Proceedings of the Special Senate Committee on Aging
Issue 6 - Evidence, April 14, 2008
OTTAWA, Monday, April 14, 2008
The Special Senate Committee on Aging met this day at 12:34 p.m. to examine and report upon the implications of an aging society in Canada.
Senator Wilbert J. Keon (Deputy Chair) in the chair.
[English]
The Deputy Chair: Honourable senators, today's meeting will focus on options raised in Chapter 3 of our second interim report entitled: Issues and Options for an Aging Population, tabled in the Senate on March 11. This chapter deals with issues surrounding older workers, retirement and income security.
Our video equipment is experiencing problems so with permission of all the other witnesses, we will proceed with Kevin Milligan, Assistant Professor of Economics from British Columbia.
Kevin Milligan, Assistant Professor of Economics, University of British Columbia: Thank you for inviting me to speak today. I think this is an important area of public policy. I do not perceive there to be any kind of crisis in the public pension system. Things are not perfect, but steady as you go.
I see this as a good time for reflection and careful planning to make good policy, perhaps away from the heat of day- to-day politics. I see this as a good opportunity and, I think, the Senate report is a good step toward that goal.
I have been asked to prepare comments on Chapter 3 of the report and I will go through my comments methodically addressing the points. First, the incentives provided in both public and private retirement pension systems were mentioned. These are disincentives for labour market participation. I would like to take issue with the indication that the incentives in the Canada Pension Plan are minor. I have done work that suggests for some sets of people there are strong disincentives for work embedded in the Canada Pension Plan and more broadly in the Canadian public pension system. Specifically, the issue comes through with the actuarial adjustment for the Canada Pension Plan. It arises with those who receive both the Guaranteed Income Supplement and the Canada Pension Plan. Those who receive the GIS lose 50 cents on the dollar when they have a dollar of other pension income, including Canada Pension Plan income.
If you delay retirement when you are 61 years of age, you may gain a dollar through the actuarial adjustment mechanism of the Canada Pension Plan. However, when you become 65 years of age, you will lose 50 cents off that dollar through the GIS clawback. That means the actuarial adjustment you receive from ages 60 to 65 for delaying retirement is halved by the impact of the GIS, for those receiving it in retirement. I have done simulations in a paper for the C.D. Howe Institute that shows how this kind of incentive can be fairly strong for those at the bottom end of the labour market. Second, an exemption in the Guaranteed Income Supplement was announced in the recent budget. This allows $3,500 of earned income before one starts to lose the Guaranteed Income Supplement through the clawback mechanism.
The report applauds this move and I endorse it; it is a good start. After age 65 when one starts to receive the GIS, if eligible, there was a very strong disincentive to work even a few hours a week. You started to lose your GIS cheque, again, through the clawback mechanism.
In the survey evidence, we see a strong preference to work part-time among seniors who want to work and who choose to work. However, because of the high implicit tax rate through the GIS, it was not happening very much. This new exemption is a good start. I think the level of $3,500 is lower than it ought to be, but this can be monitored in the years to come.
Recommendation 17 in Chapter 3 suggests the "Launch of an awareness campaign on the recent legislative changes that removed barriers to phased retirement." This was introduced in Budget 2007. There are new regulations that permit a certain set of defined pension benefit plans to allow the receipt of pension income at the same time as higher benefits accrue. You can receive pension and be earning credits toward a new pension at the same time.
It appears the committee is concerned that there is not a lot of awareness of this new measure. I am less concerned about the awareness of it because I am not sure that this measure will affect many people. Only 32.6 per cent of all working Canadians are in defined benefit pension plans. Of those, many are not in plans that qualify for the new phased retirement rules.
An analysis by the law firm, McMillan Binch Mendelson, stated, ". . . limited number of plan sponsors . . . provides full unreduced pensions at age 55." That is important because, for a plan to qualify for the new phased retirement scheme, the pension had to provide a full pension at age 55. According to the law firm, that is a fairly small set of defined benefit pension plans and only one third of Canadians are in defined benefit plans.
Beyond that, the majority of retirees are happy to be retired and prefer not to work more. There is a subset that wants to work more, and it is important to think about how you want to help those people but I am not sure that a full- scale public relations campaign is appropriate because the scope of the current policy is very narrow.
I do not see this policy as a bad thing; rather, it is a good first step in liberalizing people's decisions about when and how to retire. It gives such individuals more flexibility in planning for retirement. Those are all good goals but we will watch how this works out and perhaps think about how to expand that in the future.
On recommendation 18, to change actuarial adjustment for the Canada Pension Plan, I point out that setting the actuarial adjustment in the current system is difficult because the current practice is to use the same adjustment, 0.5 per cent per month, for retirement before or after age 65, or 6 per cent per year. The same rate is used at all ages for both sexes.
We know that such things as mortality probabilities are different across gender and age groups. Setting one percentage rate is a difficult task. You will never get it exactly right because people are in different circumstances. That said: it seems that the current adjustment is too small for younger retirees.
It should be noted that a bigger incentive to delay retirement can actually save money. When you pay bigger pensions to people, you worry about the cost impact on the Canada Pension Plan. I note that the committee has been careful in acknowledging the joint federal-provincial nature of the CPP so that any changes must be made in consultation and agreement with the provinces. There is a lot of worry about the affordability of changes.
A bigger incentive to delay retirement, when the current incentive is not actuarially fair, can, in certain circumstances, actually save money. The reason is that bigger pensions at older ages cost more for those who survive. However, if people do not take up their pension until later, fewer people will survive until those ages. An actuarially fair adjustment balances these costs. Cost concerns for changing the actuarial adjustment are lower than one might have thought them to be at first glance.
Recommendation 19, requests that CPP recipients continue to contribute, needs more consideration. Currently, the Canada Pension Plan benefit received when someone first claims is the same amount received for the rest of the person's life. If you retire at age 61 with a monthly pension of $800 from the CPP, that is what you will receive until the end of your life, subject to inflation adjustments. A practical thing about allowing people to both earn more CPP credits and to contribute to the plan is to try to figure out how you would adjust the formula to account for continued earning of pension credits. Perhaps more importantly, this would have a drastic impact on take-up.
In thinking about this recommendation, I cannot see how it would be in anyone's incentive to do anything else except to take CPP at age 60. In other words, if you were able to continue to earn credits and to make contributions to the CPP after age 60, why would not everyone simply claim the benefit at age 60 and continue to earn credits if they chose to continue to work? That was a bit of a concern with that recommendation.
Skipping ahead to recommendation 22, the problem of unemployed older workers is a truly difficult problem. I should note a serious problem in more resource-dependent communities, such as a standard one-mill town where the employer closes down. The serious economic and social problem arises of how to fairly, efficiently and equitably treat the older workers who suddenly find themselves unemployed. This was one of the key focuses for the Expert Panel on Older Workers last year. That report has been submitted and should be released soon. This Senate committee should have a look at that report when it is released to determine whether it can inform policies in this area.
