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Pensions on Solid Ground

World Events

Elderly couple on bench - (photo) Fred Cattroll, Ottawa.

In the 1990s, many of the public pension issues Canada faced also became important areas of policy reform around the world. Western countries in particular began revising their public pension policies in order to make their programs sustainable.

The public pension programs in most Western European countries pay higher benefits, but offer them to a smaller number of contributors, compared to Canada's public pension system. European workers retire earlier on average, and their pension benefits, especially those of people with higher incomes, are closer to their incomes while working. In many countries public pensions account for a much higher proportion of retired people's incomes. At the same time, the payroll deductions required to support European programs are often higher than those in Canada.

In the 1990s, however, the future of the extensive European public pension systems came to be seen as being under threat from the ageing of Europe's population. Projections made in the 1990s suggested that by 2025, close to one-third of Europeans would be senior citizens. In comparison, Canadian estimates indicated that by 2041 the percentage of Canadians aged 65 and over would peak at 25 per cent.

At the same time that these countries worked toward ensuring the survival of their national public pension programs, the increasing globalization of many areas of commerce throughout the 1990s added a new dynamic to the issue of public pensions. As countries sought to compete successfully in the global arena, social security programs such as pensions were considered by some analysts to unnecessarily constrain economic growth and the ability to be competitive, as a result of excessive taxation. Many national governments therefore began exploring new ways of maintaining public pensions without greatly increasing their cost.

A number of countries implemented pension reforms in response to these pressures and some interesting new ideas were attempted. For example, in France, where only public pensions are legally allowed to exist, the number of years over which people must contribute to their pension plan was extended in the mid-1990s. This longer contribution period helped to bolster the pension fund. In contrast, in the United States a gradual increase in the qualifying age for the American social security system was introduced so that by 2027 benefits would begin to be paid at age 67 rather than 65.

More fundamental changes in other countries also attracted international attention during the 1990s. The Chilean adoption of a mandatory private old age and disability insurance system in the early 1980s was of particular interest. This system costs the Chilean government very little as it is administered by private pension fund management companies and the contributions are paid entirely by workers. Critics point out, however, that undue reliance on investment returns can introduce risk into such a scheme. As well, administration costs have proven to be very high.

In response to these pressures, the government of Canada became involved in a number of international projects designed both to improve Canadian public pensions and to promote social security improvements in the international arena.

The signing of international social security agreements between Canada and other countries, which began in 1977, continued to be a very important activity undertaken by the federal government.

By 1998, through the combination of international agreements and other pensions received by people living outside of Canada, Canada was making annual payments of about $355 million to pension recipients in other countries and was receiving $1.6 billion in pension payments from abroad.

By June 2000 Canada had concluded 42 agreements, of which 38 were already in force. Five more interested countries were engaged in negotiations with Canada.

Canada also continued to participate in many different international organizations and events to encourage the development of public pensions around the world. These included the International Social Security Association, the Inter-American Conference on Social Security, the Council of Europe, the International Labour Organization, the United Nations and Rehabilitation International.

The problem of sustaining public pensions as populations around the world age quickly in the early 21st century was the focus of numerous international conferences in which Canada took part. In December 1997, the International Labour Organization and the International Social Security Association, with the participation of the World Bank, held a conference on pension reform. This was followed in 1998 by an International Social Security Association gathering in Stockholm, called "The Future of Social Security", at which the issue of meeting the costs of public pension programs despite shrinking tax revenues was examined. 1999 was designated the International Year of Older Persons by the United Nations, a move that further highlighted the significance of an ageing population around the world.

Several unique features of the Canadian public pension system were the subject of particular international interest by the late 1990s. The fact that the Canadian system consisted of numerous layers with different sources of funding (including Old Age Security, the Guaranteed Income Supplement, the Canada and Quebec Pension Plans, tax-assisted employer pensions and private savings) was seen to protect the system as a whole against economic fluctuations. In addition, the overall effects of Canada's public pensions were significantly more equitable than those of most other industrialized countries.