Status of Women Committee on Oct. 6th, 2009

[The Vice-Chair, NDP, Irene Mathyssen]

Thank you very much.

I'd like to welcome our guests from Human Resources and Social Development Canada. I thank you for being here today and ask you to begin. You have 10 minutes to make your presentation.

[Dominique La Salle, Acting Senior Assistant Deputy Minister, Income Security and Social Development, Department of Human Resources and Social Development Canada]

Thank you very much, Madam Vice-Chair and committee members, for inviting us today

My name is Dominique La Salle. I'm acting senior assistant deputy minister for income security and social development at HRSDC. I understand you're most interested in being provided with an overview of Canada's retirement income system, the dropout provision of the CPP, registered pension plan coverage, and governmental roles in relation to pensions.

I will do a brief presentation. My colleague Thomas Shepherd, who is director of the division of retirement and aging at HRSDC, will follow up. I am also thankful that my colleagues Heather Bordeleau, who is director of CPP policy, and Nathalie Martel, who is director of OAS policy, are here today. Each of them is responsible for over $30 billion of spending annually, and they will help me get out of any trouble I get into.

I will provide a general overview of the retirement income system and speak to the public elements of the system.

The primary role of Canada's retirement income system is to provide Canadians with adequate and stable income in retirement. The system aims to accomplish two key objectives. The first is to prevent and alleviate low income among Canadians 65 years of age and over, and the second is to help Canadians avoid a significant decline in their standard of living when they retire.

Canada's retirement income system is made up of three pillars. The first, Old Age Security, is a virtually universal non-contributory public pension provided to 98% of Canadians 65 years of age and older. Some 4.4 million seniors receive the OAS benefit annually; 2.5 million women and 1.9 million men.

OAS pensioners with little or no other income are also eligible for the Guaranteed Income Supplement. In 2008, there were 1.6 million recipients of GIS; one million women and 0.6 million men. The current average monthly benefit for OAS is $489 per month and the average monthly benefit for GIS for a single individual is $447 per month.

The Canada Pension Plan and Quebec Pension Plan make up the second pillar of our RIS. these plans are mandatory contributory pensions for workers, funded in equal parts by the employer and employee. In 1980, there were 8.4 million contributors to CPP, of which approximately 5.1 million were male and 3.3 million were female.

By 2007, the number of workers contributing to the program had risen substantially to approximately 12.5 million. The increase was more pronounced for women, who rose to 5.9 million contributors. Women now constitute 47% of all contributors. With regard to recipients of CCP retirement pensions, as of July 2009, 50.5% were women and the average monthly benefits provided are $578 for men and $368 for women.

The first two pillars of our system that I have just described play an essential role in reducing poverty among seniors. In this area, Canada is a world leader. The public system, made up of these two pillars, constitutes a modest retirement income base to build on.

My colleague will talk about the third pillar, which is voluntary and consists mainly of registered pension plans and registered retirement savings plans.

Let me turn to how the public system assists women.

Canada's public pension system recognizes the contributions that all Canadians make to society. It recognizes the important contributions made by those who forgo participation in the paid workforce to stay home to care for their children and other dependants. Historically, this group has largely been made up of women, and while more men are also providing care, it is still the case today. Both the OAS and the CPP contain several design features that are of particular relevance in helping to protect the financial well-being of women. I will expand on these elements after providing a general overview of Canada's public sector programs.

The OAS benefits are intended to provide partial income security for senior Canadians in recognition of the contribution they have made to Canadian society and the economy. As employment history is not a factor in determining eligibility, those who have had limited or no engagement in paid work can receive OAS benefits. This feature is particularly helpful for women who may have had frequent interruptions in their labour market participation or for women who worked at home instead of the paid labour force.

The benefits under the OAS program include the basic monthly OAS pension, the guaranteed income supplement for low-income seniors, and the allowance for low-income spouses and common law partners of GIS recipients, or survivors aged 60 to 64. The GIS is an income-tested benefit under the OAS program that ensures that the overall income of seniors does not fall below a specific threshold. All benefits are indexed quarterly to ensure that the value of OAS benefits is maintained over time.

OAS benefits help all seniors, but women in particular. Women constitute more than half of OAS pensioners, two-thirds of GIS recipients, and 90% of allowance recipients. In fact, the purpose of the allowance is aimed directly at life events that impact women more frequently, given their higher likelihood of becoming widows.

In 2007 the GIS earnings exemption was increased from $500 to $3,500, which allowed GIS recipients to keep more of their GIS benefit. Women constitute over half of those who will benefit from this measure.

