Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 20 - Evidence - April 19, 2007
OTTAWA, Thursday, April 19, 2007
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill C-36, to amend the Canada Pension Plan and Old Age Security Act, met this day at 11 a.m. to give consideration to the bill.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Honourable senators, welcome to the continuing study on Bill C-36. The bill proposes that the Canada Pension Plan be amended to include the establishment of a more generous eligibility requirement for the CPP disability benefit, provide greater flexibility for credit splitting between former and common-law partners and clarify the contribution rates to ensure that benefit costs are fully funded. Moreover, Bill C-36 would amend the Old Age Security Act, amongst other things, to simplify access to the Guaranteed Income Supplement and allowance benefits once the initial application is made and make changes regarding income-tested benefits for certain immigrants and eliminate the entitlement of estates to Old Age Security income-tested benefits. It would also make changes regarding the charging of interest in relation to the CPP and OAS overpayments and the imposition of penalties for persons who knowingly accept benefits to which they are not entitled.
Senators will recall that the minister had to leave us earlier yesterday for a vote in the House, about which he did inform the committee. I know senators are most interested in exploring this and so I welcome him back today. As well, Mr. Jean-Claude Ménard, Chief Actuary in the Office of the Superintendent of Financial Institutions, is with us today.
I invite Senator Cordy, who is the Liberal critic on Bill C-36, to begin questions.
Senator Cordy: I am a member of the Senate Social Affairs Committee but not of the Banking Committee, so it was interesting, from a financial perspective, to hear the questions raised when I sat in yesterday. I am also a member of the Special Senate Committee on Aging, so I tend to look at these things more from a policy perspective.
I was pleased to read in the bill the proposal to eliminate the requirement to re-apply in order to continue receipt of the Guaranteed Income Supplement. That is a positive change. Currently, there are 320,000 Canadians eligible to receive the GIS who are not receiving it. If we could make it easier to access these programs so that more people are able to receive the benefit, it would be a positive step forward. The proposal is to glean the appropriate information from tax returns but that is where the gap occurs because some people do not file their returns. How can we educate the public about programs available to them, in particular to seniors? The stereotype of ``the senior'' is long gone because today many seniors are well involved in their respective communities. Certainly, those living in urban areas have access to many support systems and seniors with computer savvy have access to more information.
However, many seniors are isolated, some in rural areas and some in urban centres. I wonder how the Department of Human Resources and Social Development Canada plans to educate seniors and the disabled so that they are well aware of the programs available to them?
Hon. Monte Solberg, P.C., M.P., Minister of Human Resources and Social Development: Thank you for that important question. HRSDC has made a real effort to reach out to everyone affected by these programs to ensure that they are aware of the access to the Guaranteed Income Supplement. The department has undertaken a number of actions in that regard, such as mail-outs targeted to those we suspect might be in a less advantageous position. We are working through seniors' centres and in immigrant and Aboriginal communities through the Service Canada network, which is expanding all the time, to provide information in native languages. As you know, Senator Cordy, we are advertising that Service Canada provides face-to-face service on these programs.
We dispute the figure that 320,000 eligible people are not receiving their benefits. Although I am not sure where the number comes from, sometimes people look at the tax filing numbers, which do not necessarily represent the number of people who are eligible for the Guaranteed Income Supplement. In some cases, people have not been residents of Canada long enough to apply for the GIS or in other cases their income information might change. There are a number of reasons that we cannot count on the tax filing figures to provide an accurate count of the people who are eligible for but not in receipt of the Guaranteed Income Supplement. I do not dispute the main point that we must do more, and we are very conscious of that and trying to do more.
Senator Cordy: I read the speeches presented in debate in the House and there was some discussion of having everyone file their income tax forms regardless of their level of income. Would that work? You responded to the suggestion but, in my view, the answers to the questions asked in the House were not complete.
Mr. Solberg: Of course, that goes much further beyond the scope of this proposed legislation. Likely, it would entail a much larger debate. I have not thought through all of the potential implications, including those for people who simply do not want to file a return. They might have their reasons for not wanting to file, but I suppose it could be a requirement. I would have to think more about that aspect. Perhaps I could defer to others who have a view on that.
Senator Cordy: I had not thought of that until I read that it had been raised on the House side.
Mr. Solberg: I would defer to Ms. Susan Scotti to respond.
Susan Scotti, Assistant Deputy Minister, Social Development Sectors Branch, Human Resources and Social Development Canada: That is a good and valid point, senator. HRSDC makes every effort to reach out to all potentially eligible seniors. Certainly, the tax system is the best way to reach them. Through the tax system, we are able to help seniors to receive other benefits to which they or families might be entitled — the GST credit, for example.
A gap occurs with non-filers of tax returns. If their income level is such that they are not required to file a tax return, then we have no way of knowing who they are. We have to rely to the utmost on all of these outreach efforts that the minister has described.
Senator Segal: If I may interrupt, when we have programs that are accessible to people who do not file income tax returns, are we not encouraging them to continue that practice of not filing? For example, if it were said that anyone not filing a tax return would not be eligible for the Old Age Security, the Canada Pension Plan or the Guaranteed Income Supplement, would your database not have a much stronger capacity to deliver social programming across a broader range? Why would we not give some consideration to that proposition?
Mr. Solberg: Certainly, that is a good and reasonable suggestion. Perhaps it might be considered as part of a larger approach to these issues. In fact, we should consider it, although it is quite ambitious and beyond the scope of the current considerations.
Senator Cordy: It is so important that people be made aware of programs, and yet so many people remain unaware. An individual called me about child care and I was shocked to discover that she was unaware of the monthly $100-per- child benefit she was eligible to receive. I was flabbergasted, because I assumed that everyone in the world knew about that.
I will move on to the modernization of the delivery of government services. It is a timely proposal to make information on the CPP available online so that individuals can access their accounts at any time to know how much they have contributed in a given year, rather than wait for the annual statement.
The bill proposes that eventually applications for benefits will be available online in the future. Do you have a suggested time line?
Mr. Solberg: This is one of the most exciting aspects. The department is being much more aggressive in its use of the Internet not only to get information out but also to encourage people to file returns. Government, typically, is quite a bit behind the rest of the world, but what a tremendous convenience, so I am glad we are moving in that direction.
Ross MacLeod, Associate Assistant Deputy Minister, Processing and Operations, Service Canada: We have a possibility of people applying for the basic CPP retirement application online now. We have about 19 or 20 per cent of all applications coming in online for that particular benefit. We anticipate for other CPP benefits over the next year or so getting a number of them in play, and then in 2008, we will have OAS benefits as well.
Senator Cordy: How would you access your own individual file? Certainly, the question of privacy would arise. Would there be a password? Is an individual required to give his or her social insurance number? What is the policy on this?
Mr. MacLeod: We used the normal government privacy screens with a personal or temporary access code depending on the type of transaction. That is backed up by using shared secrets and so on in the case where people lose their passwords. It is similar to the epass for Canada Revenue Agency.
Senator Cordy: I agree with the minister that many seniors are politically savvy as well as computer savvy. It is a great idea.
I have a concern related to the CPP fund. At the triennial conference with the provinces and territories in the spring of 2006, the Minister of Finance put a couple of proposals before the provinces and the territories. One of the proposals was to put future surplus funds into the CPP fund.
On the surface, that sounds good; however, CPP is an arm's length fund. I get a little bit nervous, such that if we can put in surplus funds when times are good, what is to say that when times are not so good we can take funds out of the CPP fund? Is this the road the Department of Finance is going down? I am a little nervous about the whole idea.
Mr. Solberg: Any changes that are made to Canada Pension Plan are done in concert with the provinces and territories. Let me say very plainly that, of course, we have no intention of taking funds out of Canada Pension Plan. We have had some bad experiences with Canada Pension Plan in the past when it was used to provide loans below market rates of interest for some provinces in the distant past, and I would say that to some degree it had an impact on our ability to maintain premium rates and also provide benefits, which caused a pretty rapid run up in premium rates.
We do not want to go through that again. Everyone is conscious that we may have paid a little bit of a price for not taking the fund as seriously as we should have in the past. We do not want to replicate that.
