What Canadians Received
By the late 1960s, the essential structure of Canada's current retirement income system was in place. At its base was the universal, flat-rate Old Age Security pension. Complementing the Old Age Security pension was the Guaranteed Income Supplement, originally designed to be a temporary program available only for those born before 1910 (who had no chance to build a full Canada Pension Plan benefit before retirement). It was to be a transitional measure until the Canada Pension Plan and Quebec Pension Plan matured in 1976. Instead, the Guaranteed Income Supplement became a permanent, integral and necessary part of the Old Age Security system in 1971.
The Guaranteed Income Supplement was originally designed for Canadians whose working lives and saving potential had been affected by war and the Great Depression, and who would have little or no income beyond Old Age Security when they retired. Nearly 1.3 million people were receiving the Old Age Security pension in 1968, with almost half that number also receiving the Guaranteed Income Supplement.
F.H. Leacy, ed., Historical Statistics of Canada, 2nd Edition (Ottawa, 1983) Series C92-104
The Canada Pension Plan, a contributory, earnings-related social insurance program, constituted the second tier of the government's retirement income structure. It was designed to ensure a measure of protection to a contributor and his or her family against the loss of income due to retirement, disability, and death. The qualifying age for both the Old Age Security pension and Canada Pension Plan retirement benefits was reduced one year at a time after 1965 so that it would be 65 by 1970.
In the 1970s and 1980s there was considerable expansion and reform in Canada's public pension programs, as the federal government's retirement income system increasingly became a tool to promote greater income equality among Canadian seniors. The massive pension reform effort resulted in resources such as the National Pensions Conference, the Economic Council of Canada's One in Three report, the Senate's Retirement Without Tears report, Ontario's Haley Report on Pensions, the federal study entitled The Retirement Income System in Canada: Problems and Alternative Policies for Reform (also known as the Lazar Report), the 1982 federal Green Paper Better Pensions for Canadians, and the Frith Committee report which led up to major Canada Pension Plan reforms in 1987 and the introduction of the Widowed Spouse's Allowance.
Many of the initiatives were undertaken in cooperation with the provinces, business, women's groups, labour and the general public. The goal was to combat the effects of rising inflation and assist those groups most vulnerable to poverty. Over the next two decades numerous reforms to Old Age Security and the Canada Pension Plan were enacted.
In 1974, with wages rising more quickly than had been anticipated and inflation eating away at the value of pensions, legislation was passed that would raise the Year's Maximum Pensionable Earnings (YMPE) figure. There was an ad hoc $1000 increase of the YMPE from 1973 to 1974, then an agreement to raise the ceiling by 12.5 per cent per year until it caught up to the average wage as measured by the Statistics Canada Industrial Composite. It took until 1986.
Legislation enacting this change and, as well, reducing the Year's Basic Exemption from 12 per cent to 10 per cent of the Year's Maximum Pensionable Earnings took effect two years later, on January 1, 1976. The level of the Year's Basic Exemption, the amount of earnings at which a person starts contributing to the Plan, was adjusted so that it could be maintained at a lower level than before. This meant that more people could participate in the Plan. The Year's Basic Exemption was $700.
In 1974, too, benefit levels became linked to increases in the Consumer Price Index, rather than the old Pension Index with its two per cent ceiling. Indexation of Canada Pension Plan (CPP) benefits on other than an annual basis was said not to be compatible in a number of ways with the design and operation of the Plan. For example, the contributory period was measured in years, pensionable earnings were recorded by the year in the Record of Earnings and when a benefit was calculated, the annual earnings in each of these years was adjusted upwards in line with average wages and salaries for the year in which the benefit would be paid, along with the two previous years. While these points were debatable, it was clear that quarterly indexation of CPP credits would have required a major reconstruction of the benefit calculation to avoid serious anomalies.