I offer a word of warning from the European experience with these kinds of special plans through Employment Insurance for older workers that attempt to bridge from unemployment to retirement. In Europe, sometimes these programs have been quite heavily used as employees and employers find ways to use it, essentially, as an early retirement plan. Some caution should be urged in the design of any such plan to ensure that it is not simply a dumping ground on the public payroll for older workers.
At page 23, there is mention that many seniors have incomes below the low-income cut-off rate, LICO. It is important to note that this is one of our great policy successes and that over the past 30 years we have recognized the huge change in poverty among the elderly.
I have written a paper on the dynamics of this over the last 30 years. One of my findings was that in 1973, about 45 per cent of senior families were below the LICO. By 2003, that number had dropped to about 10 per cent, which might be 10 per cent too many but it is important to see the trajectory of the policy development in this area — a dramatic drop in poverty rates as measured by the LICO.
Professor Michael Veall, who is here today, has written a paper that looks specifically at the 10 per cent of seniors who are still under the low-income cut-off. Perhaps he will speak to that issue. His paper would be informative on that question.
I will make a couple of points on recommendation 24: tax credits for seniors, the taxation of OAS and GIS benefits, and the relationship to tax credits. First, the Guaranteed Income Supplement is not taxable income but the Old Age Security amount is taxable. Moreover, it is important to remember that under the existing tax system, the age credit was increased recently by $1,000 up to $5,066. In 2008, seniors over the age of 65 will receive the basic amount of $9,600 plus an age credit $5,066 for a total of $14,666. The current rate for OAS and GIS totals only $13,612 per year and, therefore, the OAS and GIS is less than the basic credit plus the age credit. I am not sure that the problem noted in recommendation 24 is as acute as was stated.
Recommendation 25, on survivor benefits under the Canada Pension Plan, the question of how much survivor benefits should be adjusted upon the death of one of the partners is interesting. You can imagine one extreme would be to have the full survivor pension continue. The other extreme would be to cut it off entirely and have the surviving spouse continue with his or her own pension.
Currently, the survivor pension is set at 60 per cent of the deceased partner's pension, subject to a maximum cap of the total of the two pensions. One way to think about this is to consider how the expenses of a household might change upon the death of one of the spouses. Some expenses, such as housing, might not change. If living in an apartment or a house, you pay property taxes and water bills, which will not change. Other expenses will change quite a bit. With one less person in the house, there is less food expense.
The appropriate rate of inclusion of a deceased person's benefit into a survivor pension is an empirical question to think about when deciding on the expense ratio. The proposal in recommendation 25 is to move it up to 100 per cent. I would be surprised, in terms of keeping expenses covered, if 100 per cent is the right number. I think 60 per cent is likely closer to the right number.
Recommendation 26 is an interesting idea — to target the Guaranteed Income Supplement to the size of the community. It is noted that the low-income cut-offs are targeted to the size of different communities. Perhaps that could be the same for the GIS, to recognize the different costs of living in different areas.
The spending pattern of elderly households is quite different from the spending patterns of younger households and that is because seniors spend much less on housing. A certain proportion of seniors do rent, but large proportions of seniors own their own home — most of them own them free and clear without a mortgage. Because they do not have a monthly mortgage payment to make, a much larger proportion of the budget of senior households goes to things like food and transportation, rather than to housing expense.
It is also interesting to think about the pattern of costs in big cities versus more rural areas. In rural areas, housing is typically a lot cheaper, but things like food and transportation are more expensive. You have to drive everywhere, and your food has to be trucked everywhere. In the city, your housing is often more expensive, but you have more access to public transit, and food might be cheaper as it is easier to shop around. Therefore, when you look at the expenses incurred by elderly households in rural versus urban areas, it is not clear that the ones in rural areas have it easier by having lower costs. I am not sure the idea of targeting the GIS by having lower amounts to rural areas would line up with the expenditure needs of senior households.
While politics is not my game, I can foresee that there might be some political problems of having different GIS cheques to people in different regions. I just point that out as a possible problem with the recommendation.
Recommendation 27 is to increase the Canada Pension Plan replacement rate from 25 per cent to 50 per cent. The recommendation suggested this would be something that would be phased in through time, which is good because this would be a huge change. Increasing the replacement rate implicit in the CPP and the year's maximum pensionable earnings threshold, YMPE, which is around $41,000 — the recommendation, is to move it to $60,000. This has two separate impacts. First, it has an impact on the premiums of the people who are still working. I am going to pay the CPP contribution rate and my employer will pay the CPP contribution rate on a greater share of earnings, up to the $60,000 threshold at that point. Second, it has an impact on payouts because part of the benefit formula depends on the YMPE as well. Because of that, you could have some disjoint between the timing of when new revenues come in and when new expenses go out. Of course, any such change would be done with consultation of the Office of the Chief Actuary, but this would be something that would have to be very carefully planned. A bigger question is would this be wise?
One way to think about it is you are going to take a bunch of middle-income people and subject more of their earnings to the CPP, both the tax and also a pension in the future. One response that you might expect is that many people in registered pension plans, in consultation with the other members and the plan sponsor, could adjust their RPP to shrink it in response to the greater CPP. Similarly, those who are not in an RPP might shrink their RRSP contributions in response to the greater CPP pension. Since they are getting a pension through the CPP, there will be less need for pensions through other sources. The question of scaling up the CPP by a great amount is something that should be considered carefully.
Finally, I will move to recommendation 31, which is to harmonize the OAS, the GIS and services that might depend on them. I note that there was a big push to harmonize the OAS and the GIS in the 1990s. It was referred to as the seniors' benefit. However, this initiative never made it into law; it was cancelled in 1998. I suggest that before entering any discussion of doing that again, we should learn from the episode, both the pluses and the minuses of the design of the seniors' benefit.
Kathleen Lahey, Law Professor, Queen's University: I greatly appreciate the opportunity to talk to you about this report. I think this is extremely important work to be doing at this time.
I had initially prepared, much as Mr. Milligan had, a detailed run through of the various recommendations, but he has covered a lot of the most important points. In addition, when I got to recommendation 28, my perspective on this report, and particularly on Chapter 3, changed radically.
I realized as I went back and looked at the input that the committee had received, that although the committee is obviously aware that a gender-based analysis is key to such policy work, it does not look like a full-scale, gender-based analysis has been carried out with respect to the issues considered in the report. Therefore, I will use my allocated time to outline why it would be extremely useful for the committee to carry out a gender-based analysis in relation to some of the recommendations.
Chapter 3, and indeed much of the draft report as it stands, proceeds on the apparent assumption that everyone in Canada earns an average income. That average income is used for most of the analysis. It also assumes that the recommendations that are generically aimed at seniors will be appropriate for every Canadian. The problem is that when these recommendations and issues are looked at through a gender perspective, it is apparent that women and men live in two separate income economies. This has a tremendous impact on their ability to save generally and, more particularly, to provide for their retirement.