Senator Cordy: Is it a non-issue, then?
Mr. Solberg: As far as I am concerned, it is a non-starter with me and with the government, namely, taking money out of the fund.
Senator Segal: A quick supplementary on that: The numbers we have here for the asset base of the Canada Pension Plan include the Canada Pension Plan investment assets, and as you progress further, you have some assumption with respect to their yield, I take it, and that is part of the calculation now.
Suzan Kalinowski, Senior Policy Analyst, Income Security, Department of Finance: It is in response to Senator Cordy's question on the proposal that was in Budget 2006.
Senator Cordy: It was the triennial meeting with the provinces.
Ms. Kalinowski: That is right, but it originated in Budget 2006. Any changes to the CPP have to be discussed with the provinces. That was discussed with the provinces and, in Advantage Canada, the government indicated what it would be doing with the unplanned surpluses, and that was tax relief.
There was never any legislation put forward with respect to taking unplanned surpluses and putting them into the Canada Pension Plan.
Senator Cordy: I did not say there was legislation. I just said the minister brought it up.
Ms. Kalinowski: There would have to be a legislative change to the CPP to allow that, and there was no legislation to that effect.
Senator Cordy: My concern is the fact that it was raised.
Senator Ringuette: Minister, there are three items that I feel should be part of your future discussions with the provinces to bring forth new legislation to enhance and modernize the plan.
The first one would be the 25-year contribution. I do not have the information with respect to why it is 25 years and not 20, 15 or even 10. It is not a bad move, but coming from an area where the job market requires extensive physical activity from the employees, for example, the forest industry, if you could negotiate something like 15 years with the provinces, I would certainly welcome that.
I would also welcome the removal of the four-year limit for a common-law spouse to be able to apply. When there is a split in a partnership, getting both partners to agree within the four years, that is not kosher, from my perspective. That should certainly be removed from the current barrier. It is detrimental, especially to the female gender in such relationships.
The possible earnings for a disabled person, I believe, are $4,000 a year. In the next piece of legislation on this issue, I should like that to be increased to at least $6,000, maybe even $8,000. I do not think that limit has been increased for a long while. Twenty years ago, $4,000 was worth X amount; today, the amount should be in real dollars. Possible earnings should be increased to $6,000 or even $8,000.
Senator Tkachuk: Is this the exemption you are talking about?
Senator Ringuette: If a person is disabled but still has some ability, he or she can have a working income of up to $4,000. I should like to see that increased to reflect today's Canadian dollar.
Those are my three requests. From our conversation with your staff yesterday, I understand that it has to be discussed with the provinces.
Mr. Solberg: With respect to the period of time you must contribute in order to be eligible, I am not unsympathetic to what you are saying. In industries where there is very hard labour, people sometimes end up in a situation where they cannot continue.
The challenge we have, however, is to make sure that the fund is sustainable and that it is sustainable at a rate that is reasonable, so that employers and employees do not have to bear an unfair burden to make sure the fund is sustainable.
The combined rate has been set now at 9.9 per cent. That is up quite dramatically over the last number of years. There are concerns that if it continues to go up, it will have an impact on job creation, et cetera. We do need to be sensitive to that rate. That said, I hear your point.
On the four-year limit, you have made your point well. Our concern always is to ensure that there is fairness, and that an innocent third party would not be unfairly preyed upon by someone who wanted to take benefits they were not entitled to. It is always difficult to say what the time limit should be. You have argued, I think, for no time limit; but we are concerned that that could cause incredible legal wrangling. As far as we have been able to tell, there have not been any real problems with this thus far, although your concerns are noted.
In terms of the increase in the benefits, I will defer to Ms. Scotti regarding what the actual benefits are for people who are on disability right now.
Ms. Scotti: I think the senator was asking what the maximum employment earnings exemption would be under the disability.
Senator Ringuette: Yes.
Ms. Scotti: It is about $4,300 a year right now, and it is indexed to the cost of living. What you are suggesting is an increase in that.
Mr. Solberg: I see what you are saying.
Ms. Scotti: It is something that can be looked at, but it would have to be looked at in a broader context.
Senator Ringuette: We are not even looking at net; we are looking at gross working income.
Ms. Scotti: That is right.
Mr. Solberg: Our other challenge is that we do want to encourage people — not so much on the disability side, but just in general — to stay in the workforce as long as possible because we are facing this great demographic crunch.
Senator Ringuette: That would help.
Mr. Solberg: We are interested in any way we can find to retrain and help people get new skills. Even if they have a disability, if they are willing and we can help to get them into work that is suitable for their situation, we really need to do that for their good and the good of the country.
Senator Ringuette: Exactly. In that same line of thought, I do believe if we could increase that that it would be beneficial for all parties involved, as incentives.
Mr. Solberg: In the budget, we announced $500 million a year in new funding for labour market agreements, which would allow the provinces to have the latitude to top up wages for people who were on different types of support so that, in fact, they could do that. It is important to have everyone engaged as much as they possibly can be for their own good, to help their standard of living, as well as that of the country.
Senator Ringuette: Do I have your agreement that you will be discussing an increase with the provinces and come forth with a new bill with an increase?
Mr. Solberg: It is the Finance Minister that takes up those discussions; however, your concerns are noted. I know you approach this very sincerely on behalf of people whom you represented in the House for a number of years, and I completely understand and sympathize with that. However, all these things are discussed in the context of making sure we can sustain the fund and maintain the premium levels.
Again, I appreciate what you are saying. Obviously, your remarks will be reflected in the official record and will be there for Finance officials to take forward.
Senator Segal: What is the evil with respect to beneficiary estates that this bill is seeking to correct? What was so awful about benefits accruing to estates upon the death of a beneficiary that we had to act in that direct a way?
When there is not a survivor, often the vehicle by which assets are transferred to kids is through a normative estate. Why have we decided to make that outside the box now with respect to how beneficiaries might be recipients post- mortem?
Mr. Solberg: Are you talking about Old Age Security, the Guaranteed Income Supplement?
Senator Segal: Yes, I am talking about the provision that says we are not going to be transferring survivor benefits to estates. Estates are removed as a potential beneficiary. I am trying to figure out what was the glaring evil that forced officials to bring this particular revolutionary change to the table.
Mr. Solberg: I would say that the idea of providing for the estate goes beyond what I think the intent of the benefit is. The intent of the benefit is to provide for individuals in their retirement, to make sure they have a decent standard of living.
Senator Segal: As well as their survivor — the estate provision is being replaced by either it goes to the survivor or it does not go to anybody at all.
Mr. Solberg: I am not sure that I understand exactly what you are getting at.
Ms. Scotti: The intent here is to relate to the income-tested benefit, the Guaranteed Income Supplement. As an income-tested benefit, it is really there to support the individual at the time they need it to enhance their income.
Senator Segal: Why was it allowed to go to estates previously? If it is bad now, it was bad then. Why did we just find that out now?
Ms. Scotti: It is one of those administrative things that was in the legislation and did not come to light until we noticed it in a review of the provisions.
Senator Segal: The only other comment I want to add is that I think that secretly buried in this, as is often the case with our bureaucracy, is a deep and compelling conspiracy to change the debate on the notwithstanding clause to debate on the despite clause. In the provisions of this bill, you are doing away with the term ``notwithstanding'' and replacing it with the word ``despite.'' If that, as a contingent, leaves this proposed legislation to the constitutional debate, the history of the country may be changed. I thought you should be sensitive to that as you put through this very technical process.
The Chairman: Did you say in spite?
Senator Segal: Despite.
The Chairman: Senator Segal, it was not in spite.
Mr. Solberg: You have read this deeply. Mr. Chairman, if we are going to start discussing notwithstanding, I really do have to go.
The Chairman: We have lived through constitutional change for the last 25 years. I think we need another decade or so to calm down.
Senator Tkachuk: Senator Angus and I just came back from the two and a half hours in the Standing Senate Committee on Energy, the Environment and Natural Resources with Mr. Rodriguez and Minister Baird. This is like a spa.
I asked my technical questions to the officials yesterday. I just want to make a point to you as the minister. I find the 9.9 per cent an extremely large amount for the young children of today. There is no question that the government of the day had to do something to reform the system, because the system was getting behind and falling apart. The extra money was needed, but 9.9 per cent is a substantial amount.
