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Proceedings of the Standing Senate Committee on
National Finance

Issue 7 - Ninth Report of the Committee

Tuesday, March 11, 2008

The Standing Senate Committee on National Finance has the honour to present its

NINTH REPORT

Your Committee, to which were referred the 2007-2008 Estimates, has, in obedience to the Order of Reference of Tuesday, November 13, 2007, examined the said Estimates and herewith presents its report on The Financial Security for Seniors: Entitlements and Retroactivity Provisions under the Canada Pension Plan.

Respectfully submitted,

JOSEPH A. DAY

Chair

REPORT ON THE FINANCIAL SECURITY
FOR SENIORS: ENTITLEMENTS AND
RETROACTIVITY PROVISIONS UNDER
THE CANADA PENSION PLAN

INTRODUCTION

The Standing Senate Committee on National Finance met on Tuesday, 4 December 2007 in order to examine the topic of financial security for seniors and, in particular, the entitlements and retroactivity provisions under the Canada Pension Plan (CPP). Two sets of witnesses appeared before it. Appearing in the first panel of stakeholders were:

  • Mr. Richard Shillington, Senior Associate, Informetrica Limited; and
  • Mr. Bill Gleberzon, Director of Government Relations, Canada's Association for the Fifty Plus.
  • The second panel was composed of government officials:
  • Mr. Dominique La Salle, Director General, Seniors and Pensions Policy Secretariat, Human Resources and Social Development Canada;
  • Mr. Philippe Rabot, the Commissioner of Review Tribunals Canada Pension Plan/Old Age Security;
  • Mr. Yves Giroux, Senior Chief, Social Policy Division, Federal Provincial Relations and Social Policy Branch, Department of Finance;
  • Ms. Suzan Kalinowski, Chief, Income Security, Social Policy, Federal Provincial Relations and Social Policy Branch, Department of Finance;
  • Mr. Jean Claude Ménard, Chief Actuary, Office of the Superintendent of Financial Institutions; and
  • Ms. Pam Menchions, Director of Operations Management, Service Canada.

OVERVIEW

As the second tier of Canada's retirement income system, the Canada Pension Plan (CPP) provides contributors with retirement pensions, disability benefits, benefits for survivors, children's benefits, and a death benefit. In 2005- 2006, 4 million people received benefits totalling $25 billion.

CPP is funded by the contributions of Canadian employees and their employers. The employee and employer contribution rate is 4.95%, and the self-employed contribution rate is 9.9%. The maximum employer and employee contribution to the plan for 2008 is $2,049.30, and the maximum self-employed contribution is $4,098.60.

CPP retirement pensions are based on how much and for how long one contributes to the fund, as well as the age at which one's pension begins. The pension is approximately 25% of the average annual earnings of the individual over his or her working life, to a current maximum monthly benefit of $884.58.

CPP revenues can only be used to pay CPP benefits; revenues not immediately required for this purpose are transferred to the CPP Investment Board (CPPIB). The CPPIB is an independent Crown corporation operating at arm's length from governments. It is mandated to invest excess funds in the best interest of contributors and beneficiaries without undue risk of loss. At $121.3 billion in assets, the CPPIB is the largest single-purpose pension fund in Canada. However, the future liabilities of the fund are also substantial, close to $500 billion.

Finance officials explained that the plan is on a sound financial footing: the most recent actuarial report on the CPP confirms that the plan will remain financially sustainable at the current contribution rate of 9.9% for at least the next 75 years.

Government of Canada and the provincial governments are co-stewards of the CPP. Under this structure, any substantive changes to the CPP legislation requires the formal consent of at least two thirds of the provinces having at least two thirds of the population of Canada, as well as the approval of the federal Parliament.

RETROACTIVITY PROVISIONS

Eligible individuals aged 65 and older who failed to apply for their CPP benefits may retroactively claim these benefits for a maximum period of up to 11 months. Benefits exceeding 11 months may be paid when the department has made an administrative error or provided erroneous advice, or when a client could not submit an application because of a mental or physical incapacity.

