Thank you for the opportunity for CAPS to be able to make this presentation to you.
I just want to remind you that CAPS, the Canadian Activists for Pension Splitting, is a single-issue advocacy group on behalf of pension splitting. While there are 23 different organizations that are involved in the common front, this is the only one that has this as a single issue. I would just like to put that into perspective.
First of all, we'd like to assure you that we're not barging an open door. We are aware of and very pleased that the government has introduced the tax fairness ways and means motion, which includes pension splitting, and we are convinced that it will become tax law, notwithstanding the fact that this initiative has been bundled with several others, including the income trust initiative.
We are optimistic, and that may be borne out in the third reading of the budget today, but we recognize, although it is well on its way to final approval, it is not yet tax law, so we remain both vigilant and cautious. Despite our caution, this presentation is not designed to convince you of the inherent fairness of pension splitting. That has now been recognized by the government, by the media, and by the Canadian people, who have expressed strong support for the initiative.
Our intention today is to make it clear to you why pension splitting is a significant benefit for senior women. To understand why this is so, a brief explanation of pension splitting provides the basis for this assertion. The following excerpt from the Finance Canada website states, under pension splitting:
Spouses are assumed to split eligible pension income so that each spouse reports an equal amount, subject to the maximum allocation of 50% of this income.
For example, if one spouse has $40,000 in eligible pension income and the other has $10,000 in eligible pension income, it is assumed that both spouses report $25,000 in eligible pension income for tax purposes.
You will see attached to the presentation a table that was prepared for us by one of the chartered accountants associated with CAPS, and it shows the impact of pension splitting based on the 2005 tax year. As you will see, while not a large amount, this additional tax relief will go a long way to assisting senior couples living on pension income.
CAPS believes that this income tax reform will benefit senior married women whose income is lower than their husbands. Current seniors formed their division of labour within their households at a time when it was common and traditional for a married couple to have a breadwinner and a homemaker. The motives for this division of labour included the well-respected belief that it was best for raising children.
Even if those women wanted to work, they lived in a generation when careers for women were limited by the glass ceiling and gender discrimination was rampant. Many had little or no opportunity to develop a pension or RRSP nest egg of their own, and in many occupations women were excluded. In teaching, for example, we laid them off when they became visibly pregnant. There was no paid pregnancy leave.
Women who held key jobs during World War II were expected to resign to make room for breadwinner veterans. In some occupations, for example, telephone operators, women were required to train the men to become their bosses.
Even as late as the 1960s, there were some major employers who would not employ married women.
So it was in good faith that many couples starting out committed themselves to essentially a single income then and thus largely a single retirement income now.
It was not until the 1988 tax year that the income tax formula changed in such a way as to increase the single-income penalty to a significant amount for many couples. By that time, today's seniors had committed themselves to their household division of labour and career paths and it was too late for those in the traditional stream to salvage their tax prospects much, both while employed and for retirement, even with spousal RRSPs.
In contrast, younger couples who started out after 1988 and who were better acquainted with a government-blessed, dual-income lifestyle could take the prospect of a lifelong single-income penalty into account in choosing their division of labour.
There are currently ways to avoid some of the single-income penalty in retirement: RRSPs, spousal RRSPs, CPP. However, these came too late for many current seniors to take advantage of; CPP contributions began in 1966, and RRSPs began in 1988.
Senior women are discriminated against, as far as CPP is concerned, in that most of the current senior women either came through the system before the introduction of the CPP and/or came through the system when women were discriminated against in the workplace. Because CPP does not recognize the economic value of the work that women perform when they stay at home, these senior women now draw either a minimum amount of CPP or none at all.
How, then, does pension splitting benefit senior women? First of all, Statistics Canada has observed that five years after the death of a spouse--which normally is accompanied by the loss of at least 50% of the deceased's pension--a widow's income generally drops by more than 15%. Because these women tend to be the ones who took time away from paid work to perform caregiving roles at home, they generally have access to only a lower pension or no pension. With the death of a spouse, 5.1% of widowers are in the low-income bracket, but 8.7% of widows are in the same category.
The following example will help illustrate the unfairness of the current tax regime as it applies--and hopefully this soon won't be the current tax regime--to couples drawing pension income. I have provided two examples. Group A are two seniors, both pensioners, each with $30,000 in pension income, for a total of $60,000. Group B are two seniors, one pensioner, with $60,000 in total pension. Both groups earn $60,000 income in pensions. Suppose one of the pensioners in group A dies. The survivor receives their own pension of $30,000 plus half the other's pension, for a total of $45,000. If the pensioner in group B dies, the survivor receives half, or $30,000, of the deceased's pension to live on, while at the same time they have been paying more in tax for those preceding years. The scenario for non-pensioner survivors is unfair. Group A pays less tax and receives more than the pensioners in group B do.
The single-income penalty paid during all the years that group B were together has depleted their nest egg, leaving the survivor, most often the woman, with less wealth to live on. Pension splitting will help alleviate this by helping the couple avoid depletion of their wealth by the unfair single-income penalty during their retirement years. Since the survivor is more often the woman, the impact of pension splitting on senior women becomes clear. It is ironic and especially cruel that having suffered discrimination in the workplace throughout the productive years, senior women have to endure further prejudice when they are at their most vulnerable, after the death of their lifetime mate and breadwinner.
Thank you.