I did provide a handout, which I understand is in your package, showing the distribution of income by age and sex for 2004. I provided this because it might be useful while talking in terms of low-income cut-offs, to look at the dramatic difference in the allocation of gender-based income throughout people's lives. Two key things should be taken into consideration when looking both at the two-income curves, and at the year-by-year breakdown of average incomes.
In their peak earning years, women never earned an average of even 70 per cent of what men earn. By the time women hit their 50s, their incomes, which are rarely much higher than the current $30,000 level, decrease significantly. They remain more or less flat; the line from the age of 60 onward is as close to a flat line as you can get when you are dealing with actual incomes.
This has two big implications for all the issues examined in Chapter 3 of this report. First, women will not have the same capacity as men do to save during their working lives. Therefore, they are not going to be able to invest as fully in registered pension plans. However, more women make use of registered pension plans than men do because they see it as an opportunity to get some pension credits built up. Women have less opportunity to take advantage of Registered Retirement Savings Plans. As of 2007, 40 per cent of women in Canada's incomes are so low that no tax deductions and no tax credits are of any use to them whatsoever. They exist in a "no-tax benefit zone." That is a huge proportion of the female population. Why would a person in that income condition ever think about contributing to a Registered Retirement Savings Plan?
Second, the new tax-free savings accounts are out of reach for many women who do not need to be planning for future non-taxable spendings when they are going into net debt to get by year-to-year. They are also subject to very severe pressure from the income splitting that is built into the tax-free savings plans to the extent that a woman who saves money is probably not as good to have as a wife — from a tax planning perspective — than a woman who has no savings. The tax-free savings accounts double a person's annual contribution room for saveable incomes tax-free savings accounts. With lower incomes, lower savings capacities, lower Canada Pension Plan contribution capacity — in terms of insurable hours, insurable earnings and the amount of pension plan that is available — women hit their 50s with a much smaller asset base than men do. The other assumption that seems to pervade a lot of analysis in this area kicks in: Social policy and economic policy pertaining to older Canadians seems to assume that most people will live as couples. Single people fall right off the policy landscape.
For example, the pension income splitting rules, again, put pressure on women. A woman who has her own pension income is not as good for tax planning purposes as a wife or a co-habitant who does not. Much consideration is being given to the tax benefit needs of older men to the point they can split their pension income and receive a generous tax break. However, the assumption is that everyone is in a couple. Perhaps the hope is that everyone will be in a couple and that one will be a high-income earner. However, it leaves singles and people in other household arrangements out of the calculation.
In terms of where Chapter 3 could go, my recommendations would be to inject some of this realistic information about the status of women. When looking at the recommendations from that perspective, a couple of things pop out. First of all, to meet the income needs of low-income women — of which there will be more than there will be men in each of the age categories affected by retirement provisions — each provision should, as much as possible, be cast either as a direct spending or a fully refundable tax credit. Otherwise it will not reach the people who need it the most.
I agree with Mr. Milligan that it would be a very good idea to expand the tax-exempt amount that can be earned under the GIS. It is also important to expand the category of other receipts that will not trigger the GIS clawback. For example, for women or any low-income taxpayers who have, despite a lifetime of low incomes, managed to accumulate some pensions or some registered plans, I think that withdrawals from those plans up to a fairly generous level should not trigger the GIS clawback, either. Any type of income ought to be receivable by a person who is eligible at first instance for GIS. This needs to be reconciled as well with the Canada Pension Plan rules.
The second thing that I think could be introduced or added into Chapter 3 is some discussion of the size of the GST credit. The GST is still one of the biggest taxes that will be borne by people in this age group. As long as the lowest marginal tax rate payable by individuals remains so high — it will now be down to 15 per cent but it is still high when added to the with other taxes — I think that the GST tax credit is wholly insufficient to create genuine relief for individuals who are living at what is genuinely a subsistence level. The current GST tax credit of $237 only exempts the first $4,700 worth of spending from GST. People who are living even on the lowest subsistence incomes have to spend more than $4,700. There should be an increase based on age or, if not on age, then there should be some sort of single supplement available to people on low total incomes that would be capable of giving more relief.
Francis Bowkett, Executive Director, Federal Superannuates National Association: Good afternoon to the committee members and thank you for providing an opportunity for FSNA to present to you today.
The Federal Superannuates National Association is the largest and most influential advocacy group for federal pensioners, representing more than 160,000 members across the country: Retirees from the public service, the Canadian Forces, the RCMP as well as retired federal judges. FSNA advocates to affect positive change at the policy level and to enhance the quality of life for our members and seniors, in general.
As requested, our comments today are focused on the options proposed by this committee in Chapter 3 of its second interim report. Our written submission includes responses to most of these options, but my presentation will focus on our response with respect to option 27. Our response is specifically to work with provincial governments to increase the income replacement rate for the CPP, which is currently at 25 per cent of income, up to at least 50 per cent and/or to increase the maximum pensionable earnings beyond the average wage.
FSNA believes that a vertical expansion of the CPP/QPP is the ideal way to address the issue for low-income seniors.
Since the implementation of the CPP/QPP in 1966, the GIS uptake rates have decreased from about 60 per cent to less than 40 per cent. Expanding the CPP/QPP vertically would further reduce the GIS uptake rates. Such a change to the CPP/QPP would not necessarily have any material impact on employment trends and labour force participation but would clearly ensure that retirement incomes would replace at least 50 per cent of average employment earnings for all working Canadians.
Although FSNA considers that this change would result in a contribution rate increase comparable to the 3.6 per cent increase that took place in 1996, we would caution about the potential responses from the private sector, which may consider the option unaffordable. We would also suggest a vertical expansion be implemented on a gradual basis.
Earlier this year, FSNA presented information on this exact issue to three provinces and we have brought copies of this presentation for your information.
Increases in CPP/QPP contribution rates would actually apply in full only to employers not already sponsoring a defined benefit plan or a defined contribution plan for their employees. Concerned employers would likely rely on global compensation principles to absorb any new pension costs that this might incur.
Moreover, a full CPP/QPP vertical expansion could actually reduce pension costs of employers already sponsoring a defined benefit plan coordinated with the CPP/QPP because of the following: One, the CPP retirement benefits are based on career average employment earnings rather than final average salaries; two, the CPP/QPP contributory period is longer than 35 years, that is, 47 years for the normal retirement pension; and three, the CPP/QPP normal retirement age is generally higher, that is, 65 versus the 60 or less in respect of private defined benefit plans.
FSNA recommends that the Special Senate Committee on Aging make a recommendation in their final report to work with provincial governments to increase the income replacement rate for CPP/QPP to at least 50 per cent from 25 per cent. Included in our recommendation is the increase in the CPP maximum pensionable earnings from the average wage to the limit that applies to the registered pension plans. In 2007, that was over $111,000. That is our number one recommendation.