There were two things. There was the 9.9 per cent and there was the little hidden, frozen $3,500. There is a $3,500 exemption on income paid when you calculate the 9.9 per cent. However, that was frozen before. When we were young, we were exempted by a cost of living increase on the $3,500, which was frozen. That amount is falling further and further behind, becoming more minimal.
The next time you or the Minister of Finance have confabs with all your provincial treasurers, if you could do anything at all to decrease the amount, rather than supply extra costs to the system, I would find that to be a very pleasant undertaking. I think the young people of Canada would find it very beneficial. It is a tremendous amount of money for what they will receive. It is saving us and I think that is an unfair burden.
Mr. Solberg: I appreciate that intervention. I am very cautious of the issue of intergenerational fairness and also conscious, as I said to Senator Ringuette, of the burden on people who are trying to run businesses. If they have to pay very high payroll taxes, they hire fewer people. This government does have a challenge and we are prepared to keep those taxes reasonable. This amounts to taxes on jobs. We encourage hiring, especially for our generations to come. Your concerns are noted and favourably received here.
Senator Harb: I wish to ask the administration as well as yourself, minister, whether there is any possibly of streamlining all of these different programs — Old Age Security, Guaranteed Income Supplement, Canada Pension Plan and the CPP Disability Benefits, which is from a separate pot. What is the possibility of having a guaranteed annual income for seniors? An individual reaches a certain age, he or she qualifies, and these are the qualifiers. It would get around having seniors calling their members of Parliament — I am sure you get a lot of calls — inquiring as to why a neighbour is receiving more.
I want to find out whether anyone is thinking outside of the box, to streamline these programs into one.
Mr. Solberg: This is the holy grail of social policy, to have a guaranteed annual income. People have looked at this in the past and I would encourage the Senate to take the time, if you choose to do so, to look at ways to do that.
Obviously, there is tremendous overlap in all of the programs, federally and provincially, in the ways we provide support to people. People have looked at this many times in the past, but it is hard to find a way to do it. However, we should pursue it.
I would also point out that our system is well regarded in the world because it does provide a combination of incentives for people to save through RRSPs, and all of the other ways that people save for their retirement, along with attachment to the workforce through the Canada Pension Plan. This is combined with programs to support people who, for whatever reason, have been unable to participate in the workforce and to save to the same degree. There is support there. We have seen the different outcomes for seniors since these programs came in in the 1950s. The level of poverty for seniors has dropped dramatically, which we obviously all support.
Your comments are well received. I would love to see the Senate produce a great study and show us exactly how to get to a guaranteed annual income in a way that keeps people in the workforce.
The Chairman: As you know, our committee did an important study, entitled ``The Demographic Time Bomb: Mitigating the Effects of Demographic Change in Canada.'' We compared our fertility rates with that of our southern neighbour. Europe is in a worse position than we are in terms of the fact that we will end up in the years ahead with fewer and fewer workers and more and more people in effect in the social network system.
The concern of this committee is this: Has the demographic analysis on an actuarial basis been carefully done to ensure a careful balance between seniors being appropriately compensated for their efforts while at the same time, not, as you said, providing an uncompetitive position with respect to payroll taxes for our existing companies and for our next generation?
Are you comfortable, as the minister? Have you looked at this yourself and satisfied yourself that the studies and the actuarial planning is appropriate to meet these complex objectives?
Mr. Solberg: I am comfortable. The fact that we ran up premiums quite dramatically did make a big difference in our capacity to pay benefits for this and future generations. Obviously, high payroll premiums are not ideal. If there is a way to reduce these as we go along and maintain a fund that is adequate to pay benefits, of course, we support that.
It invites a much larger discussion regarding how we improve the demographics of the country. Time does not permit us to get into that. However, it is something, frankly, that we all need to discuss more openly than we have so far. I applaud you for taking it on initially, but it is something that the country needs to discuss further.
As you know, we have done better than most countries. Our population is growing because of immigration, compared to many G8 countries, where they are really frozen, and their futures are much bleaker.
The Chairman: Perhaps Mr. Ménard would stay a few for minutes.
Minister, thank you very much.
Mr. Solberg: I appreciate it; thank you very much.
The Chairman: We now have with us Mr. Dussault, from the Federal Superannuates National Association, Mr. Salembier and Mr. Major from the Association québécoise de défense des droits personnes retraitées et préretraitées.
Mr. Dussault, forgive my French. You may speak either in French or English.
I am delighted Mr. Ménard could stay for a few minutes because we may have a few questions for you, Mr. Ménard, before we are finished.
[Translation]
Bernard Dussault, Senior Research and Communications Officer, Federal Superannuates National Association: Thank you, Mr. Chairman, for inviting us to make our comments on Bill C-36.
The points I will raise in my presentation will not follow the order in which they appear in the document that I sent you.
[English]
Bill C-36 is considered to be a favourable bill. It is welcomed. It is appreciated that the government tries to continually support the Old Age Security and the CPP programs, which we consider the best-designed programs in the world. They have been proven to serve senior Canadians well.
As a result of this, our comments might be of a high level in nature, but we have one or two low-level comments to make. I will start with paragraph (d) in my brief — which was added just before I joined the committee this morning. This is in respect of retroactive payments. Many members of Parliament previously made comments with respect to retroactive payments in respect of the GIS, but here we are targeting the CPP.
Understandably, there must be a limit on retroactive payments regarding disability payments because it is not easy to determine when disability has commenced. We consider that there should be no limit vis-à-vis a retroactive limit in respect of those persons who apply late for retirement or survivor benefits. I do not know if other members made this comment, but we thought it should be brought to your attention.
The mid-level point is in respect of the miscalculation that was made vis-à-vis the Consumer Price Index. It was discovered last year that, from March 2001 to March 2006, the CPI was underestimated by 0.1 per cent. That is not very much. It was corrected in April 2006. There is a statutory provision in both the CPP and the Old Age Security program that these benefits are indexed in accordance with the CPI. This miscalculation would represent an underpayment, corresponding to a one-time lump-sum payment of about $50 and $100 for the Old Age Security and CPP, respectively, for beneficiaries at the maximum level of benefit.
The FSNA president sent a letter to the Minister of Finance saying that because there is a statutory responsibility these lump-sum payments should be made. We have not received any response thus far from the Minister of Finance, so we sent another letter in which we say in effect that we are ready to abide by the government's decision but, as a matter of consistency, we would like a consistent policy to be developed whereby, when there is such a miscalculation of the CPI — because it could happen again — that either no adjustments are made at all or adjustments are made either way. That is our second point.
The last point we have to make is a high-level one in respect to the senior's benefit that was proposed and finally retired in 1996. I am raising this because the then-president of COSSE — Coalition of Seniors for Social Equity — Claude Edwards, on behalf of COSSE, stated that he was not opposed to the senior's benefit and was not disappointed when it had to be retired. He did bring to the attention of the government that this program would have brought some important support to seniors that are deemed to be below the poverty level. Mr. Edwards said, ``We hope the need to increase benefits for the less-fortunate seniors will not be forgotten.''
I want to talk a bit about this issue. It is fortunate to see that the CPP, as was projected, had a good effect of gradually reducing the level of poverty in Canada. This can be seen by GIS statistics. In broad terms, the overall GIS take-up rate used to be about 60 per cent, and presently it is around 40 per cent. There is a lesser degree of seniors in poverty, but still 40 per cent of them are in poverty. Even though the GIS does a great job of alleviating the poverty of seniors, it does not do the whole job; that is understandable.
Another objective that the CPP thought it could achieve is that it would serve as a template for more private pension plans being sponsored by private employers, but this has not happened. The proportion of private employers sponsoring a pension plan for their employees has stagnated over the last 40 years; it is somewhat below 50 per cent.
The point we want to make today is that, if the government really intends to make further moves in alleviating poverty, increasing the scope of the CPP would be a way to do so. It is understood that this is not easy to do so, but it is a method by which there would not be an unfortunate given-and-take situation. That was one of the problems with the senior's benefit. It was doing a lot for less fortunate people but taking a lot from more fortunate people.