Turning to the Canada Pension Plan, it provides contributors and their families with basic income replacement upon retirement, disability, or death of a wage earner. It covers workers in ail sectors of the economy, including those working in non-standard arrangements and the self-employed, both of which are important sectors for women.

In providing coverage to contributors, there are several provisions within the CPP that recognize the value of unpaid work. These include a general dropout provision, the child rearing provision, credit splitting, pension sharing, and the surviving spouse's pension. Women are the primary beneficiaries of many of these benefits and provisions.

The CPP's general dropout provision allows 15% of the months or years of lowest earnings to be excluded from the calculation of pension benefits. This provision is intended to compensate for times out of the paid workforce for any reason. It therefore helps caregivers offset the negative financial impacts on their CPP retirement pensions of reduced time of paid work. Last week, legislation was tabled in Parliament to increase this provision to 16% in 2012 and 17% from 2014 onwards, up to a maximum of eight years of benefit protection from reduced or no contributions to the plan.

The CPP child rearing provision helps parents who had periods of low or no earnings associated with caring for children under the age of seven by excluding those years in the calculation of their CPP retirement pensions. This is, of course, particularly beneficial to women who are more likely to reduce labour force participation to care for their young children.

The CPP allows for credit splitting, which is the division of CPP contributory credits upon divorce or separation of married spouses or breakdown of a common law union. It enables former spouses and partners to equally share CPP credits earned during the period of cohabitation. Through credit splitting, the CPP recognizes the contribution to families and society made by both spouses through paid employment, unpaid work in the home, or both. It ensures that former spouses receive their equal share of the CPP credits earned through their joint efforts. In 2005, 95% of all credit-splitting applicants were women, the vast majority of whom benefited from the provision.

For couples already receiving CPP retirement pensions, pension sharing is permitted. Spouses and common law partners in an ongoing relationship may share their CPP retirement pensions equally, taking into account the period of their cohabitation. In situations where one spouse or partner had significantly higher earnings than the other, this could result in tax savings for the couple. In cases where a woman had made few or no contributions to the CPP, pension sharing creates a payment in her own name.

As well, the CPP provides a survivor's pension to eligible spouses in the event of a contributor's death. Criteria such as the age of the survivor, whether the survivor is maintaining any dependent children, or has a disability are considered in determining eligibility and the amount of the pension benefits. In 2008, 84% of survivors were women.

As a social insurance plan, the CPP strives to strike an affordable balance between protecting women for periods of low or no earnings and the requirement for contributions. Given its universality, portability, long-term financial sustainability, price-indexed benefits, and family-friendly policies, the CPP is a world-class pension program.

Its financial footing is solid. At the current contribution rate, the chief actuary of Canada has attested that it is sustainable for the next 75 years.

I will now turn to my colleague Thomas Shepherd.

[Thomas Shepherd, Director, Retirement and Aging Division, Department of Human Resources and Social Development Canada]

I will speak to how the system has performed as a whole in achieving its objectives, focusing on the situation of women. Then I'll delve further into the private pillar and the questions you had about pension coverage and DB and DC plans.

In general, income levels for seniors have been growing. In 1980 the median after-tax income for seniors in a family of two or more was $33,600. This increased to over $40,000 in 2005. For unattached senior women, median after-tax income increased from $13,300 in 1980 to $19,100 by 2005. For unattached male seniors, the increase was from over $14,000 to over $20,000 in that same period.

The incidence of low income among seniors has decreased sharply for all family types since 1980. The percentage of seniors living below the after-tax low-income cut-off in 1980 was 21.4%, and by 2007 it had decreased to 4.8%. When we look at seniors living alone, men and women experienced a similar trend. In 1980 the percentage of unattached senior women living in low income was 57%. It was 47% for unattached men. By 2007 only 14.3% of unattached women lived below the low-income cut-off. Unattached men were doing slightly better at 13%. Looking to the future, this downward trend could continue among women, given their increasing participation in the labour force and contributions to CPP, registered pension plans, and RRSPs.

Sources of retirement income differ by age. Women rely more heavily on the public system than men, but the makeup of women's retirement income has been changing over time. There has been a general shift within the income sources in retirement that basically reflects paid labour force participation. Between 1980 and 2005, women's reliance on the public system remained the same, around 52%; however, it shifted from primarily OAS and GIS to work-related pension. It went from 13.7% from the CPP in 1990 to 20% in 2005. In other sources of income women have also experienced a shift, with increased income from registered pension plans and RRSPs, from 11.6% in 1990 to 27.3% in 2005.