In the Canada Pension Plan, measures were taken to end sex discrimination in the area of survivor and children's benefits which, incidentally, benefited men as much as women. For instance, from 1975 on, widowers were no longer required to show that they were disabled or had been economically dependent on their contributor spouse in order to be eligible for survivor benefits.
Reforms in the Canada Pension Plan that helped provide greater income protection for women and families were also implemented:
Moreover, in 1975, the earnings test requirement for the payment of a
retirement pension was eliminated.
Also in 1977, partial Old Age Security benefits became available based on a formula that granted 1/40 of the Old Age Security rate for every year of residence in Canada as an adult. A full pension would be granted to persons with 40 years residence. Those who, at the time, were 25 and had lived in Canada as an adult, however, could continue to qualify for a full pension under the previous residence rules.
The splitting of credits earned during marriage became mandatory for divorcing couples in 1987, except where otherwise provided for by provincial law and agreement of the parties. Credit-splitting would also apply to legally separated spouses or common-law partners from that year on, if an application was made.
During this decade, several changes were made to the Canada Pension Plan disability program, generated in part by the creation of the Special House of Commons Committee on the Disabled and the Handicapped, formed in 1980 to identify the key obstacles faced by disabled persons in Canada. The Committee's report identified twenty key areas of concern, ranging from human and civil rights to database development, and made 130 recommendations for improvements.
As a first step towards comprehensive reform, the Committee proposed several improvements to the CPP disability benefit. It recommended that the amount of the benefit be increased and that more people be covered. The inadequacy of the benefit was confirmed by a survey of Canada Pension Plan disability beneficiaries in 1980, which concluded that the financial situation of this population was deplorable, not only in terms of the average income of Canadians, but also in terms of poverty levels in Canada.
The improvements included a flexible retirement pension that provided qualified contributors with retirement benefits as early as at the age of 60. Payment amounts would be reduced by 0.5 per cent for every month before age 65 that the retirement pension was taken, and increased by the same amount for every month after age 65 it was taken, up to age 70. As such, the maximum increase or decrease was 30 per cent.
New financing arrangements for the Canada Pension Plan were also part of these changes. This meant a gradual yearly increase in the current employer and employee rate of 3.6 per cent of contributory earnings, which had been in place since 1966. There would be a review of the financing arrangements by the Finance Minister and a re-setting of the rate schedule at least every five years to again cover 25 future years. The increases over the first five years were to be 0.2 per cent per year, with smaller increases planned in later years according to a 25-year rate schedule. As well, on-hand monies from the Canada Pension Plan Fund were to be targeted at two years' worth of benefits. This meant that the Fund, which at the time held about six years of benefits, would eventually be intended to have an amount equal to two times the yearly amount of benefits paid.
Another major change was to disability benefits. The flat-rate portion of the benefit was increased dramatically, matching the higher rate that had been in place in the Quebec Pension Plan since the early 1970s. Furthermore, the minimum contributory requirements were eased, providing earlier income protection in case of disability.
Other major amendments included:
Old Age Security benefits in 1970 were $79 per month and were paid to about 1.6 million pensioners at a cost of $1.6 billion. Average payments of the Guaranteed Income Supplement in that year were $29 per month, with an annual federal expenditure of over $274 million. The maximum Canada Pension Plan retirement benefit was $53; in 1976, when full retirement pensions became available, that figure was $154. The average yearly wage in 1970 was $6,592.
Conversely, by 1989, the monthly Old Age Security payment was $337, the average monthly Guaranteed Income Supplement was $240, and the maximum monthly Canada Pension Plan retirement benefit was $556. The average Spouse's Allowance payment (including the Widowed Spouse's Allowance) was $302 per month and was being paid to about 128,000 people, the overwhelming majority of them women.
At the beginning of this period, Canadians had been optimistic that the country could support the expansion of its retirement income system. As the period was coming to a close, however, an aging population, declining government revenues and a mounting national debt brought a search for ways to reduce costs and safeguard the long-term sustainability of the system.