With the CPP, the point is that this is an earnings-related program; what money is put into the program by someone is given back to that person later on.
Ideally, we could say that the CPP's scope could be enlarged by increasing the 25 per cent retirement benefit rate to 50 per cent. That could not be done at once because the contribution rates would increase from about 10 per cent to 16per cent. However, if the idea has some merits, some consideration could be given to increasing the CPP to a lower extent. For example, if the 25 per cent benefit rate would be increased to 30 per cent, then the corresponding contribution rate increase would be about 1.2 per cent combined — employee and employer — increasing the combined CPP contribution rate from 9.9 per cent to 11.1 per cent.
This completes my short presentation on our favourable reaction to Bill C-36. Thank you again for giving us the opportunity to comment.
The Chairman: Mr. Dussault, thank you very much. We will hear from the other witnesses and then ask for questions from everyone.
Mr. Salembier, please.
[Translation]
Henri Salembier, National President, Association québécoise de défense des droits des personnes retraitées et préretraitées: Mr. Chairman, I would like to introduce our association. Currently, we have 45 sections in 18 regions in Quebec. We have a section in Nunavik with the Inuit.
Our mission consists in defending seniors' rights within a comprehensive vision of all aspects of aging. Our intervention is focused on Old Age Security and the Guaranteed Income Supplement. Moreover, we had already worked on the Guaranteed Income Supplement because an astronomical sum had not reached elders in Quebec and elsewhere in Canada. This is the focus of our intervention. Let me ask Mr. Major to give you our point of view regarding Bill C-36.
Claude Major, Director General, Association québécoise de défense des droits des personnes retraitées et préretraitées: Mr. Chairman, to give you our specific responses to Bill C-36, let me refer to the text that you already have in hand. This might already give you some information on our position.
The purpose of this bill is to simplify access to and distribution of benefits; this will be made possible, in part, by ongoing renewal, simplified reporting of income for couples and seniors and greater clarity in the act. For these reasons, we felt compelled to share our comments on and reactions to the bill with you.
First, for a number of years, our organization has been calling on politicians to simplify access to the programs concerned; we thus agree with your goal, through this bill, of simplifying applications and making it easier to receive the Guaranteed Income Supplement.
Second, we have also criticized the fact that the majority of seniors are unaware of this program that could help them; in Quebec alone, over the years, seniors have missed out on several hundred million dollars earmarked for them. We thus support your effort to raise awareness of these programs and make them accessible to the largest possible number of eligible seniors.
Third, with respect more specifically to the Old Age Security Program, the proposed abolition of the requirement to renew applications for the Guaranteed Income Supplement and allowance benefits is also an excellent measure.
Fourth, simplifying the reporting of income for seniors also responds to one of our concerns. Within the broader framework of combating poverty, we have already criticized the lack of ``harmony'' among various measures, programs, departments and orders of government. We thus welcome your intention to work more closely with the provinces in order to more fully harmonize the measures to assist seniors, and, in particular, those covered by this bill. Not being lawyers by training, we will not comment on the text of the provisions. We are not therefore in a position to react to the more technical aspects of the provisions of the bill.
With regard to recommendations, while, in the preceding points, we made our appreciation clear, we still want to point out to the committee that it is very important that the administration of this act be consistent with its spirit.
Usually, statutes are accompanied by regulations and some regulations may colour or change how a statute is understood. In our opinion, if the regulations and the statutes' intent are in harmony, we truly believe that that statute is moving in the right direction and that it is resolving various irritants.
[English]
The Chairman: Mr. Major and Mr. Salembier, we congratulate you because it is our understanding that you are here today as volunteers at your own behest on behalf of your association. We deem your testimony valuable, although we understand that you do not have any legal training. All senators are concerned that the information be made available and that people, seniors in particular, be educated about their entitlements.
Our concern is mutual for the cases where entitlements are not received because of a lack in communication strategies. Certainly, that will be raised during today's discussions.
Mr. Dussault, I understand that you are a part-time volunteer. We thank you as well for your thoughtful comments.
Senator Tkachuk: I will go back to my original statement to the minister about 9.9 per cent. Would it be possible to reduce the amount collected and extend the limit from $40,000 to $50,000 or $60,000? It is the younger people who are paying the 9.9 per cent although they are the ones drawing the starting salary. They are trying to save to buy their first home or to pay back student debt. Why are we stuck at the amount of $40,000? Is there an actuarial reason?
Mr. Ménard: Yes, it is possible to extend the amount, senator. The maximum limit in the United States is more than twice the amount in Canada.
Senator Tkachuk: It is around $90,000.
Mr. Ménard: Yes.
The Chairman: Would you explain that, Mr. Ménard, for the benefit of our audience? It is important to compare our system with that of the United States.
Mr. Ménard: For the CPP, we are paying a combined rate of 9.9 per cent, split 4.95 per cent employee and 4.95 per cent employer. The amount is applied on earnings between the yearly basic exemption that you mentioned of $3,500 and the yearly maximum pensionable earnings, which is about $44,000.
The United States does not have a basic exemption in its federal tax system and the maximum earnings on which one can contribute is about $90,000. The contribution rate in the U.S. is 12.4 per cent, split 6.2 per cent employee and 6.2 per cent employer. I will compare Old Age Security, the Guaranteed Income Supplement and the Canada Pension Plan with programs in the U.S. Under the American system, if you earn 50 per cent of the yearly pensionable earnings, about $20,000 per year, your replacement rate would be higher in Canada than it would be in the United States. For low-income earners, Canada is more generous than is the U.S.
The replacement rate of $40,000 is about the same. The replacement rate at twice the $40,000, or about $80,000, the U.S. Social Security System is more generous than the combination of Old Age Security, the Guaranteed Income Supplement and the Canada Pension Plan.
Senator Tkachuk: I do not want to compare the systems in Canada and the U.S. My point is on the percentage that is taken from the $43,000. Could that be increased to $50,000 or $60,000 and the percentage of the contribution rate decreased to, say, 9.2 per cent or 7.2 per cent? In that way, younger income earners would not bear the burden of paying the majority portion. Currently, lower-income earners, up to $43,000, are paying the majority portion of the CPP, from which everyone eventually benefits. Those earners are footing this responsibility just as they are graduating from college and saving to buy a home or pay off student debt. That can amount to serious money. Is it possible to spread it out over time?
Mr. Ménard: It will reduce the contribution rate and also change the delicate balance between the public pension system and the private pension plans.
For example, over $60,000, what you will achieve in terms of replacement rate is not much because you will replace the RRSP savings or the employer pension plan contributions by the CPP coverage. In Canada, most pension plans, if not all of the defined benefit pension plans, are integrated with the Canada Pension Plan. That means that the contribution of the private pension plan takes into account that the CPP becomes payable at age 60 or 65.
Your proposal is very interesting. It will reduce the contribution rate; but, again, you must look at the delicate balance between private and public assistance. Then I would conclude with what would be the cost in percentage of the gross domestic product on a long-term basis. There could be a risk or a pressure to increase that cost and to be in a situation where most of the European countries are right now.
If you look at 2030, 2040, our estimated cost of the global system — OAS, GIS, CPP, QPP — is expected to be 7 per cent of the gross domestic product in 2030.
Senator Tkachuk: Compared to what today?
Mr. Ménard: Today, it is 5 per cent. If you are surprised by this low increase, I could explain further.
The Chairman: That it is important because one of the issues that has concerned this committee is productivity and competitiveness. We have heard from the minister and other ministers that one of the problems we have in competing with the Americans, as an example, is the cost to the employer, which is in effect a payroll tax. We are very sensitive to making sure that we do not do anything that would further erode our competitive position.
Mr. Ménard: To respond to that, if you look at the expected cost from various OECD countries in 2030, we have a much lower expected cost, but it is still higher than what is projected for the United States, the United Kingdom and Australia.
The Chairman: Our major competitor at this moment is the United States, obviously, so that is where our sensitive point is. We are keeping this under a very careful surveillance to make sure that we do not distort our already very weak competitive position with the United States in terms of job creation and so on.
Senator Tkachuk: That, Mr. Chairman, is why we have chief actuaries.