Changes in labour force participation have played the primary role in the changes in the composition of women's retirement income. In 1976, 46% of women aged 15 or over were part of the paid workforce. By 2008 this had increased to 63%. For men the trend is a slight decrease in that time period, from 78% to 73%, but most striking is the increase in women aged 25 to 44 participating in paid labour: 54% in 1976, up to 82% in 2008.

With these increases in labour force participation we have seen increases in registered pension plan coverage and RRSP contributions for women. In 1979, 36.1% of women working in the labour force were members of an RPP. By 2006 this had increased to 38.9%. However, overall RPP coverage for workers dropped from 45.8% to 38%. This is because men's coverage has fallen from 52% in 1979 to 37.5% in 2006. Basically, the RPP coverage rate among women has surpassed that of men in 2007.

Perhaps more important, when you look at the length of time workers contribute to an RPP, using the Lifepaths microsimulation model, we see that 15% of women aged 65 in 1990 had contributed to an RPP for at least 15 years, compared to 29% for men, a substantial gap in 1990. Since then, however, this gap has been shrinking and is projected to continue to do so. This model projects that by 2017, 33% of women aged 65 will have contributed to an RPP for at least 15 years compared to 36% of men, a much smaller difference.

When we look more closely at RPP coverage, there are different trends when comparing defined benefit plans and defined contribution plans. DB plans provide more predictable lifetime benefits, generally based on years of service and usually as a fixed percentage of salary. Defined contribution plans are individual accounts into which employers and employees contribute. The pension received by an employee in a DC plan depends in part on the investment returns earned. Overall, DB coverage has declined from 43.5% in 1979 to 30.6% in 2006, while coverage in defined contribution plans has grown from 2.4% in 1979 to 6% in 2006. In 2006, 32.3% of women in the labour force were members of a defined benefit plan compared to 29.1% of men. So again, it was slightly higher than among men.

We've also seen an increase in RRSP contributions for both men and women since the 1980s. The proportion of women aged 35 to 39 contributing increased from 9% in 1981 to 31% in 2001. During that time period, the proportion of men aged 35 to 39 contributing rose from 21% to 38%. So although there remains a gap between men and women, it has been narrowing significantly over time.

Now I'll just speak briefly to your questions about the role of government within the system.

The Government of Canada is responsible for the first pillar of the RIS and shares responsibility for the second and third pillars with the provinces. The Government of Canada is a co-steward with provincial governments of both CPP and the CPP tri-annual reviews. Administering or delivering the plan is the Government of Canada's responsibility.

For the third pillar, the Government of Canada, through the Department of Finance, is responsible for setting the overall incentive structure for RPPs and other savings vehicles through the tax system. RPP regulation is divided among the two levels of government. The Government of Canada, through the Office of the Superintendent of Financial Institutions and the Department of Finance, is responsible for all federally-regulated employer plans (approximately 7 % of all plans currently) while the provinces are responsible for the remainder of plans in Canada. Examples of federally-regulated plans include: pension plans for some federal crown corporations, banks, companies involved in inter-provincial and/or international transportation, and communications companies. More detailed information on this issue is available from officials with the Department of Finance.

In conclusion, to date, Canada's retirement income system has done very well in achieving its key objectives, and in increasing pension security among all seniors, both men and women. Looking at women specifically, the overall trends are positive. Senior women's incomes have been growing and their poverty rate has declined dramatically over the last two to three decades. It is a fact however, that the majority of seniors remaining in low income are women, largely given their lack of past labour force participation. For example, in 2005, 80% of unattached low-income seniors were women. Nonetheless, the situation is likely to improve over time given that more and more Canadian women are contributing to and benefiting from work-based pensions such as the C/QPP as well as employer-sponsored pensions and RRSPs. As we have indicated, the pension coverage and savings gaps between women and men have been shrinking and are likely to continue to do so.

Madam Chair, and members of the committee, this concludes our opening remarks, and we welcome any questions.

[The Chair, Liberal, Hedy Fry]

Thank you very much.

I think we will now proceed to the questions. I want to apologize to everyone for being late. I had to participate in a scrum, and they tend to go a little bit over time. I'm very sorry about that. I know that the vice-chair did an extraordinarily good job of beginning the meeting.

The first round is going to be seven minutes, and that means seven minutes for the question and the answer. I wanted to remind everyone of that.

First is Anita Neville.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Thank you, Madam Chair.

Thank you all for coming on what I assume was relatively short notice for you to prepare this document. And thank you, because you've given us a lot of information here, probably more information than I know the questions to ask. I'm hoping that at some point you'll come back as we gain further information so that we can question you with more knowledge.

