Status of Women Committee on Oct. 20th, 2009

[Grant Schellenberg]

Yes, that's right.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

You also state that 59% of women have fixed benefit plans and that 26% have fixed contribution plans. Is that correct?

[Grant Schellenberg]

What that table shows is that for women in the private sector, 22% have an employer-sponsored pension plan or a registered pension plan. The defined benefit, defined contribution, and mixed plans are part of that 22%.

There is an interesting point to be made here. Take as one's benchmark the defined benefit pension plan. If you multiply the 59% by the 22% coverage rate, what that table shows is that 13% of women in the private sector have a defined benefit pension plan and 18% of men in the private sector have a defined benefit pension plan.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

So that means that 78% of women in the private sector don't have coverage, that they don't have benefit plans—

[Grant Schellenberg]

Seventy-eight per cent don't have coverage under a registered pension plan. That proportion would be reduced to the extent that people have group RRSPs, which are not included in this database.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

Those 78% therefore can vary by a few percentage points, from what I understand. So a lot of women won't have coverage at retirement, according to those statistics, unless I'm mistaken.

[Grant Schellenberg]

That's correct.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

So that means that most of them, that 78%, will never be able to comply with what all the financial advisors say, that you have to cover nearly 60% to 70% of your income in order to have an adequate pension.

[Grant Schellenberg]

Think about Canada's retirement income system as comprising three tiers: OAS and GIS are the first tier, the Canada Pension Plan is the second tier, and registered pension plans and RRSPs are the third tier. While the majority of women in the private sector do not have a registered pension plan, the extent to which they can contribute to RRSPs is there as the alternative savings vehicle, with higher contribution limits set for those who don't have the pension adjustment.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

Do we have any statistics that show where the majority of these women stand from a wage perspective? Are they in the high, average or much lower wage category?

That means that, if they are in the wage category... Those women who have been displaced from their jobs as a result of the current crisis are all in the low-end of the wage category. Logically, their chance of having RRSPs ultimately is virtually nil. Can we have your comments on that subject?

[Grant Schellenberg]

The viability of purchasing RRSPs, obviously, and the economic and the tax advantage of investing in RRSPs would vary across the income distribution. I think it would be an overstatement to say the vast majority of them are concentrated at the very bottom of the income distribution. Women in the private sector, particularly those with higher levels of education, do achieve reasonable earning.

I think your point here is to express concern that within the private sector a significant proportion of women do not have RPP coverage and are likely to have earnings at which RRSP contributions are not feasible or do not make tax sense. And I would say that there is a significant proportion of women for whom that is the case.

I would add that there would be women farther up the distribution who are making RRSP contributions as well. There's a range.

[The Chair, Liberal, Hedy Fry]

Thank you.

Yes, Monsieur Desnoyers.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

Would it be possible to get the data on what you've just said?

[Grant Schellenberg]

Yes.

[Luc Desnoyers, Bloc, Rivière-des-Mille-Îles, QC]

Thank you.

[The Chair, Liberal, Hedy Fry]

Irene Mathyssen.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

Thank you, Madam Chair.

I have a question in regard to the longer term. Currently CPP is indexed using the consumer price index, but we know wages rise more quickly, or they have been rising more quickly, so essentially families earning income are doing better in terms of their ability to have spending money, a standard of living. In terms of those who are retired, since the CPP is based on the consumer price index, they're falling further and further behind and their standard of living is in decline. I'm wondering if you've taken a look at the impact of that in terms of whether we should be changing the way the CPP is calculated. Is that something we should take a serious look at?

[Ted Wannell]

I don't think we want to say anything about what should be done.

For example, we know that in the United States the situation is the opposite and they're having a hard time financing things based on the average industrial wage. I think we have to recognize that when you come into the system your starting pension is based on increases in the average industrial wage and it switches into CPI mode once you start receiving the benefits.

I think the other thing to think about is looking at what the needs are. What we generally know there, looking at household spending patterns over time, is that people's household spending tends to stay pretty flat until about age 75 and then starts to decline after that. And whether that is based on actual declines in their needs or declines in the relative spending power of the CPP, we really don't know.

[Irene Mathyssen, NDP, London—Fanshawe, ON]

I want to get back to this income replacement rate of between 60% and 70%. Do we know what proportion of senior women actually experience that level of replacement income upon retirement?