The Chairman: I wanted to make sure that Mr. Ménard, our audience and the committee understand our concerns about this.
Senator Moore: Mr. Ménard, with regard to the U.S. and Australia, do you know their projected figures for 2030?
Mr. Ménard: Between 4 per cent and 6 per cent.
Senator Moore: Each?
Mr. Ménard: I do not remember which is which, but it is about 6 per cent. I remember a number at 4 per cent even in 2030, but I would have to go back to —
Senator Moore: Ours is 7 per cent; correct?
Mr. Ménard: Seven per cent in 2030, which at that time will be even lower than the current cost of many OECD countries.
Senator Moore: When you say it is lower, is there an average figure for those projected?
Mr. Ménard: I read many papers written by the OECD. I will not say there is a place where we should be, but what I like is when you start with the lowest and the highest, to see that Canada is not at the extreme. Then we could say we are probably in a good place compared to others. However, it is difficult to say if it is better to be at 7, 8 or 9 per cent.
There is other information that the OECD does not take into account. They look at the expenditures — the CPP and QPP benefits paid in 2030 — and they divide that number by the GDP. I would say so far we have been very successful in pre-funding the liabilities of the Canada Pension Plan. At that time, the burden on the economy will not be the benefits paid; it will be the contribution rate. Then the burden is even lower than my 7 per cent. I use 7 per cent to use a comparable number with other OECD countries.
Senator Moore: How many countries are in the OECD?
Mr. Ménard: There are 30 countries.
Senator Moore: If we are at a projected 7 per cent in 2030, what is the extreme, the highest, and what country would that be? Are we in the middle? Is the highest 10; is it double figures?
Mr. Ménard: I would say not higher than 15 per cent.
Senator Moore: That would be the maximum.
Mr. Ménard: Yes, probably.
Senator Moore: What country would that be?
Mr. Ménard: I need the graph for that.
Senator Moore: Maybe you could get that and send it to us. That information would be interesting to know.
[Translation]
Senator Massicotte: Gentlemen, I want to thank you for coming here this morning. Mr. Ménard, I have several rather technical questions for you.
We received information about actuarial assumptions. If I understand correctly, the assumptions suggest that we can expect a 4.1 per cent return on our investment, and that is not gross but rather net/inflation. We were also told that a young person joining the pension fund program can expect a 2.1 per cent return, whereas older contributors would have a return of 6.2 per cent. Am I mistaken?
Mr. Ménard: The 2.1 per cent and the 6.2 per cent are calculated based on contribution rates paid by different generations of workers and, since at the start of a plan, there was a 20-year period where we only paid 3.6 per cent, then yes, today's workers are paying more than yesterday's workers.
Senator Massicotte: These figures represent not only the return on the employees' contributions, but also the contribution of the employee and those of the employer.
Mr. Ménard: Absolutely. It is the combined rate. When I was talking about the 3.6 per cent, I was using the combined rate and the current rate of 9.9 per cent, which has not changed since 2003, as the basis for our assumption.
Senator Massicotte: In looking at these calculations, I have come up with two observations. First, it is unfortunate to note that people receiving benefits from the pension fund today are getting higher benefits perhaps than the value of their contribution at the expense of the next generation which is paying into the pension plan. Young people can expect a 2.1 per cent return, however they would get 4.1 per cent on the market.
Mr. Ménard: I would like to correct one thing about the market. I have often used, both here and elsewhere, the 4.1 per cent rate of return, which is the real rate used in the actuarial report. If someone aged 20 wants to purchase the total benefits provided under the Canada Pension Plan and he or she goes to an insurance company, that company would not be taking the same risks. We could expect that this individual would not get more than 2.1 per cent.
So, when we say that the 4.1 per cent would be the going rate, given the current interest rates which are at historically low levels, it is not clear whether, tomorrow morning, an individual would be guaranteed a 4.1 per cent rate.
You might ask me whether the CPP Investment Board or the plan can guarantee the payments. It depends on the performance of investments made by the Canada Pension Plan and it also depends on the economy and demographics. In terms of investments, the Canada Pension Plan Investment Board has been doing very well since 1999.
Senator Massicotte: Nonetheless, it is quite unfortunate. You are assuming that an individual's portfolio would not be as well invested or as diversified. Consequently, the assumption that this individual would receive 4.1 per cent may not be correct?
I have no doubt that your staff are extremely competent, but to say that the return would be as low as 2.1 per cent on the stock exchange or bond market, well allow me to have my doubts. You are assuming a 4.1 per cent rate, and you too know that this rate is not guaranteed.
Workers can choose whether or not to make 9.9 per cent contributions to a pension fund, RRSPs or mutual fund investments. I think they are ahead of the game.
In your plan, I note that you have a rate of expenditure of 4 per cent to 6 per cent. Such expenditures would not occur. It seems inequitable or not profitable to make a contribution.
Mr. Ménard: I would like to draw your attention to two points. When a national retirement scheme is implemented, three elements or three principles are fundamental. They are equity, and that is what you are talking about now, solidarity and responsibility. Each and every one of us, employer, employee, worker, is responsible for ensuring that funds for retirement accumulate through savings.
I mentioned solidarity because we cannot change the past. When the scheme was implemented, and it was discussed in 1964 and 1965, fertility rates were extremely high, real salary increases were extremely high and actuaries at that time did their assumptions and said that we could start with a rate of 3.6 per cent. They also said that this rate was not sufficient and that it would have to be increased to 5 per cent or 5.5 per cent around the year 2000. What has happened is that the assumptions that were tabled back then, have not materialized particularly with regard to the fertility rate.
In the 1970s, 1980s and 1990s, we saw a destabilization of the population, we affectionately call these people the baby-boomers. Now, we are seeing a mass of retirements and, if nothing is done, this will push contribution rates to even higher levels. The painful choice is this: do we keep a system with benefits as currently defined or do we increase contribution rates and increase the plan's capitalization, in other words, do we put more money aside than before? The other solution is to say no, let us replace everything with RRSPs. The first problem concerns solidarity. People have contributed what they were asked to contribute. They are entitled to their retirement pension. Changing the rules halfway through the game is very unfair in my opinion. We have an actuarial liability. If we opt for RRSPs, individual accounts for everyone, this actuarial liability lies on the shoulders of people aged 65, 70, 75, 80 and 90. My grandparents could not believe the return they had on their investment, they told me so frequently. We have to do something with this money, it has to be paid out one way or another. For the macro-economic equation, countries use liabilities, a debt that they have created. They decided to pay this amount in debentures. But debentures are also debts that weigh on future taxpayers.
In the 1990s, work was done to try to identify the actuarial liability. If we wanted to pay back the deficit in full tomorrow morning, it would be the same as increasing the GST from 7 per cent to 21 per cent for the next 30 years. This gives you an idea of the scope of the deficit accumulated during the 1960s, 1970s and 1980s.
It also gives you an idea of the scope of the national retirement plan. Statistically speaking, we own something significant. Yes, we made decisions during the 1990s to respect the commitments we had made to those who paid contributions between 1970 and 1996. However, we have ensured that at the very least, baby-boomers will do their fair share and the rate was increased to 9.9 per cent.
Young workers now joining the system are paying 9.9 per cent their entire lives, but it would be interesting, if there is any flexibility, to achieve a decrease in contributions. That said, I am not the decision maker, I write the actuarial reports to the best of my knowledge. They are audited by independent actuaries working in the private sector and I am very comfortable with this. In the future, choices will have to be made.
Senator Massicotte: Your report states that such a rate reduction is not possible. It is based on existing contributions.
Mr. Ménard: According to the legislation, I assess the plan as it exists at the time of the assessment and this goes in the triennial report. Every time a bill is tabled in the House of Commons, if I determine that it will have a material impact, I am required to produce an actuarial report. Report number 22, which you have there, concerns Bill C-36.
Senator Massicotte: We cannot look to the past. There is an issue of solidarity. I am in no way recommending that we abolish the pension plan. The fact is this: it is unfortunate that, today, your son is going to indirectly fund your pension plan.