Michael Veall, Professor and Chair, Department of Economics, McMaster University: Thank you for the opportunity to appear. My overall view is that it is a good report. I was asked, as was Kevin Milligan, to focus on Chapter 3. I do believe that Chapter 3 is a good chapter. By not advocating large, rapid change, it shows an appreciation of the value of stability in retirement income programs, and also recognition of the great Canadian achievement of reducing senior poverty rates so massively in the last 35 years to rates lower than any country we normally use in comparison, with the exception of the Netherlands.
Mr. Milligan suggested that I should speak about why our rate is not as low as it could be; that is, at the rate of the Netherlands. If you look at the data, you find that most of the seniors who are below LICO are not far below LICO so that the depth of the poverty is not as great. The groups experiencing deep poverty as seniors are basically three. One group includes immigrants who do not yet qualify for the Guaranteed Income Supplement. The second group is seniors who have dependent children; in some cases grandchildren or disabled children, they support. The third group is people who do not take up GIS even though it appears from the data that they qualify for GIS. We do not understand why that is so, that is an empirical puzzle with important consequences.
I will also reiterate Mr. Milligan's technical comment about option 24, regarding taxation. As far as I understand, GIS is not subject to personal income tax, at least for someone who only earns OAS or GIS, so I do not understand that particular recommendation.
In several places, options are floated that would make the CPP more expensive without a discussion of how it would be paid for. I refer to option 19, which would make it easier to contribute just before retirement. That is valuable to the worker but it is particularly costly to the plan because such contributions count the same way in the final benefit formula but they have not had much time in the plan so that the investment returns on them have had no time to accrue.
Option 37 increases the dropout provisions, or suggests increasing dropout provisions. Obviously, they would increase plan costs. My point, particularly with respect to option 37, is that this is not necessarily a bad option, but the costs should be considered.
Many people have talked about option 27, to expand the plan, and that is clearly the biggest option, in my view. Here it is clear that the increased benefits would be paid for by increasing the contribution limits. The temptation would be to start paying increased benefits prematurely, before they reflect each individual's increased contributions, but if that temptation could be resisted, I want to point out one advantage, which is consistent earlier comments, and that is that the increased CPP benefits would reduce GIS benefits. This would automatically reduce the GIS disincentives that people have been talking about and it would free up some dollars. Those freed-up dollars could be used for many things, perhaps to further weaken the GIS disincentives.
Related to option 27, honourable senators might also consider a CPP reform that would mandate contributions by earning spouses for their non-earning spouse. A non-earning spouse would then be entitled to CPP benefits in full.
Bob Baldwin, Senior Associate, Informetrica Ltd.: Mr. Chair, and members of the committee, my instructions, as I understand them, are to limit my opening remarks to five minutes, which I will try to do. Given that time frame, it makes more sense to talk thematically to several of the main issues raised in Chapter 3, rather than try to focus on the individual recommendations.
I will comment briefly on the discussion of income adequacy of Chapter 3 and the discussion of retirement incentives.
With respect to income adequacy, let me note what is already acknowledged in the report of the committee and by other speakers, that the late 20th century was a period of rapid improvement in the living standards of older Canadians. The real purchasing power in the hands of older Canadians almost doubled over the last quarter of the 20th century. The incomes of older Canadians relative to younger Canadians increased significantly, and the poverty rate declined as well.
The income sources that were driving that change were primarily the maturation of the Canada and Quebec Pension Plans and the maturation of Canada's workplace pensions. While there is much to be proud of regarding what we have accomplished to date, I would urge against complacency.
As we look to the future, the workplace pension component of the retirement income system is facing many stresses. The most obvious point to note in this regard is that the percentage of employed Canadians who belong to workplace pensions has dropped from roughly 46 per cent at the end of the 1970s to about 40 per cent today.
In addition, there has been a significant shift in the form taken by workplace pensions so that we now have a much larger portion of the membership of workplace pensions belonging to defined contribution schemes and a smaller portion belonging to defined benefit schemes, which means that the incomes of the future elderly will be more vulnerable to investment risks than is true of the current elderly.
I might say, only somewhat as an aside, that this is an area where we are bedevilled by data problems. I will not drag you through all the problems that exist in this area, but I will note that the data most commonly cited is probably overstating by degree the decline in overall coverage but is understating the shift from defined benefit to defined contribution. That is important to bear in mind when you look at these numbers.
I should finish this comment on coverage by noting that this problem of coverage is most acute for non-unionized employees in the private sector who are working in small workplaces. There the coverage problem is very large, for both men and women, I might add.
The other issue to bear in mind about improvements in the latter part of the 20th century is they were a reflection not only of the qualitative characteristics of the pension system and the degree of coverage we had in the past, but they were also a reflection of a very specific set of economic circumstances that were favourable to pension arrangements that involved saving prior to retirement.
Three events were important in this regard. One was the advent of low inflation, starting in the early 1990s; the other was the high rates of return on financial assets through the late 1980s and 1990s; and third, which seems somewhat surprising, is slow wage growth. You might ask what slow wage growth had to do with it. It had to do with the relative income situation of the older population versus the younger population. The point of comparison was not growing very fast, and that is part of the reason why the elderly incomes appeared to improve so quickly. In looking to the future, I urge you to pay attention to what is happening to this workplace pension sector.
Through the 1980s and 1990s, we made substantial improvements in our public pension arrangements with regard to financial reporting, but we have never had, as far as I know, any part of government that had an ongoing mandate to assess the current and future income prospects of older Canadians. The capacity to do that should develop hand in hand with our capacity to assess costs and expenditures of the future.
With regard to the discussion of retirement incentives in the report, it looks to me like the focus is almost exclusively on incentives embedded in the tax system and in our public pension arrangements. I certainly do not want to discourage an interest in those subjects, but I would suggest that you keep three additional issues in mind.
In the Canadian context, it is just as important, if not more important, to look at the incentives embedded in workplace pension arrangements as it is to look at the incentives in our public pension programs. I will leave it at that. We can come back to that during question and answer if you like.
It is also important to remember that the financial incentives are interacting with a number of other considerations when people are deciding whether to retire or keep working. It is important to pay attention to the quality of the work experience that people have and whether, in fact, working life is organized in a fashion that makes it a reasonable choice for people to want to stay at work as opposed to leaving on pensions.
I would say in this regard that this is an issue that I do not think can be addressed simply through measures that are in the hands of governments. If you want to change the nature of the work retirement decision, it requires a collaborative effort among governments, employers and unions.
The other matter I would urge that you pay attention to with regard to retirement decisions is the reality that for some people, retirement is a rather accidental effect and not something that is planned. People get unemployed in old age and never return to work. Women leave the workforce to look after a relative and just never return. Incentives are important, but they do not explain all the reasons why people leave work and go into retirement.
