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1990-2000 Pensions on Solid Ground

Researcher's Summary

Group of seniors walking. (photo:) Fred Cattroll.

Sustainability of the Canada Pension Plan and the Old Age Security program was the major issue in the 1990s. In this, the last decade of the twentieth century, fewer Canadian seniors were being counted among the poor, in large part because of Canada's public pension programs. At the same time, however, seniors were making up an increasing proportion of the total population as life expectancy continued to rise and health standards improved. A longer and healthier life for Canadians was a cause for celebration, but it also meant that retirement years were lengthening and would continue to do so in the future. The longer people lived, the longer they would require an income.

Canada's net federal debt had risen virtually uninterrupted since the mid-1970s. It climbed from $34 billion in 1975, representing approximately a 20 per cent debt-to-Gross Domestic Product ratio, to a total of $583 billion in 1996-1997, representing roughly a 70 per cent debt-to-Gross Domestic Product ratio. That high debt left Canada's fiscal health extremely vulnerable to economic shocks such as increased interest rates or an economic slowdown.

However, by the mid-1990s deep spending cuts and a thriving economy stopped the growth of the yearly deficit. For the first time since 1969-1970, a budgetary surplus of $3.5 billion was recorded in the fiscal year 1997-1998.

Of concern, too, was the ageing of the large baby boom generation. That group would place enormous strain on a public pension system already suffering from declining numbers of working taxpayers and contributors relative to the size of the population that was becoming eligible for benefits. In 1966 when the Canada Pension Plan was created, there were seven workers for every retired person in Canada. In 2000 that ratio was 5:1- it is projected to be 3:1 in 2040.

In the 1990s, the country's pension system remained sound, but after extensive public consultations, the federal and provincial governments undertook a number of reforms to ensure that it would be able to meet the increased demands placed on it over the coming years. The most important changes involved funding arrangements for the Canada Pension Plan, and changing the way some benefits were calculated.

In 1998, a new course was set that would increase Canada Pension Plan contribution rates more rapidly than planned and implement various benefit adjustments meant to restrain future growth in benefit costs. At the same time, a Canada Pension Plan Investment Board was established to diversify the investment of Canada Pension Plan funds and maximize the amount of money that would be available to pay future benefits.

A major reform proposed for the Old Age Security program in 1996 would have replaced the existing Old Age Security/Guaranteed Income Supplement program with a single payment that would target the most needy and reduce payment amounts to some higher-income pensioners. The Seniors Benefit, as this new payment was to be called, faced opposition. In any case, by 1998 improved fiscal conditions made this cost-motivated measure appear less urgent. It was never implemented; however, other more modest initiatives were carried out.

In 1996, a withholding tax was imposed on Old Age Security and Canada Pension Plan benefits paid to seniors living abroad. For the first time, too, the clawback on Old Age Security benefits for high-income earners was extended to those living outside Canada. Another important change to the pension programs involved a modernization initiative. In the year 2000, equality of treatment in laws, including those pertaining to pensions, was extended to same-sex couples. Members of same-sex couples would be included in the definition of common-law partners and would have the same obligations and rights to benefits under the Canada Pension Plan and Old Age Security programs.

Minor changes were also made to the Old Age Security Act to provide for a new method of determining the entitlement to and the amount of Guaranteed Income Supplement and Allowance benefits payable to persons who had not lived in Canada for at least 10 years after reaching age 18.

The government was confident that the reforms undertaken in the 1990s would ensure the long-term sustainability of the public pension programs and that benefits would be available for future retirees. Nevertheless, it stressed the on-going importance of private provisions for retirement income such as savings, investments, and Registered Retirement Savings Plans. This was especially important in light of workforce downsizing that had taken place in that decade, and the increased number of contract, part-time, and self-employed workers who were not always provided with employer-sponsored pension benefits. At the same time, these changes in employment patterns made saving for retirement more difficult for many Canadians and accentuated the importance of the Canada Pension Plan and Old Age Security.