[Grant Schellenberg]

The issue of income replacement rates is one that I would approach as a basket of indicators that one uses to assess the financial well-being of seniors. It is very possible to have a woman who has very modest attachment to the paid labour force through her working life, then at age 65 receives the guaranteed income supplement and old age security and meagre CPP benefits, and her earnings replacement rate is far above one, it might approach two, but her absolute level of income may be $15,000 or $18,000. So when we look at the very bottom of the income distribution, the concept of income replacement rates provides some information, but if your income was low during your working life and your income is comparable during your retirement, you will have a replacement rate of one. At that point, I think the additional indicators one ought to consider would be absolute levels of income, composition of income, and the extent to which one would rely on the guaranteed income supplement and other income support programs to maintain income in old age.

When we get further up the income distribution or, more accurately, the earnings distribution, the earnings replacement rate begins to make more sense in terms of a measure of the replacement of the standard of living. So at the middle of the distribution, if your earnings are $80,000 at age 40 or 50 and your income at age 70 is $50,000, you have a replacement rate of 0.67, and that in conjunction with some indicators around absolute levels and composition of income provides you with a picture. Similarly, you could have a hockey player with the Ottawa Senators who has a huge income at age 30 and huge lifetime earnings and has an income replacement rate of 0.3 at age 70, when in fact that tells us very little about the standard of living he is able to maintain.

In that sense, then, I would flag income replacement rates or earnings replacement rates as one of a series of measures that are useful to assess financial characteristics, but on it's own, I think, it ought to be interpreted with a degree of caution.

The other point I would make here is that while the concept of earnings replacement rates is frequently used and is an attractive benchmark for financial planners and policy-makers, there is no single agreed-upon definition of the concept or how to measure it. When we go back to the literature on this, you find people use very different things in the denominator. For pre-retirement income, is it income that is in the denominator in the calculation or is it earnings? If it's either of those, what do we count as pre-retirement? Is it the five years before receiving CPP? Is it average earnings between 45 and 64? Is it average annual earnings over a lifetime? What one puts in the denominator makes a very big difference.

Similarly, a numerator of the replacement rate, that is income in retirement, is not exactly straightforward either. For example, we have a significant proportion of people at age 70 who are receiving earnings. The very concept of an income or earnings replacement rate means that earnings are being replaced with something else. So if they are still working, do we count them in an earnings replacement rate calculation and do we count their earnings in that? Different people take different approaches to both of those issues.

One more that I would flag here is coming back to your issue of the CPI versus the average industrial wage. How do we adjust the dollar figures from the pre-retirement to the post-retirement period of time? Do we put them in constant dollars using the consumer price index, or do we put them in constant dollars in terms of average industrial wages or some other wage measure? That also can have very big implications for replacement rate outcomes.

To further complicate matters, sometimes in the calculation of replacement rates people take into account declining family size--the fact that children leave home and hence a dollar at age 70 may go further, or not--and family size at, say, age 40, and how does one take that into account?

Finally, I would throw into all that mix, how does one treat home equity in the replacement rate? If you live in a home at age 70 that you own outright, do you calculate some form of imputed rent? In a sense you're deriving an invisible income stream.

[The Chair, Liberal, Hedy Fry]

Thank you very much. You went well over time, but you were bringing in some very important indicators that we had to look at.

Sylvie.

[Sylvie Boucher, Conservative, Beauport—Limoilou, QC]

I'm going to share my time with Ms. McLeod.

I just have one brief question on the table that Ms. Desnoyers referred to earlier. We see that the coverage rate for women in the private sector is 22% and that of men is 29%. Unless I'm mistaken, there is still a seven-percentage point difference between women and men.

Have you made any calculations to determine the wage category they're in? Are the 29% of men and 22% of women in the same wage category? Are they in the middle, lower or upper ends? Could we have those figures concerning wages so we can determine where women in the private sector stand relative to men as regards pensions?

[Grant Schellenberg]

The 22% and the 29% in the private sector are the gross unadjusted rates. It's virtually all women, all men, with no attempt to make comparisons among those who have comparable levels of income.

Now, with this data source, the question is on limitations of the data. For example, regarding the data source with the 22% and the 29% that we have here, we don't know anything about those individuals aside from whether they're male or female. We don't know their earnings or their ages. To get a comparison of what you're talking about, one would hope we could go to tax data, for example, and there we have very good information on the earnings and pension coverage. The problem is that for prior to 2000 we have no information about the industries in which they're working. I think in more recent years we do have that, so we could look at private sector coverage, in a sense controlling for earnings, as you're suggesting. We could go back and do that, using the taxation data or the survey data to make the comparison you're asking for.

[Sylvie Boucher, Conservative, Beauport—Limoilou, QC]

That would be very important.

[The Chair, Liberal, Hedy Fry]

Cathy.