The last thing I will say about the retirement incentives is that your report mentions, towards the end of Chapter 3, that it is important to take a life course perspective. This is appropriate, and I would suggest that it is particularly worthwhile looking at what is happening at the front end of the adult life course, where important changes are taking place. We know that, on average, young adults are leaving their parental home later, getting married later, having children later and getting their careers later. All of those delays in the transition from youth to adulthood will have downstream effects, and I suspect it will be much harder for many of today's young workers to retire as early as their parents and grandparents because they will still have debts carrying over from the early part of the life course.
I am familiar with data that note movements in the average ages at which all of those events happen. It is important to understand whether there is more or less homogeneity than there used to be at the front end of the life course. If there is less homogeneity in the way that young people move through these transitions, it may suggest that chronological age, as a criterion for receiving pensions, should be less important in the future and some measure of continuous labour force activity should become more important. I will leave my comments at that.
The Deputy Chair: Guaranteed family incomes and guaranteed individual incomes seem to be fairly straightforward, but the experts seem to think they are and the idea never seems to go anywhere.
Let us go back to Ms. Lahey and the women's issue. There is the issue of the single older woman who is pulling in a little bit of money from three sources, but it is not enough. There is a gap of about $5,000 that is not bringing her up to the poverty line.
Could all of you address something that could be done to the overall system to eliminate that gap? It seems to me that a solution would not be that expensive.
Ms. Lahey: The example is very pertinent, but I would suggest that the solution lies in a pervasive examination of all of the gender-based factors that produce that woman's income profile at that age and not look for yet another band- aid to stick on that particular situation.
The problem that women face is that they are overtaxed on relatively low incomes throughout their lives. If you think about the first slice of income under the federal Income Tax Act, as soon as a person has $9,601 of taxable income, he or she pays the same federal and provincial rate, which comes to about 21 per cent for people living in Ontario, as the person who has income all the way up to $37,000 worth of taxable income. That is a big spread, and it is really an over-taxation of people at the lowest income level.
There are over 100 joint fiscal instruments in the Income Tax Act and other fiscal provisions that use family income concepts, which based on simulations I have done, demonstrate that women's incomes are systemically reduced over their lives by being treated as part of an economic family where they cannot have their own saving contribution room, et cetera. They are always treated as part of an economic unit. In addition, we just do not have the statistics we need.
I believe that to rush into having a guaranteed annual income for people of a certain age and possibly a particular status is just another afterthought without dealing with how we got there in the first place. Having said that, the GIS is a guaranteed annual income for a person of a particular age. Therefore, I would certainly recommend that that be increased with the augmentations I mentioned earlier.
The Deputy Chair: What standard could we look to for increasing the GIS up to the level that it would remove men and women from poverty?
Ms. Lahey: I do not know what the right income measure would be. I have problems with all of the low-income measures, but the closest one is the after-tax low-income cut-off. That is the one that I think is the most realistic.
I think that anyone in that age group lives a virtually tax-free life and should, therefore be exempt from any of the clawbacks on the GIS and any of the other welfare wall effects that come into play. It would not be unreasonable to allow incomes of $15,000 to $18,000 to go completely untaxed, together with an enhanced GST credit.
Mr. Milligan: I would like to point out why a guaranteed minimum income is a bit difficult in practice, although it does seem like a very attractive idea.
The tension often comes in because you want the guaranteed amount to be high enough to alleviate poverty. However, in order to make the expenditure affordable to the government, it has to be phased out quite quickly as people get to higher income levels. The problem is that as it is phased out quickly, with a clawback rate of 40 per cent or 50 per cent, problems of labour market and savings incentives are generated. If you do not have a high clawback rate, the very big transfer will go far up the income distribution and the policy will become very expensive.
The tension is that you want to have a big transfer to people, but you have to have a high clawback rate in order to afford a big transfer. If you have a small transfer, you can have a low clawback rate, but then you do not get the poverty alleviation. That is where the tension and problems come in with implementing such a policy.
Mr. Baldwin: I wish to thank Mr. Milligan for making the general point more eloquently than I could have.
In looking at tax measures for low-income people, the further you can go in consolidating all low-income tax measures into a single measure, the less problem you will have with incentive effects. I worry that when we start layering one tax measure on top of another targeted at low-income people we end up creating tranches of taxable income with extremely high marginal tax rates, which is why my preference would be not to do both a GST credit and GIS. My sense is that the more you can consolidate the better off you will be in terms of incentive effects.
The Deputy Chair: Which one would you choose? If you are not going to consolidate, how would you solve the problem?
Mr. Baldwin: As Professor Lahey pointed out, we have the key elements in a minimum income program for elderly Canadians in the form of OAS and GIS. Clearly, just following along from Mr. Milligan's logic, the advantage of addressing low income through OAS is that it does not have the disincentive effect of a 50 per cent clawback. For every dollar you raise the OAS benefit, you probably disburse about three times what you would if you raised the maximum GIS by a dollar. That is the concrete, real-world tension in deciding how to manage those two programs in order to address poverty.
Bernard Dussault, Senior Research and Communications Officer, Federal Superannuates National Association: We have three proposals in mind. First, the basic tax exemption for everyone is presently between $9,000 and $10,000. We believe that it could be increased to the LICO level. Any income that is below the poverty level should not be taxed, so that would be around $15,000. In that way, we would not have to claim that the GIS benefits are not taxable. GIS benefits are income and should be taxable in the same way as any other income.
I do not consider that the GIS is clawed back. It exists as a so-called clawback for the purpose of fairness. It would not be fair for those who are at this level if a minimum benefit were paid to everyone. We need to keep the 50 per cent factor in order to bring people who are under the LICO to 50 per cent of the difference between their individual level and the poverty level.
Our second proposal is that, because the 50 per cent adjustment in the GIS prevents everyone from getting to the minimum poverty level, that could be alleviated by increasing the LICO level, at which point it would no longer be a LICO. It could be increased to $20,000 or $25,000. As someone said, there is no magic number. We could look back at the proposed seniors' benefit of 1996. The levels may not have been perfect, as nothing is, but it was trying to address this issue.
Senator Stratton: These issues are important for anyone below the poverty level, but women generally take the brunt of poverty.
We are quickly being faced with a severe and dramatic shortage of skilled workers, and this will become even more dramatic soon. Seniors are becoming healthier as time goes by. My children and yours will be healthy well into their eighties and nineties, as compared to us, who did not have a particularly healthy lifestyle.
Having considered all these recommendations, I believe that we need to provide incentives and benefits to seniors to continue working. One of the witnesses said an income increase without penalty from $500 to $3,500 for seniors is really a worthy step.
Would you agree that if we were trying to raise the poverty levels of seniors that we also must look at incentives to keep them working? It keeps them active in the community both physically and mentally, and keeps them healthy. That is my personal view. To have incentives for them to continue working is essential, with that severe problem we have facing us.
