What Canadians Received
January 1952 saw the beginning of the country's first universal old age pension, Old Age Security, for people 70 years of age and over. It also saw the first payments flow from the accompanying program, the income-tested Old Age Assistance for 65 to 69-year-olds. Both Old Age Security and Old Age Assistance were subject to a 20-year residency requirement and started with benefits of $40 per month.
By the early 1960s, the 20-year residence rule had been reduced to 10 years and regulations applying to the payment of Old Age Security pensions to people who were absent from the country had become less restrictive. Benefits had risen to $75 per month through ad hoc increases made by governments from time to time. As well, the personal, corporate, and sales taxes that funded the Old Age Security program had been increased.
By 1964, the government was distributing $755 million per year in Old Age Security pensions and $77 million per year in Old Age Assistance. The Old Age Security Fund out of which pensions were paid had acquired a deficit of approximately $670 million. Increases in funding were not sufficient to cover the rising pension costs, and more and more the program had to rely on the Consolidated Revenue Fund (i.e. general taxes) to make up the shortfall.
In 1965, with the passing of the Canada Pension Plan legislation, the qualifying age for Old Age Security was reduced from 70 to 65. The adjustment would take place one year at a time over the next five years. Old Age Security benefits were still $75 per month, but they would now be indexed, with provision for automatic increases of up to two per cent per year based on inflation. Old Age Assistance benefits would continue to be paid until Old Age Security came down to the age of 65 and rendered them obsolete. A revision in the residency requirements made it possible for applicants to discount absences if they had lived in Canada for a total of 40 years after reaching the age of 18.
Another amendment of the Old Age Security Act in 1966 established the income-tested Guaranteed Income Supplement. Although the first Canada Pension Plan pensions would commence on January 1, 1967, full pensions would not be available until 1976. The Guaranteed Income Supplement was meant to be in place only long enough to help the people who reached 65 before the full Canada Pension Plan pensions became available and who would have little or nothing other than Old Age Security, and perhaps a reduced Canada Pension Plan pension, to live on. However, the supplement was later made a permanent feature of the program. Under its provisions, income outside Old Age Security benefits was measured and the maximum supplement payable was reduced 50 cents per dollar.
Guaranteed Income Supplement payments would start in 1967 with a maximum set at 40 per cent of the indexed Old Age Security benefits. Unlike benefits under the earlier Old Age Assistance program, Guaranteed Income Supplement payments could be made to persons absent from Canada, but only if they were gone for six months or less. By the end of March 1967, Guaranteed Income Supplement payments were being paid to over 500,000 people.
F.H. Leacy, ed.,Historical Statistics of Canada, 2nd Edition (Ottawa, 1983) Series C92-104
While Old Age Security and the Guaranteed Income Supplement were designed to provide a basic minimum amount to Canadian seniors, the new Canada and Quebec Pension Plans were contributory social insurance programs established to provide basic death, survivor and disability benefits as well as retirement coverage. The Canada Pension Plan was compulsory and earnings-related. It would cover the vast majority of workers between the ages of 18 and 70, and there were no residency requirements.
Like Old Age Security, the qualifying age for the Canada Pension Plan retirement pension would be reduced to 65 over the five-year period between 1965 and 1970. Contributions would commence in 1966 and were to be made by both employees and employers, with each paying the equivalent of 1.8 per cent of a worker's earnings between an exempted minimum amount and a stipulated maximum, or ceiling. At the beginning of the Plan, this meant earnings between $600 and $5,000 were considered "pensionable".
For the self-employed, the contribution rate would be 3.6 per cent of pensionable earnings, as they were to pay both employee and employer shares. Anyone with an income less than $600, or $800 if self-employed, was not included in the Plan and made no contributions. Contributions would not be collected on income over $5,000.
Retirement benefits would be 25 per cent of the average pensionable earnings a worker earned in his or her lifetime. These earnings were adjusted to inflation, and benefits would be paid monthly. The higher the earnings, the higher the ultimate benefits. In the beginning, for an individual to qualify for a full pension, he or she had to have made contributions for at least ten years. Therefore, although the first benefits would start on January 1, 1967, full pensions would not be available until 1976. If a person took the pension before that time, he or she would receive an amount proportionately below the 25 per cent that had been established as the level in the legislation.
Canada Pension Plan contributions were collected through payroll deductions, or at the time of tax return submissions in the case of the self-employed. North American Indians whose income was earned on reserves and therefore not subject to income tax were excluded from the Canada Pension Plan. For people who were in the Plan, contributions but not benefits would be exempt from income tax.
All contributors needed a Social Insurance Number. The Social Insurance Number was introduced in 1964 to provide the Unemployment Insurance program with an improved numerical system for record-keeping. Since the Canada Pension Plan and the Quebec Pension Plan would also require an efficient and computer-compatible system for keeping track of transactions with contributors and beneficiaries, and a majority of future Canada Pension Plan and Quebec Pension Plan participants were already registered for Unemployment Insurance, the same nine-digit personal identifier was to be used for both programs.
Old Age Security recipients were not required to have a Social Insurance Number. Their benefits were partly funded by income tax, but the government did not keep a record of individual contributions, or link them to eventual benefits, as was the case with the Canada Pension Plan.
Like Old Age Security and the Guaranteed Income Supplement, the Canada Pension Plan was placed under the general administration of the Department of National Health and Welfare, although the Department of National Revenue would take care of matters related to the collection of contributions. The Department of Finance would oversee surplus monies, which were loaned to the provinces at a favourable rate of interest.
When the Department of National Revenue received Canada Pension Plan contributions, they were placed in a special account in the Consolidated Revenue Fund. In addition to the Canada Pension Plan Account, there was a Canada Pension Plan Investment Fund that would take the surplus that accumulated over and above administration costs and the amount of money required to pay immediate benefits (i.e. three months' worth) and invest it in provincial and federal securities.
As the Quebec Pension Plan was a separate (though parallel) plan, contributions remained under the control of the Quebec government, which was responsible for investing any reserves. The other provinces would have access to Canada Pension Plan surpluses, in proportion to the contributions made by their residents, through the sale of provincial bonds and provincially guaranteed securities on 20 year terms at the long-term federal bond rate. These were payable to the Canada Pension Plan Investment Fund. Access to the Canada Pension Plan surpluses would provide the provinces with a valuable and much-desired borrowing source for development capital. The federal government agreed to this access during Canada Pension Plan negotiations. It was an additional enticement to get provinces to agree to federal proposals for a national contributory program.
The Canada Pension Plan legislation provided for an appeals process for people who were unhappy about decisions concerning their benefits or eligibility. The first resort was to the Minister of National Health and Welfare. Then further appeals could be made to a Review Committee and, finally, the Pension Appeals Board. Queries related to contributions were to be directed to the Tax Court of Canada (formerly the Tax Review Board) established under authority of the Income Tax Act. Old Age Security appellants were provided with the first two levels only, although appeals related to income were, likewise, heard by the Tax Court of Canada.
The Canada Pension Plan came into effect on January 1, 1966 and applied to all provinces and territories except Quebec, where the separate but similar Quebec Pension Plan was established in the same year. By agreement the two plans would be coordinated so that workers could move freely from one to the other without penalty.
Both were subject to the same contribution and benefit rates and offered not only retirement benefits, but disability, survivor, and lump-sum death benefits. Both were indexed on a yearly basis. Membership and contributions did not terminate with a change in employment as they had under private employer-sponsored plans; they were portable. Contributions merely commenced again with the new employment. In addition, there was provision for future agreements with other countries regarding reciprocal pension arrangements.