Throughout the 1990s, the government of Canada was faced with many different pressures from a wide range of groups responding to the social, economic, and political developments of the decade. These pressures formed the context within which the government approached the issue of pension reform and influenced the government's actions in this area.
As the 1990s began, uncertainty regarding the sustainability of Canada's public pension system grew into an important political issue. The early 1990s also marked the beginning of a severe economic recession. As businesses were forced to close or lay off employees, pushing many people into unemployment, the tax revenues of the federal government declined. At the same time, high interest rates made it increasingly difficult to cover costs to service the federal debt. This led the federal and provincial governments to reduce expenditures and bring their deficits under control. The federal government's powers to initiate new programs and enhance existing ones were thus significantly constrained, and many spending cuts were made.
At the same time, the ageing of Canadian society contributed to the growth and strength of hundreds of senior citizens' organizations. Throughout the 1990s, changes in public pension policy were watched closely by these organizations. They became increasingly active in promoting the interests of Canada's older population by lobbying the government, taking part in consultations on policy initiatives and helping to raise public awareness of issues affecting seniors.
Some of the largest groups included the National Pensioners and Senior Citizens Federation (NPSCF), the Canadian Association of Retired Persons (CARP) and the Association québécoise pour la défense des droits des retraités et des préretraités (AQDR). These organizations, along with various think tanks and politicians, played a very important role in defending Canada's public pensions during the economic difficulties of the 1990s.
In response to these pressures, the federal government made some significant changes to various branches of Canada's social security network. The changes made to public pensions were designed to maintain the programs for the future without incurring unduly large new costs.
In 1996, in the face of a difficult economy, a new program called the Seniors Benefit was proposed as a replacement for Old Age Security and the Guaranteed Income Supplement. The Seniors Benefit would be more fair than the existing programs since the benefits of individuals with higher incomes would be reduced at a faster rate. However, as the economy and the government's fiscal situation improved, this proposal was not implemented.
To help ensure that the Canada Pension Plan would have enough funds to provide pensions for future generations, four changes were made, to take effect in 1998, including:
At the same time, the federal Parliament, with provincial approval, enacted the Canada Pension Plan Investment Board Act. It was agreed that the use of the Canada Pension Plan surplus fund to provide loans to the provincial governments required improvement in order to provide higher returns. The provinces agreed to this change and were offered options to renew existing loans.
The Canada Pension Plan Investment Board operates at arm's length from government. Its purpose is to help make the Canada Pension Plan a partially funded plan at a faster rate than would otherwise have been possible by investing part of its surplus into the equity market. Both the Seventeenth and the Eighteenth actuarial reports on the CPP confirmed that the 9.9 per cent combined employer-employee contribution rate (which would be reached in 2003) is expected to be sufficient to sustain the Canada Pension Plan as larger numbers of Canadians reach retirement age.