How would you address the issue of encouraging seniors to continue working as long as possible? It is like having them stay in their own homes.
Mr. Dussault: When the aging of the population started to be projected in the 1970s, 1980s and 1990s, we became more and more concerned with this problem. I think the answer is partly in the question you have raised. The shortage of workers should be the answer to this problem.
We do not have to find incentives for seniors to work, because there is a shortage of workers. As Mr. Baldwin mentioned, there are more and more non-retired seniors because of the shifting of all the steps in life. Many seniors still have obligations that previous generations of senior did not have.
I think the shortage in the workforce will be the natural solution for having more seniors go to work. They do not need incentives; the incentives are there. There is a shortage of workers. All of this should balance out automatically.
Senator Stratton: For example, someone might work part time as a clerk in a store, because seniors do not necessarily want to work full time. One of the men I worked with said that when he retires he would take a part-time job at Wal-Mart just to keep himself active.
You need and want to give seniors the incentives to do that kind of thing, particularly if they receive OAS. You want them to be able to continue in the workforce.
Mr. Baldwin, you said it should be a collaborative effort. In a collaborative effort, the private sector is involved. What can government do to encourage seniors to continue working?
Mr. Baldwin: First, I would be less worried about labour shortages than most people would, because there are natural market reactions that tend to respond to them, and some of those reactions will have positive consequences.
I was struck by the fact that a lot of attention was being focused on people working after 65 years of age. The reality is that over the period from the 1970s through to the mid-1990s, the bigger issue was getting people to work until they reached the age of 65, not beyond. That is important, because some of the incentive issues that garner quite a lot of attention in the report are only relevant at age 65 and beyond.
Within that framework, I said one of the generic issues you might be interested in is how the work experience itself might be modified so that work becomes more attractive to people.
I think there are some useful things for government to do in this regard and although governments alone cannot change what happens at individual, private-sector workplaces, they can undertake advocacy and research. I note, for example, that several years ago the labour program at Human Resources and Social Development Canada produced a very interesting catalogue of collective agreement provisions that were relevant to older workers — relevant in the sense of making the work experience more attractive so that people might be more willing to stay. There is research work that can be done.
If there is going to be any collaborative effort, governments can create forums where they bring together people from business and labour to talk about the issues of workplace change and how to make workplaces more appealing for older workers. I know the labour program made a small initiative in this regard a few years back, but I do not believe there was any follow-up to it.
I think it is important to realize government cannot do it alone. If you are going to get a collaborative effort, I think government is probably going to have to take a leadership role. Sadly there are not many institutions in this country that bring business and labour people together on a regular basis.
Mr. Milligan: As Mr. Baldwin just mentioned, the retirement trend especially among males from the 1970s to the 1990s, was towards early retirement. Since the 1990s, we have seen an increase in workforce participation, especially among those in the range of 60 years to 64 years.
Tammy Schirle from Wilfrid Laurier University has shown that this is tied directly to the workplace behaviour of the spouse. As women are in the workforce more in recent cohorts, men delay retirement so they can retire at the same time as their spouse. This brings up the point that thinking about this in a family context; those things matter.
I have done some work that looks at the GIS, the CPP and the labour-market incentives in them. We have talked about the post-65 years-of-age earnings exemption, which is a good thing. However, for the 60- to 64-year-old seniors, the most important labour-market incentive they face relates to the actuarial adjustment mechanisms in the Canada Pension Plan. That is something that could be looked at.
Finally, I want to echo a point that Mr. Baldwin made earlier. I agree with Senator Stratton that encouraging labour-force participation among the elderly has many benefits, but it is important to keep in mind that not everyone has a choice. About 25 per cent of people who retire in those age ranges retire because of health reasons. Another 10 per cent retire to care for a family member. Those people do not necessarily have a choice and, therefore, you want to make sure you design a system that treats those people fairly.
Mr. Veall: The essential problem is the GIS has such a strong disincentive; we need to displace the GIS. One way to do that is to enhance the Canada Pension Plan in coverage and amount.
Ms. Lahey: Pension income splitting creates a significant barrier to wage force participation by the lower income spouse; the person who does not have pension income that needs to be split. When added together with all of the other joint-taxation instruments that inferentially create labour-force participation barriers for the secondary earner, the pension income splitting is really a very big consideration.
It has an interesting impact because pension income splitting is useless to lower-income couples and marginally useful for couples who have incomes even in the $45,000 range. It is not until couples have income up into the pension- income levels of $60,000 or more that you start to see any sort of impact.
If there are people who are affected by that, they will be faced with a very strong financial disincentive to labour- force participation any later than tax planning would indicate. That would be one thing that could be put on the list of things to consider changing.
Sen. Cordy: I look at my generation, and all of my friends are leaving the workforce between the ages of 55 years and 61 years. Many of them do go back to work on a contract or part-time basis. My daughter's friends, who are in their late 20s, are just entering the full-time work force at that age. It will be interesting to try to forecast and see what will happen to them and when they will be able to leave the workforce and make enough income to live on.
Ms. Lahey, I think we are all delighted to see the Canadian poverty rate go down. When you look specifically at that 10 per cent, you certainly see that women make up a large percentage of those living in poverty. Mr. Veall, you also provided some examples. You mentioned immigrants and seniors with dependent children. I would be interested to know if they are mainly women.
Ms. Lahey, you provided good examples of financial incentives for women in order to help them alleviate poverty. One of the things you mentioned was money must be given directly to them. You went over that quickly, and I wonder if you could expand on that a little bit. My understanding is that if it is in the form of a tax break or a tax credit, it will not benefit those who do not have anything because they are not making enough income to pay taxes.
Could you go over what would be the most beneficial thing that we could recommend the federal government do in terms of taxation?
Ms. Lahey: Women have relatively less financial autonomy than men do. Much of women's economic resourcing comes to them in a derivative way. They derive it from family property law, which presumes a 50/50 split. They derive it from the splitting of Canada Pension Plan entitlements, but they get to own the part that is split to them. They derive survivor benefits under work-related pension plans. They receive survivor benefits in relation to Registered Pension Plans. They can have spousal RRSPs, and they will own those assets as their own property, but they receive them derivatively through their spouse or cohabitant.
With the pension income splitting, a woman derives nothing except whatever increased financial capacity the couple might have. She does not own the pension income notionally split to her. She does not receive the tax refund that comes to her. She is liable for tax not paid with respect to the income, but she gains no ownership interest. Similarly, with the tax-free savings accounts, which can be set up as spousal or cohabitant accounts, a derivative interest can be set up so she cannot even say who inherits it. She may own it in a life interest form in property law terms.
Women's interests in so many of these creations of the tax system are partially derivative, and they all operate as disincentives to women gaining their own independent assets.
