The Old Age Security program introduced in 1952 provided the first universal pension for Canadians 70 years of age and over and an income-tested Old Age Assistance allowance for those between 65 and 69. The Old Age Security pension was not an income replacement measure; it was a safety net that conferred on all seniors who met the residency requirements a basic amount of support.
Private pension plans or savings were supposed to supplement that amount, if possible. However, for most people, retirement meant a drastically reduced standard of living. Even with Old Age Security, the average income for seniors in this period was only around 50 per cent of average industrial wages. Some workers had employment-based pension plans, but they faced several problems: these plans were tied to a particular job, they were not portable, and they usually required very long contributory periods. They were also poor in the area of survivor benefits.
Responding to the need for a public pension plan that offered portability, a greater measure of income replacement, and insurance for families against the death or disability of a breadwinner, Lester Pearson's government introduced the Canada Pension Plan in 1966. This was a compulsory, contributory scheme for salaried and self-employed workers between the ages of 18 and 70. A sister program, the Quebec Pension Plan, was enacted in the same year to cover Quebec workers and their families.
The existence of two plans stemmed from the desire of the Quebec government to retain primacy in the social welfare field in that province and to have control of pension fund reserves for investment in provincial development. The other provinces had the option of establishing their own parallel plans as well, but none did. Ontario had legislated its own plan but never brought it into force, throwing its weight behind the Canada Pension Plan in the national interest. A Canada Pension Plan without either Ontario or Quebec would have faced significant challenges to its credibility and, perhaps, longevity. Development capital for the provinces could be acquired through loans from the Canada Pension Plan surpluses.
Section 94A of the Constitution, added in 1951 to permit the federal government to make laws in relation to old age pensions, was amended. This change permitted the Canada Pension Plan to provide pensions to survivors and disabled persons who were not "old" and whose pensions would therefore not be old age pensions. The paramountcy clause, which ensured that the CPP would not affect any provincial old age pension program, was also retained although its language was slightly modified.
Over the next five years, the eligible age for the Old Age Security pension and the Canada Pension Plan would be lowered to 65. Both pensions would be indexed to offer inflation protection. In the interest of fairness, a Guaranteed Income Supplement (GIS), tied to Old Age Security, was introduced in 1967 to help those who would retire before they could take advantage of the new contributory plan.
Old Age Security benefits continued to be available to Canada Pension Plan recipients and constituted the first level of the government's new retirement income system. The Canada Pension Plan was the second level and was a fully portable plan that offered survivor, disability and death benefits in addition to retirement pensions.
The Canada Pension Plan would not conflict with the third level, composed of private savings and employer pension plans. Nor was it intended to replace them. Instead, the government would encourage people, through tax incentives, to make private arrangements to add to their combined Old Age Security and Canada Pension Plan benefits.