You talk about women constituting more than half of OAS pensioners, two-thirds of GIS recipients, and 90% of allowance recipients. Have you projected those figures out 10 to 20 years?

[Nathalie Martel, Director, Old Age Security Policy, Department of Human Resources and Social Development Canada]

Hi.

We don't have any numbers with us today, but we can look at the projections made by the office of the chief actuary. They've done a lot of projections. I can check to see if they've done any projections based on gender.

So I can get back to you on that.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Thank you.

That just raises another question--namely, in any projection that you do, any information that you gather, is it all disaggregated by gender? Is everything done with a gender lens as well?

[Nathalie Martel]

All of our projections are made by the office of the chief actuary, so I will check with them.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Okay. Thank you.

[Dominique La Salle]

Perhaps I can venture something here.

I would think that because of the difference in life expectancy between genders, the chief actuary would certainly disaggregate his projections in some fashion. These are done every three years, these actuarial projections of the cost of OAS, CPP, and other programs.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

When you look at current rates in all programs, do you look at them in the context of the increasing cost of living? Does that factor into your discussions?

[Dominique La Salle]

There are assumptions made in terms of how the economy will grow, the inflation rate, and so on and so forth. They're based on what would be an acceptable real rate of return on investments, for example, and factor in the cost of inflation.

[Thomas Shepherd]

The programs themselves are also indexed.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

No, I'm aware of that. I'm just....

In your conclusion, you say that the overall trends are positive. I would like to believe it, but I'm skeptical. We know that women are frequently employed in more precarious employment. We have a report from Statistics Canada on that. It affects women's ability to plan for their retirement.

We know that women frequently leave the workforce often not realizing, although I think maybe I'm speaking for myself there, the impact it will have on their pensions when they choose to stay home for whatever purpose. Do you have any public education system in terms of, “This is what kind of earnings will result if you do X, Y, and Z”, or is it just, “These are the facts”?

[Dominique La Salle]

You're touching on the issue of financial literacy a little bit.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Financial literacy particularly as it relates to the impact of one's behaviour, in or out of the workforce, on pensions.

[Dominique La Salle]

On that per se, I don't think so; I don't think that exists.

On the issue of financial literacy, there is no question that Canadians could learn a few more things. It's difficult; we find, and this is the international experience as well, that people tend to focus on this thing later on in their lives. Pensions and so on are not of particular concern to you when you're in your twenties.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

My point exactly.

[Dominique La Salle]

So we should do more to educate, I concur.

There was a task force announced in budget 2009 to look at the issue of financial literacy.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

I'm jumping all over because I have lots of questions, and they're all disconnected.

The government introduced pension splitting. I have met with many seniors in my riding who know that pension splitting benefits only when you have someone to split a pension with. Many, as you've identified, are single women who don't.

Has there been any thought or any plan on how they may benefit financially to compensate for the lack of someone to split a pension with?

[Dominique La Salle]

I would not venture a comment on that. This is entirely within the purview of the tax system, which is the Department of Finance. It's a tax policy issue.

[Anita Neville, Liberal, Winnipeg South Centre, MB]

Okay, all right. That was probably unfair of me to ask that question.

What are your projections, given their increased labour force attachment, as it benefits women in their pensions?

[Thomas Shepherd]

Again, we did go through a lot of statistics fairly quickly, but the key one I would highlight is the projection of the proportion of women reaching age 65 who will have at least 15 years of contributions to a private pension, because that indicates that they're not only members in any given year, but they have a substantial base of contributions.

The projection is that it will have increased from about 15% of women reaching age 65 to about 33%, and the projection is that men will be about 36%. When you look at all these, as we do on a regular basis, but more specifically in relation to this request, the trends are strongly positive. As I mentioned, you now have a larger proportion of the women's workforce who are contributing to an RPP, and more with the defined benefit plan. We're looking into why this is the case. It's partly due to the overrepresentation of women in the public sector, because pension coverage is much, much higher in the public sector than in the private sector, so there's some balancing effect there that balances the participation in precarious work. You also have a large representation in the public sector with high coverage.

[The Chair, Liberal, Hedy Fry]

Thank you very much.

We now move on to Madam Demers.

[Nicole Demers, Bloc, Laval, QC]

Thank you, Madam Chair.

Thank you very much for coming. I too have a lot of questions to ask. I would like to start perhaps with you, Ms. Bordeleau, since you are responsible for Canada Pension Plan policies.

Since you are responsible for such policies, do you take part in meetings that are now held annually in cooperation with Status of Women Canada, so as to take people into consideration in setting budgets or new policies?