A very fundamental thing that needs to happen, which is increasingly happening in most EU countries, in most of the OECD countries and in less developed countries around the world is unlinking the couple from each other fiscally and treating all spouses as individuals so that they have their own entitlements and they do not lose benefits by virtue of their relationship to another person. That is a big job, and it will take a lot of work. Right now in Canada, we are sort of going the opposite direction. That is the very first thing that needs to be done.
In the meantime, what kinds of specific things can be done? I think some fairly simple and straightforward examples that I outlined could be done, such as making the GIS exemption larger and making it apply to everything.
There are now a large number of women who have accumulated RRSPs and RPPs who cannot take that money out to help pay their modest expenses because they will lose GIS. Although you can say that a 50-per-cent clawback is "fair" with respect to any social assistance that is clawed back at such an aggressive rate, it does genuinely create a real barrier because the payoff for deregistering a taxable RRSP will generate a tax on the RRSP withdrawal and it will trigger a clawback on the GIS. It is a lose-lose situation, but there are some simple solutions.
Senator Cordy: I think we have all heard sad stories of people who have taken out $2,000 to buy a new furnace for their house only to discover they are paying back $1,000 in taxes and perhaps losing their GIS.
I am quite interested in income splitting. When you talk about it, it sounds like the people who will benefit most are families where one spouse, usually in this generation the male, has been making a substantial income and the woman has been a stay-at-home spouse. Do you have any statistics on this situation? What income level benefits most from income splitting?
Going back to those living in poverty, the higher percentage tends to be single women who will not benefit from this at all.
Ms. Lahey: I have not worked it out according to deciles or quintiles; I have taken stages along the income brackets. A couple who has income of just under $32,000 will get a $500 tax benefit or tax refund from income splitting. That stays more or less the same until they hit $40,000.
The next big jump is at $62,000 worth of income, in which case they will get a tax refund of $1,900. It continues to rise as people make more income. It is the classic upside-down benefit. It is costing the government $0.6 billion per year on this particular initiative, with nothing is going to the people who need it the most. Absolutely nothing is going to the lowest income Canadians.
With respect to some quick calculations, if a couple has $120,000 of pension income that they can split, they will get a tax refund of over $10,000. That is enough for an individual on a single income to see a radical improvement in his or her lifestyle. Why is that $10,000 not going to the people who need it the most?
Senator Cordy: Mr. Baldwin, you talked about the shift from defined benefit to defined contribution. You said it is happening mainly in small, non-unionized companies. It seems to me that it is expanding. Maybe I misheard you, but it seems it is now going to larger companies.
Mr. Baldwin: The question of any form of pension coverage is a more serious issue in smaller, non-unionized workplaces. However, historically there has been a strong relationship between the size of firm and whether the workplace pensions are defined benefit or defined contribution. Traditionally, larger workplaces have had defined benefit plans and smaller workplaces have had defined contribution.
You are right in suggesting that in recent years there are significant examples in both the public and the private sector of large employers instituting defined contribution pension plans, and this whole world gets even muddier because we also find an increasing number of hybrid plans that involve elements of both.
I believe it is still fair to generalize that there is a movement from defined benefit to defined contribution, and it is still tends to be the case that you find more defined contribution plans at smaller workplaces.
Senator Cordy: Some people have told us that this shift can be positive because it will allow people to stay in the workplace and not be penalized for early retirement. I look at it and see many things out of our control. When it is a defined contribution, a person depends on the market and the market can fluctuate.
Should we be examining this more closely?
Mr. Baldwin: The general debate about the labour market effects of defined benefit versus defined contribution is an important debate. Notwithstanding concerns about the labour market incentives in defined benefit pension plans, they certainly offer a higher degree of certainty to plan members about what their retirement plan income will look like. Having a said that, there has not been a lot of serious policy thought about how we deal with the world in front of us where much more of the pension provision is defined contribution. I do not think, for example, the responsibilities of organizations that sponsor these plans to provide an appropriate range of choice to plan members, to provide them with access to counselling, are issues that have become the focus of litigation in the United States, for example, have not been clearly addressed in this country.
We have a problem of very high fees that are charged by most of the financial institutions that offer individual savings arrangements. In a comparative study of these fees in 18 countries, Canada stood out as having the highest fees of any country in the study, which is a worrisome thing that probably deserves some policy attention.
Again, going to Ms. Lahey's point about gender differences, I think the way in which absences from employment are handled in defined contribution pension plans is an important issue to look into. There is some U.S. evidence that suggests there are systemic differences between men and women in the way they invest, which again may produce systematically different outcomes by gender. The question of the degree to which we insist on the annuitization of individual retirement savings accumulations needs to be addressed.
There are many unresolved questions about how we want to manage a pension world in which people rely more heavily on defined contribution plans.
Senator Mercer: I want to ensure that I get this straight when we are talking about defined benefits and defined contributions, because I want to go back to the earlier statement about most people who are in a problem are in non- union small shops. Is that not the majority of Canadians? We are a country of small businesses and, unfortunately, not all of us are unionized and so we do not have the benefit of the protection of the collective agreement.
How do we solve that problem? It seems to me that we can talk about government programs but there is also the issue of the systemic problems in a whole sector of society, people working in small businesses are at the whim of employers. There is no real protection for them because they are not organized. That goes for the employers as well. I do not want to sound totally on the side of the employees, although that is where I tend to stand. It is an important issue. How do you solve it for both groups — the employers and the employees?
Mr. Baldwin: One way to solve it is through the Canada Pension Plan, which could be expanded on either a compulsory or an opt-in basis, which I gather is what the superannuates have implied they envisage. In this plan, small employers who want to provide more pension coverage for their employees but who did not see a clear private-sector vehicle around to help them achieve that end could opt into the Canada Pension Plan.
There is also some discussion on a number of large fully funded public employee pension plans. For example, there is the Ontario Municipal Employees Retirement System, we have a number of plans in British Columbia whose funds are managed by the British Columbia Investment Management Corporation, and there is a similar corporation in Alberta.
There has been some thought that maybe they should be allowed to provide retirement savings services to individual Canadians and/or to small employers who might want to use their investment expertise to provide retirement savings vehicles to their members. No one has talked this through in detail, but there are some possibilities in this area as well.
Senator Mercer: Would that be in direct competition with private providers, who are large employers and who charge the high fees?
Mr. Baldwin: That is right. We know what the debate will look like.
It may interest you to know that the Ontario Municipal Employees Retirement System has, as a matter of policy, declared that they would like to be permitted to invest pension monies on behalf of individual citizens and companies.
Senator Mercer: We need to recognize that these funds are huge. The Ontario Teachers Pension Plan is one of the most active groups in the country in terms of investing. It has a huge portfolio. It is probably bigger than the companies they would be competing with if they were to get into the competition.
Senator Cools: I would like to thank you all for coming before us today. I would also like to say that I am always impressed by the fact that witnesses do a fair amount of work in preparation to appear before these committees. I want you to know that I appreciate it and all our colleagues appreciate it.