Mr. Ménard: My son must also consider using diversification to maximize his pension plan. On that note, I believe that Canada has many things to teach other countries. We have old age security, and the Guaranteed Income Supplement which are financed through the consolidated revenue fund. How can we assure sustainability? By not getting into debt when we are young.
We have maintained a defined benefit pension plan and we have increased capitalization to 25 per cent. The goal is to have assets equal to 25 per cent of the liabilities. During discussions there has never been a suggestion to increase this to 100 per cent because capitalizing a national allocation plan, without a contingency fund or with a small contingency fund and fully capitalizing it, even over 30 years, that is a short period of time because your are asking one generation to pay twice, once for their own retirement and once for their parents' retirement. This change has to be made over a period of 60 years or longer.
Our third level, employer retirement plans and RRSPs are fully capitalized or, at the very least, the goal is to fully capitalize them. No one can predict the future. There are lots of unknowns. I have always taken a balanced approach by telling myself that, in the future, if the returns are not there, part of our system will have been funded in a different way. If we have great returns, part will have been funded that way and we will be winners.
International organizations, the World Bank, the OECD, recognize that a country that chooses to diversify the way it capitalizes its retirement commitments, is a country that has a potentially brighter future than other countries.
Senator Massicotte: You have given figures, and we acknowledge that there is an accounting deficit in the pension fund. In order to make up for this, you said that we would have to increase the GST from 7 to 21 per cent. For how many years?
Mr. Ménard: Thirty years. The calculation is fairly simple. The result may be painful but you take the debt, if it is 500 billion —
Senator Massicotte: This means that we have an astronomical deficit.
Mr. Ménard: To the extent that we believe that full capitalization is the answer.
Senator Massicotte: For all corporate private pension plans and former government programs, the tendency is to ensure that we have eliminated the deficit, that we plan wisely for our future needs. If we were to take this premise and applied it to pension plans, we would need to increase the GST to 21 per cent for 30 years.
Mr. Ménard: If we decide to fully capitalize the total amount, to set this money aside and invest in markets for Canada. Those were the figures that were presented.
[English]
The Chairman: That was very helpful. You can understand we are concerned about this question as it relates to the future.
We are also concerned about what happens on the other side if our pension fund returns take a nose dive, if the market goes down. If it is a precipitous nose dive, then we could have a horrible situation.
At the end of the day, if the market takes a dive and our pension funds do not reduce their rate of return, there will be tremendous upward pressure on increased fees, resulting in stagflation. This is an issue we must keep under very steady and appropriate surveillance, if we are interested in the health and welfare of our country.
Mr. Ménard: In the last triennial report, we included sections entitled ``Financial Market Volatility,'' where we showed the impact on the assets if we have two or three years of negative returns.
We went a bit further by saying that, if it happened in 2005-06, at a time where the assets are not as high as they are projected, this will be the impact. We went further by looking at years 2017 and 2018 and applying the same stress-test scenario. Of course the impact was much bigger. At some point — as with many other scenarios — this could jeopardize the 9.9 per cent contribution rate.
Indeed, in the report we have developed two plausible scenarios. The legislated contribution rate is 9.9 per cent. As chief actuary, in the report I am saying the minimal rate is 9.8 per cent. There is some manoeuvring room.
The Chairman: Not much.
Mr. Ménard: Not much. It is small, yes.
We have developed two scenarios. The steady state, the minimal rate was between 9.3 per cent and 10.3 per cent. I am quite confident that the future contribution rate will be between these two numbers.
From 2000 until now the labour participation rates, the labour market, were quite good. Since 2003, the investments made by CPPIB were quite successful.
The Chairman: It goes to show that we live in a very tightly interconnected economy. It is very important that we do not penalize or put barriers in front of one part of the economy, because it jeopardizes and affects another part of the economy — in effect, our pension.
Senator Ringuette: I was listening very attentively to the discussion in comparing registered saving plans, private registered saving plans and our current national plan. If all the senior citizens who have invested in the income trust had been listening right now, they would be very pleased with what you have done and what you are projecting for the national plan. There is no surprise and no shortfalls of tens of billions of dollars in income for them.
I agree with the three principles that you have mentioned, and it is all very interesting.
[Translation]
I would like to thank Mr. Dussault, Mr. Salembier and Mr. Major for their contribution as volunteers. Mr. Dussault, you indicated that, even now, 40 per cent of our seniors live in poverty. Have you data indicating the proportion of men, women and seniors living in poverty?
Mr. Dussault: Personally, I do not have them. I do not know whether they appeared in the actuarial reports on old age security, but we can get them. There are more women because they live longer than men.
Mr. Salembier: The figures I gave you are for Quebec. The rate is 13 per cent, most of whom are women. Since they raised their families, they were not part of the labour market and therefore are not receiving the RRQ. They are living only on Old Age Security and the Guaranteed Income Supplement.
Today, 37 per cent continue to live on the Old Age Security pension, the Guaranteed Income Supplement and RRSPs. So, 50 per cent of the population in Quebec has no pension plan and very few RRSPs. These are the latest figures we have received.
Senator Ringuette: We are talking about 50 per cent of retired population in Quebec?
Mr. Salembier: Yes. The minimum amount normally required to survive should be approximately $18,000. However, that is not the minimum taxable income level.
Senator Ringuette: Yes.
Mr. Salembier: The minimum taxable income is not $18,000.
Senator Ringuette: No, it is $8,000.
Mr. Salembier: If we want to be fair, the minimum taxable income should also be $18,000. All across Canada, this 13 per cent applies to women, most of whom have stayed at home to raise their families which means that now, we are seeing a population decrease. People are having fewer children, there are more parents, so we are seeing an inverted pyramid. At the same time, we must not penalize those who built Canada or Quebec by saying that seniors did not contribute enough and that now, their children have to pay. However, we still have created work for them.
[English]
The Chairman: You have given us percentages of 13 per cent and so on. How many people in Quebec are not covered by any of the regimes? You have given us a percentage, but we are talking about what group, and how large is that group?
[Translation]
Mr. Salembier: There are approximately 1.7 million seniors aged 65 and older. Take 13 per cent of that population and there is your answer.
Senator Massicotte: I am trying to understand. You are saying that the poverty line is $18,000 per year?
Mr. Salembier: That is what I am told.
Senator Massicotte: That is what I am asking you. So, 40 per cent of all seniors live under the poverty line. We are talking about individuals, we are not talking about couples.
Mr. Salembier: Yes.
Senator Massicotte: I presume it is because these people are not eligible for the Canada Pension Plan. Is this the main reason?
Mr. Salembier: To some extent, yes, because, in our opinion, people who did not contribute to the Régime des rentes du Québec, for example, cannot receive benefits. When I talked about the 13 per cent earlier, I was talking about people who may live on $10,000 per year.
Senator Massicotte: When I look at the figures we got yesterday, for the pension fund, the base amount per month today is $491 and $620 for the Guaranteed Income Supplement, which equals $1,100 per month or $13,000 per year. Those eligible for the Canada Pension Plan receive an additional $863, so this amount increases to $18,000. But you are saying that many people are not eligible for the Canada Pension Plan.
Mr. Salembier: People living in Quebec are not eligible.
Senator Massicotte: Is it also $863 in Quebec?
Mr. Salembier: You have to have contributed to the RRQ.
Mr. Dussault: If someone is receiving the maximum pension under the Régime des rentes du Québec or the CPP, which is about $10,000, and this is their only income, that individual is eligible to receive the Guaranteed Income Supplement, because that person's income, excluding Old Age Security which is not considered for the Guaranteed Income Supplement, does not exceed the poverty line. That individual is entitled to a Guaranteed Income Supplement between $2,000 and $3,000, or half of the shortfall between the CPP's $10,000 and the poverty line, which is approximately $13,000 or $14,000. It is not because people are not getting the CPP or the RRQ that they are eligible for the GIS because even if they are getting it, those for whom it is the only income are eligible for the Guaranteed Income Supplement.
Senator Massicotte: If you have an income you cannot get the full amount, is that the problem?
Mr. Dussault: There is such a problem with the Old Age Security Pension, but it concerns those who earn more than $62,000 a year. Those who receive only the maximum of the Canada or the Quebec pension plan, have an income that is below the poverty line.