Mr. La Salle of Human Resources and Social Development Canada explained the rationale for the current retroactivity provisions:

The 11 month retroactivity provision was chosen because it was considered to be a reasonable period to accommodate delays in obtaining information or evidence required to make an application, as well as to address ordinary oversights in submitting an application.

He added,

Without limits on retroactivity, CPP benefits could be managed by individuals as a savings program. Beneficiaries could delay applying for CPP benefits so as to take advantage of the Guaranteed Income Supplement (GIS) and provincial income tested programs.

He also noted that the current limitations on retroactivity are mostly consistent with similar programs in Canada, including other federal and provincial income support programs.

Other witnesses explained that eligible individuals aged 65 and older who fail to apply for Quebec Pension Plan (QPP) benefits may retroactively claim those benefits for a maximum period of up to 60 months. In addition, due to the extensive outreach efforts of the provincial government, the QPP has close to a 100% take-up rate. In particular, efforts are made to contact eligible recipients individually, by phone.

OUTREACH INITIATIVES

As one Senator noted, the federal government has stepped-up its outreach measures by launching a comprehensive nationwide print, radio and television advertising campaign to help seniors apply for and receive benefits. It proactively contacts seniors to directly inform them of benefits available to them. As an example, it sent 268,000 application packages for the CPP and Old Age Security (OAS) in the year 2006 alone. In addition, every March the government proactively contacts seniors who did not file a tax return to remind them of their benefits.

In 2006-2007, Human Resources and Social Development Canada mailed out 20,604 letters to people aged 70 and older who were not receiving the CPP. This effort resulted in only 1,877 applications (about 9.1% of total letters sent out).

Since Canadians may choose to apply for the CPP at different ages, the staff of Service Canada, the service delivery unit of Human Resources and Social Development Canada, has been instructed not to invite people to apply for CPP benefits when they apply for OAS benefits.

THE COST OF EXTENDING THE RETROACTIVITY PROVISIONS OF THE CPP

The Office of the Chief Actuary has identified some 26,430 eligible CPP contributors aged 70 and over as of 1 July 2005 who have not yet applied for their retirement benefits. The cost of extending benefits to these contributors, if they were to apply on 1 January 2008, is estimated at a one-time retroactive payment of $39 million, and $43 million payable on an ongoing basis until the death of the last survivor of the group, projected in the year 2040. The estimated amount of $82 million payable in 2008 represents about 0.28% of the total projected annual expenditures of the CPP of $29 billion for 2008. The cost of the retroactive retirement benefits is based on the current limit of 11 months.

Department of Finance officials noted that the CPP plan is a co stewarded plan with the provinces. Therefore, any issues affecting the financial status of the plan would require the agreement of the provinces.

POSSIBLE RECOMMENDATIONS

A. Change the Retroactivity Provisions of the Canada Pension Plan

Witnesses told the committee that providing full retroactivity of benefits with interest is fair and just; they noted that the CPP is the contributor's money. In their opinion, the federal government's duty as the steward of the fund is to ensure that eligible recipients receive what is their due. Other witnesses suggested that changing the retroactivity provision could have a significant impact on federal expenditures. The Committee feels that this issue deserves more attention and therefore recommends that:

Recommendation 1:

That the federal government consult with the provinces with a view to increasing the retroactivity period for eligible recipients.

B. Review Federal Canada Pension Plan Outreach Efforts

The witnesses suggested that the Federal government needs to assess the effectiveness of its efforts to identify potential Canada Pension Plan recipients that have not yet elected to receive their pension benefits. They also believed that the federal government needs to be more proactive in its outreach efforts, to ensure that there is a higher take up of benefits by eligible recipients. Given the importance of the Canada Pension Plan in the lives of many Canadians, the Committee recommends that:

Recommendation 2:

The Federal Government examine new ways to reach those eligible Canadians that are not yet receiving their Canada pensions; and to encourage Canadians to avail themselves of the benefits to which they are entitled.

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