I was listening with some care and the subject matter is so large, so profound and so complex that sometimes it is difficult to manage. Most people live in a way where they do not foresee more than a few years ahead of time, so a lot of life is largely uncontrollable and largely uncontrolled. Aging seems to be something that just gallops up on people and one day — I know it sounds corny — a person is a certain age and all of a sudden aware of things he or she did not seem to be aware of five or ten years before. For example, when they were aged 40, they never looked ahead a few years to anticipate disability in designing their dream home. The dream master bedroom is upstairs rather than on the first floor which another person who is perhaps blessed with more foresight might have anticipated. The thing with aging is that many things happen to many people. The human experience is filled with the haphazardness and development of life. Someone here said that many types of retirement are accidental, things happen — disability, family problems, sickness, et cetera.
Understanding that we cannot control the vicissitudes of life, could you answer my question about the lifestyles of people moving toward the aging years?
I was told a few weeks ago that there is a dramatic increase in the building of new houses. There is a dramatic increase in the inclusion of granny suites or planned accommodation for aging in-laws and parents. I know of an individual who had an older aunt that in the old days we would have called the spinster aunt.
Is there any truth that there is such an increase and builders are beginning to address those questions? If there is an increase, what would be the impact on the design of new homes given that others are aging and will have to be accommodated? What will be the impact on poverty and on the mental and emotional well-being of the persons who will occupy those suites?
A friend of mine, who is my age, buried her 94-year-old grandmother about two weeks ago. She was able to keep that splendid woman very happy through her aging years just by anticipating the question of accommodation and by keeping her close to the family.
Should we not begin to contemplate some of these considerations?
Ms. Lahey: I will take the opportunity to speak to one aspect of that issue. It is true that more care work is expected from families. Construction costs are one dimension. However, another very important dimension of this is that women have spent much of their working lives waiting for more assistance from the government, through the tax system if not as the result of direct spending, to enable them to meet their child care needs.
Having been disappointed in that search, women are discovering that society expects them, based on their gender, to begin volunteering a great deal of unpaid care giving work for other members of the family. There is definitely a gender impact in this instance.
The Caregiver Tax Credit in the Income Tax Act is woefully inadequate to offset the financial impact that kind of responsibility involves. It speaks to the urgency of doing something about the imbalance in the amount of unpaid work that women are expected to perform in Canada at the same time that they are expected to make do on significantly lower incomes at all ages.
There are women themselves of retirement age that do not have sufficient resources to support themselves. Nonetheless, they are taking on responsibility for adult children who cannot cope for themselves or for parents or other relatives. A real crunch is hitting women who are in that particular situation. They are known as the "sandwich generation," women still trying to get their teenage and 20-something children up and running who are simultaneously performing care giving work for older members of their families.
Senator Cools: I was probing to determine whether people's lifestyles and living choices were changing similarly to the changing demographics. In the situations I was thinking of, I can assure you, no woman was expected to be giving care to anyone. It was a shift in the design of houses to look toward our future.
As changes are beckoning, one finds there are times when human beings begin to adapt, adjust and respond to those changes. They begin to set the styles and the terms. Are you able to measure any of these changes?
I am hearing people speak about this in a way I never heard before. I have spoken to individuals who are building houses at a certain age in life and they want these self-contained suites to be able to accommodate aging parents. Is the ground shifting?
We were talking a lot today about allowing older people to stay in the work force. The terminology I have heard for the last 10 years was not that, but "freedom 55." That is all I have heard over the last many years.
I think of myself as an observer of human behaviour and human behaviour tends to respond to the challenges felt in the community. There has been a huge emphasis on independence, but I see many older people living alone who may be much happier living closer to family members.
When I was a social worker, I spoke to many young couples who were making career choices. I often advised them that when accepting career positions that they not move too far away from at least one of their families. That way, when they start to have children, at least one of the families can be nearby to support them.
If we do not believe that human behaviour and decisions will adapt to meet the challenges, then we have to agree that society is doomed. If we can measure it, is there evidence concerning the challenges we have been describing in this policy atmosphere? Those challenges are being perceived, reacted to and acted upon by people living their lives day-to- day.
I was told that one of those actions is more planning for these suites in the building of houses than before. I was told that at some time, planners would contemplate promoting these concepts in consideration of a more intense use of the same piece of property to overcome crowding.
Mr. Dussault: This sounds like a good idea but I have not heard of it.
Senator Cools: Perhaps it cannot be measured.
Mr. Bowkett: I am not aware of any such studies or reporting on this subject. Our organization has about 160,000 members, which is a representative of the seniors' community across the country. Anecdotally, in talking with members and the support volunteers in our organizations who deal with members on a branch basis, these kinds of issues are being raised. Their discussions focus on such matters as home care, so they can age in place; and physical aids, so they can remain in their homes.
We are hearing more and more about such conversations in respect of people needing assistance. I suspect that these things might be happening but I am not aware of any measurement of its status.
Mr. Baldwin: This is not my field. I am usually worried about the internal mechanics of pension plans. There is research literature on connectedness and its impact on people's psychological well-being. For people who do international comparative studies of the income situation of the elderly and their economic well-being, it has been found to be common in OECD countries for the grandparent generation to live with the younger generations in the same family. I mention that because it impacts the probability of living on very low incomes, which was part of your question. In Italy, Japan and Korea, it is still a common occurrence.
I note as well that with increased life expectancy, the probability of being retired and having a parent who is still living is increasing. It is not unlikely to have a rise in the people like your friend who is caring for an older parent while raising a younger generation child.
I have been curious about how aging might affect housing. We know that suburban development post-World War II happened to accommodate families with many kids, and it moved people out of the urban core. I suspect that you could work with census data to determine the age distribution of the population within cities and how it changes as the population ages. My curiosity is focused more on the overall design of cities rather than on the more specific question of whether parents and children will live together.
Senator Cools: Perhaps at some future time the committee could consider hearing from witnesses involved in housing developments who might be able to tell us about today's house designs with an eye to meeting some of the problems we have discussed here today. Many more families are opting to put their master bedroom and laundry room on the first floor. When we were growing up, the washing machine was in the basement but today's new homes often have a small laundry area on the main floor. We might not be able to discern a great deal of information but it might be interesting to learn about the changes to house design in consideration of aging issues.
The Deputy Chair: They could be called "senior friendly homes."
I thank all of the witnesses for appearing before the committee today. We appreciate receiving such solid suggestions.
Mr. Dussault: I want to clarify a point regarding the proposed vertical expansion of the CPP, which we are keen to do. I heard someone say that this would require an increase in contributions and they wondered what these contributions would be used for. I bring to your attention the fact that a clear provision in the Canada Pension Plan states that any improvement in the CPP has to be financed on a full-funding basis. Thus, the monies cannot be utilized for other purposes than the targeted improvement. I thought it was important to mention that.
The Deputy Chair: Thank you, Mr. Dussault.
The committee continued in camera.