Senator Massicotte: I am trying to understand. One gets $491 from the basic security fund?
Mr. Dussault: Yes. This is not taken into account in the test for the Guaranteed Income Supplement.
Senator Massicotte: With an extra supplement of $620, we get approximately $1,100 per month.
Mr. Dussault: This is the last thing that we look at.
Senator Massicotte: I am trying to understand the poverty threshold. In other words, who belongs to the 40 per cent?
Mr. Dussault: The people whose total income, excluding old age security.
Senator Massicotte: Does the $18,000-threshold include all the pension funds?
Mr. Dussault: Let me start from the beginning. Before determining whether a person is entitled to the Guaranteed Income Supplement of $500 or $600, this is the last factor to consider.
Senator Massicotte: But if there is no money?
Mr. Dussault: The amount of $600 applies to those who have no income from the Canada pension plan.
Senator Massicotte: I am interested in the 40 per cent who are considered to be poor. These people have no other income.
Mr. Dussault: The 40 per cent comprise those who receive a portion, but not necessarily the maximum. They can have an income but they will be eligible to a certain amount of the Guaranteed Income Supplement.
Senator Massicotte: I am interested in cases where someone has no money. If they have other income, if they have no other resources, it is more worrisome.
Mr. Dussault: The percentage of people receiving the maximum Guaranteed Income Supplement, those who have no income, is not 40 per cent.
Senator Massicotte: I am trying to understand. Let us take a 75-year-old couple, not in the best of health, without other income, without any assets and whose children have left, and I try to calculate their income. I include the basic $491, and, possibly, if they have no money, $620. Now we have $1,100. If they have worked and contributed to the Quebec and Canada funds as employees, they receive an extra $863. This brings us to $1,900 per month. If they are eligible for all three, they obviously do not fall under the poverty threshold. Do I understand this correctly?
Mr. Dussault: It does not work that way. Someone who receives a $10,000-maximum from the Canada Pension Plan cannot receive the maximum Guaranteed Income Supplement, $600 per month, but only $100 or $200 per month.
Senator Massicotte: Please explain. I do not understand.
Mr. Dussault: This system, or program, is meant to supplement low income. The supplement can be different for each individual.
[English]
The Chairman: These are statistical questions, so I have asked Ms. Israel to clarify the matter. To be fair, the witnesses believe these are the numbers. Perhaps Ms. Israel might have the precise numbers to provide a better sense of the number of Canadians without coverage.
Marla Israel, Acting Senior Director, Seniors and Pensions Policy Secretariat, Department of Human Resources and Social Development Canada: I shall speak to poverty levels, but it is difficult to determine because there is not a poverty level in Canada, although we have a low-income cut-off level. Therefore, we must look at the progress that has been made to reduce the number of seniors living in poverty. In 1980, approximately 20 per cent of seniors were considered to be low income or living at the poverty line. I do not like to use that term because it exists in the U.S. not in Canada. That number has dropped from 20.8 per cent in 1980 to around 5.8 per cent today.
To clarify, of the four million or so people receiving Old Age Security benefits, about 1.6 million are receiving the GIS. Therefore, the 40 per cent figure is comprised of the number of people in receipt of the Guaranteed Income Supplement in one form or another.
I do not know whether the chief actuary would agree with me, but the creation of the Guaranteed Income Supplement in 1967 in large part led to this decrease in the number of seniors living in poverty. I hope that clarifies the matter. I can speak to income thresholds as well, if you like.
Senator Massicotte: The 40 per cent basically relates to the number of people receiving full supplement.
Ms. Israel: They are receiving some form of supplement.
Senator Massicotte: They are deemed, therefore, to be poor.
Ms. Israel: Yes, and so they receive some form of supplement.
The Chairman: It is my understanding that the people living above or below the poverty line is an artificial line that is set region by region. For instance, in Toronto, the poverty line, at one time based on historic anecdotal information, was at $18,000. That was based on the percentage of a person's income that was spent on the essentials, such as shelter, which is a large component. At that time, it was 25 per cent of annual income, but it has increased to 35 per cent to 48 per cent, which leaves less on the table, in particular for pensioners or single women with children.
The historic number in Toronto was $18,000 some years ago and today is about $21,000 or $22,000. Does HRSDC have a number across the country — region by region — that speaks to this figure? After hearing from Mr. Salembier, Mr. Dussault and Mr. Major, we have concerns about the size of the group that the government should be paying some attention to in order to be fair and to lift them out of the dredges of poverty. Obviously, this a big concern and relevant statistics would help us in our deliberations. If you cannot do it today, certainly we would ask you to return another day with some numbers on this.
Ms. Israel: I would be pleased to return with those statistics. Unfortunately, I do not have them with me today.
The Chairman: Do you agree with my analysis?
Ms. Israel: I understand your concerns. I am not trying to lend any less importance or credence to your comments, but as the chief actuary was explaining, the design of the programs comes into play. The importance of trying to offer a quasi-universal pension at the Old Age Security level and a top-up for those whose income is below a certain threshold has been the thinking behind the design of the program.
The Chairman: We are moving in the right direction.
Ms. Israel: Yes. You want to be able to account for differences region to region and urban and rural divides, for example. Our thinking always must be informed by what is happening. There are other provincial support programs that are taken into consideration — for example, in Toronto and in other urban centres — that complement the programs that are available at the federal level.
Senator Tkachuk: At the provincial level, there is welfare and subsidized housing — at least in our province there is; I cannot speak for others.
The Chairman: There is in my city but the waiting line is from here to China.
Senator Tkachuk: I know. I am just saying that, in most provinces, there are other programs to supplement those who have slipped through the cracks and who may not have the Canada Pension Plan. They take advantage of the programs that exist now in the pod. They may not have CPP for whatever reason — maybe they recently came to Canada, or whatever, and were not able to contribute to the CPP benefits.
We cannot really do anything about those kinds of things. If we accept them, then we must find a way to help them through the system. However, there are a lot of programs at the provincial level to top up this very good federal program.
Senator Cordy: The positive thing is that in 1980, 21 per cent of seniors were living in poverty whereas in 2004, it was 5.6 per cent. The difficulty is when you look within the 5.6 per cent, single seniors are more likely to be in poverty than couples and families.
Senator Grafstein referred to housing. If you have an apartment for one person or two persons, you are still paying the same amount. There are issues like that.
Also, single women are twice as likely to be living in poverty as are single men. With respect to CPP, for example, many women of earlier generations did not work outside the home once their children were born — and many women have gaps in their history because of family choices, staying home with their children, et cetera. We must be careful when we look at the 5.6 per cent and say that this is great. We must look within that 5.6 per cent and ask how we can help those who are hurting the most within that.
Ms. Israel: You are absolutely right; I never take those numbers lightly. We must be informed as officials to look in depth at what those numbers represent. I only raise the issues of the diminishing and the decline because that progress within a short period of time has been a positive.
You are quite right, however. In looking at the numbers, when I do my own analysis, I am conscious of the needs of single women and other women more broadly speaking who, for example, did not make maximum contributions to the Canada Pension Plan starting in 1966. What you see for the positive now is that the disparity between men and women is definitely on the decline.
The number of single women living in poverty, even over the last three years, continues to decline. It was at 17 per cent; then it went down to 15 per cent; and it has declined to 13 per cent. It is because of the maturation of the Canada Pension Plan, I think, and women having made contributions in their own right to the CPP, that you see those numbers. However, I am very conscious of continuing to work and to examine the opportunities, along with my colleagues, to see what more can be done.
[Translation]
Senator Ringuette: Mr. Ménard, during the past five years, several incentives were implemented to encourage people to start small businesses as independent workers. Did this have an impact on contributions? What will be the consequences of this for those people when they retire? I do not expect you to be able to answer this question right away.
There is another important factor. Currently, another federal program grants a one-year period of maternity leave. During this year of leave, the young mother does not contribute to the Canada Pension Plan.
Mr. Ménard: That is correct.
Senator Ringuette: That means that when she reaches retirement age she will be penalized: For each child she had, in other words for each year she took a leave of absence, her pension will be reduced. Once again, we see how the national program has a negative impact on women's retirement income. To what extent are women currently affected and what would be the consequences for today's young women?
