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.