. Increases in 2016 to the single GIS amounts improved that situation but still fall short.
We also fail many seniors who are single in the 60-64 age range. If a person is divorced or simply not married, they are ineligible for the benefits available to otherwise equivalent married and widowed low-income seniors in that age range. I think this reflects the expectations for family structure and work that prevailed in the late 1960s and 1970s. It is not clear to me why this penalty for being divorced remains in place.
Moving forward, I think there is merit in pursuing a major review and reform of the income security system. We need to update our expectations for the roles of men and women in families, as breadwinners, caregivers, or even as spouses, with gender equity considerations prominent in that effort. We need to reconsider Canadians’ priorities for supporting vulnerable populations as opposed to entire demographic groups. We need to account for the changing nature of work among older populations.
For example, the key parameter for program eligibility has been stuck at 65 since 1967. Many seniors are able to work longer than before, given better health and higher life expectancy. Our research suggests that if our work habits kept up with life expectancy, men could, on average, work five years longer than they currently do. However, our research also shows large differences in the ability to work at older ages across the population. I am concerned that a universal increase in the eligibility age will harm the most vulnerable seniors.
We could consider bringing together the patchwork of benefits and tax expenditures to streamline the income security system. I would make it more transparent and accountable, offering direct benefits rather than tax expenditures.
I would use our resources to better target vulnerable populations. I would also design a program with seniors’ work incentives in mind, which for economists means spending time thinking about marginally effective tax rates.
Where are some places where work incentives matter?
First, consider the guaranteed income supplement. While many seniors who receive GIS benefits do not have the opportunity to work full time, they may be able to work part year or part time. Since 2008, we exempt up to $3,500 in employment earnings and also allow a general exemption of $2,000 for the lowest income seniors. However, for earnings beyond the exemptions, the GIS benefit is reduced by 75¢ for every dollar earned. At higher earnings, the clawback rate falls to 50¢ for every dollar earned.
This high tax on work for low-income seniors, on top of clawbacks in provincial or municipal programs, leaves employment rather unrewarding. As a solution, we could take a lot of the resources we currently put toward low- and middle-income seniors and create a similarly generous program with lower clawback rates, so that vulnerable seniors who work can get ahead.
Second, I would suggest moving away from age 65 as the focal point. For example, I would love to see an experiment—this is me being a researcher—in which we keep the existing structure of CPP benefits in every way, but refer to age 70 as the focal age for defining the basic benefit calculation, rather than age 65. If we simultaneously expanded opportunities to delay OAS take-up, I suspect we would see the spike in retirements at age 65 disappear.
There are many things we can do in our system of taxes and benefits to better help and support the seniors who need help. My main message for this committee is that it is worth spending some time rethinking how we deliver that system.
I thank you for the opportunity to be here today and appreciate any questions from the committee