Mr. Ménard: It is always extremely difficult to forecast income levels, be it for the self-employed or for men and women who have taken parental leave. I can, however, say that the CPP would not in any way penalize women in the situation you outlined. Time spent looking after a child under the age of seven is excluded from the period used to calculate an individual's pension. A woman could therefore be out of the workforce for seven years and, upon retirement, receive exactly the same pension as she would have had she not taken a leave of absence.
A number of measures have been introduced to address this problem, including the one introduced in the 1970s that applies retroactively to January 1, 1966. Leaves of absence to look after dependent children under the age of seven are exempt from the pension calculation.
I would, once again, reiterate that it is extremely difficult to predict retirement income levels for self-employed workers. I can, however, say that taxation statistics, at least those sent to me every year, indicate that 7 per cent of contributors to the Canada Pension Plan are self-employed, a figure that has not really changed over the years.
Some people fall under what we call the mixed category, which means that, throughout the course of their working life, they have been both self-employed and salaried. While the percentage of people in this category has increased slightly, it is difficult to determine an exact number.
At the end of the day, Canada Pension Plan statistics do not suggest a dramatic increase in the number of self- employed workers.
Senator Ringuette: I am not convinced that parents who take parental leave — and they are usually women — are not penalized. Do you have any data on this point that you could share with me?
Mr. Ménard: Certainly.
[English]
The Chairman: Mr. Dussault, I looked at your brief very carefully and I have listened to what you had to say. We have had a good discussion on one of your two recommendations, namely, how we increase the cost in order to provide more benefits. This is quite a complex question. At this moment, it is important that you keep bringing it to our attention — and I will suggest another way of doing so in a moment.
I want to deal with your second recommendation briefly, if I can, and that is the question of retroactivity. The bill provides for a retroactive payment that has not been compensated up to 12 months. Your point, as I take it, is that for the beneficiary, it results in a permanent loss of the CPP. I assume you are taking the position that that is unfair.
You go on to say that the maximum period of retroactive payment should be extended to the date when the contributor, or her or his survivor or dependents, would have qualified for those benefits. The problem I have with that is the question of equity.
Equity is a question of fairness. On the one hand, you say quite properly that we should extend the period of time beyond the 12 months. I do not quarrel with that, but where is the responsibility on behalf of the survivors or their contributor to bring that to the attention of the officials so that they can keep their budgets intact? I think the department has moved for the 12-month period, but what period would you say? Let us assume they forget for five, six or seven years, and all of a sudden there is a balloon payment.
Mr. Dussault: I must start with this question: Is Bill C-36 reference to the 12-month period in respect to the GIS?
The Chairman: No, I think you are referring to the CPP.
Mr. Dussault: I am referring to the CPP, but if there is retroactivity in the bill it is in respect to the GIS. Is there anything about retroactivity in the bill?
Ms. Israel: The reference to the 11 months of retroactivity is with respect to the GIS and the allowance, not with respect to the CPP.
Mr. Dussault: I am referring to the CPP. The CPP allows the 12-month period and we are saying that, in the case of survivor benefits or the retirement of a person who was not aware and applied late, the person should not be penalized.
The Chairman: For how long?
Mr. Dussault: It is so easy to determine when the person became eligible that there should be no limit on retroactivity.
The Chairman: You are suggesting that the money should be accumulating in some fashion at an appropriate time and then when they claim it the money will be there.
Mr. Dussault: That is it. They are entitled to it, that is how the plan is financed — it is accrued benefits.
The Chairman: I am trying to determine for the purposes of the record what your conclusions are.
Mr. Dussault: We are making a clear distinction for disability. It would be nice if it could be done for disability too, but it would not be practical because it is not easy to determine when someone became disabled. Hence, I am not suggesting that.
The Chairman: I will make a suggestion in a moment as to how we might turn to that issue.
I will now turn to Mr. Salembier and Mr. Major.
If I understand your concerns, while you are relatively happy with the reforms, the major issue here is a question of education and awareness. There is a whole group of seniors who are unaware of this particular program or unaware of their rights. Therefore, how can the department increase awareness to seniors who may be disabled or, for whatever reason, not able to get the information? Is that the basis of your concern?
[Translation]
Mr. Major: Yes, exactly. When we talk to the people we represent, it is clear that a lot of seniors, especially those on a low income, find it difficult to navigate the tax system and experience problems using the services that provide access to supplementary benefits. We have noticed that a lot of seniors are reticent about revealing their situation. Some low- income seniors simply choose not to file a tax return, thinking it is not worth their while as they do not owe any money. There are people who are missing out on services because they do not realize that by filing a tax return they could gain access to supplementary benefits, even if they do not pay any tax. We try to explain to them that people should not be afraid to explain their situation and say that they do not pay tax, as they may be entitled to supplementary benefits. A significant number of seniors are unaware of their rights and should be encouraged to come forward with their problem.
[English]
The Chairman: My mother lived until age 102, but after age 88, her affairs were handled, not by me but by my wife, and it was very important for her to be aware of these things. From time to time, I know that papers were not filed on time because there was not the same knowledge or concern as someone who is directly involved. Mr. Major, you make a major point. I will suggest in a moment how we can deal with this.
The other question involves seniors again, in this twilight zone. They are competent seniors, but their affairs are now being shifted to their close ones, which is a very complex and, quite frankly, onerous issue. It is one thing to take care of people that are disabled; it is another thing to worry about all their paperwork. You illustrate a telling point about making it simpler for seniors to report their income. This committee has said again and again that we must simplify the tax system for those who need some assistance so that they do not need to go to professionals each time. Senator Angus and I are very concerned that the tax system is much too complicated, not just for seniors but for everyone, and we have some plans to address this issue.
Before concluding this meeting, I want to say to you, Mr. Dussault, Mr. Major and Mr. Salembier, that there is another benchmark study that is being done by the Senate, chaired by former Mayor Art Eggleton of Toronto. The Standing Senate Committee on Social Affairs, Science and Technology is undertaking a study on poverty, particularly poverty amongst the aged, and I want to give you a little history lesson.
The 1967 study that dramatically changed the poverty levels in this country originated in the Senate and was originated by a former colleague, Senator Kroll, who not only was a mentor of mine, but I worked in his law firm, which was great training. He did a benchmark study on poverty. That Senate study led to recommendations in the 1967 budget that changed Canada's income structure.
When people say that the Senate is not doing its work, I personally get very heated. That benchmark study was the first of its kind and I want to congratulate Senator Eggleton and those other colleagues on the Standing Senate Committee on Social Affairs, Science and Technology who will now refresh that study. It has not been done in over 40 years.
I suggest to you, Mr. Dussault and Mr. Salembier, as volunteers, to be in touch with Senator Eggleton. I want you to take your concerns to that committee. I undertake on behalf of this committee to inform Senator Eggleton about this transcript. I will personally hand it to him.
It would be useful when those hearings commence that you return. We were concerned about poverty in this country and we continue to be concerned in the Senate. Even though we are the Banking Committee, this was foremost in our mind. We do not believe that Canadian citizens in our day and age should be living below the poverty line — with the wealth in this country. We will do everything in our power to keep nudging and prodding governments and the private sector to do their duty.
I want to thank you very much for this very enlightening and informative hearing. Thank you very much.
Honourable senators, is it agreed to proceed to clause-by-clause of Bill C-36, to amend the Canada Pension Plan and the Old Age Security Act?
Hon. Senators: Agreed.
The Chairman: Any contrary minded?
Hon. Senators: No.
The Chairman: I should like to report the clauses of this bill.
Shall the title stand postponed?
Hon. Senators: Agreed.
The Chairman: Shall clauses 1 to 14, amending the Canada Pension Act, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clauses 15 to 35 amending the Old Age Security Act carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clauses 36 to 38, the transitional provisions, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 39, the coming into force provision, carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Carried. Shall I report Bill C-36, to amend the Canada Pension Plan and the Old Age Security Act, without amendments to the Senate?
Hon. Senators: Agreed.
The Chairman: Carried. We will do that this day.
I want again to thank the witnesses and our audiences for their great and potent attention.
The committee adjourned.