Old-Age Pension

The first old-age pension in 1927, an act of the federal parliament, was jointly financed by federal and provincial governments but administered by the latter, as pensions were considered a constitutional responsibility of the provinces at that time. It paid up to $20 per month, depending on other income and assets, and was available to British subjects 70 years of age and older with 20 years of residence in Canada. A strict means test was applied and was widely regarded as humiliating.

The Old Age Security Act
In 1951, following an amendment to the British North America Act to permit the federal government to operate a pension plan, the Canadian parliament passed the Old Age Security Act, which provided a universal pension, or demogrant, of $40 per month financed and administered by the federal government. All Canadians aged 70 and over who could meet the more liberal residence requirements were eligible, regardless of their other income or assets. Pension payments began in 1952 and were taxable.

A second piece of legislation enacted at the same time, the Old Age Assistance Act, provided a needs-tested pension of $40 to retired Canadians aged 65-69. This program was cost-shared by the federal and provincial governments on a 50-50 basis and administered by provincial welfare departments who used a needs test to determine eligibility - seen by the elderly as personally invasive and stigmatizing.

The Canada Pension Plan
By 1964, although the universal Old Age Security pension had been raised to $75 per month, it was widely acknowledged as inadequate. To alleviate this problem over the longer term, the federal government (after a further amendment to the BNA Act) introduced the CANADA PENSION PLAN in 1965, while Québec launched its own scheme, the Quebec Pension Plan, similar in all significant aspects to the CPP.

The Canada/Quebec Pension Plan (C/QPP), a compulsory social insurance plan which became effective in 1966, covered 92% of the labour force - employees and employers - who were required to contribute toward a wage-related retirement pension at 65, as well as long-term disability and survivor's benefits, together with a lump-sum death benefit to defray funeral costs. The maximum retirement benefit was designed to replace 25% of the average industrial wage. The C/QPP was also open to the self-employed and was fully portable anywhere in Canada.

The Guaranteed Income Supplement
As the C/QPP would not pay full retirement benefits for 10 years, and to assist those low-income seniors already retired, the federal government, through an amendment to the Old Age Security Act, introduced a tax-free, income-tested supplement beginning in 1967 to pensioners in receipt of the Old Age Security Pension, but with little or no other income. This supplement was applied for yearly, at tax-filing time, and was free of any social stigma. For every 2 dollars of income over and above the OAS pension, the supplement was reduced by 1 dollar. At the same time, the age of eligibility for universal OAS pension was lowered over 5 years from age 70 to age 65, thus eliminating the means and needs test from the federal pension system.

Although the Guaranteed Income Supplement was initially seen as a transitional program to be phased out when the C/QPP began paying full benefits in 1976, it was found that a sizable portion of C/QPP beneficiaries qualified for less than a maximum pension. This, coupled with the fact that only a minority of workers had an employer-sponsored pension, meant that the GIS remained a critical element in reducing the incidence of poverty among the elderly. Thus, the program is maintained, increases in value and is indexed quarterly to the cost of living.

Spouse's Allowance (1975, 1985)
In 1975 the OAS/GIS was improved for a small proportion of the population by a Spouse's Allowance (SPA), which provided an income-tested supplement to low-income elderly couples where only one person receives the OAS/GIS and the other is between 60 and 64 years of age. In 1985 the program was extended to low-income widows and widowers between the ages of 60 and 64 whose spouses had been recipients of OAS/GIS.

Debating Pension Reform
Old-age pensions became a topic of national concern from the mid-1970s to the early 1980s chiefly because of the high inflation rates and their effect on fixed incomes. A federal Green Paper (1982) identified the 2 goals of the Canadian pension system as ensuring elderly persons a minimum income (the antipoverty objective) and maintaining a reasonable relationship between the individual's income before and following retirement (the income replacement objective). The universal OAS pension, together with the income-tested GIS and SPA programs was designed to meet the antipoverty objective; income replacement was to be met by the Canada/Québec Pension Plan, plus employer-sponsored pensions and private, individual savings (the latter encouraged by special concessions in the tax system).

While there was general agreement on the need for pension reform, there was no consensus on the direction reform should take. Representatives of the business community, the private pension industry and the province of Ontario wanted improvements to come primarily from the private sector. The opposing view was that the public pension system should be improved and expanded, particularly the earnings-replacement ratio of 25%. Implicit in this approach was the belief that the 14 000 private pension plans then in existence were, in the words of a Special Senate Committee Report (1979) "grossly inadequate" in coverage, portability, adequacy of pension benefits and survivors' benefits, and protection against inflation. A public sector approach was advocated by labour unions, women's groups, the provinces of Québec and Saskatchewan and welfare groups.

Despite nearly a decade of debates, reports and national conferences, very little substantive change occurred. Some minor improvements in the GIS program and the C/QPP were made and the federal and provincial governments attempted to improve the standards of private pensions, with limited success.

Beginning in 1985, spurred on by their interest in debt and deficit reduction, the federal government, now under Conservative direction, proposed a partial indexing of the OAS benefit, that is, to the inflation rate in excess of 3%. The attempt created such a political backlash that the idea was dropped but was successfully carried out against another universal program - family allowances.

Federal policy toward old age pensions at this time appeared to be moving in the direction of limiting the public pension system to the antipoverty objective, that is, assuring a basic minimum of retirement income, while leaving the income-replacement objective to the private market and to individual responsibility.

Promoting Individual Responsibility for Retirement Income: Registered Retirement Savings Plans
In 1957 the federal government introduced changes to the Income Tax Act to encourage self-employed Canadians to provide for their own retirement. Money placed in an RRSP account, generally managed by a financial institution, was fully tax-deductible. Investment earnings on the money was tax deferred until withdrawn on retirement. Self-employed professionals were the principal beneficiaries of this scheme. In 1973 the program was extended to all Canadians, particularly those without an employer-sponsored pension plan. Although open to all Canadians, the preponderance of funds in RRSP accounts are held by upper-middle and wealthy Canadians, people most likely to have money to invest when all other expenses are paid.

A New Pension System by 2001
When the Liberals formed the government in 1993, they exhibited the same concern for the federal debt and deficit as their Conservative predecessors. The government argued that because of the aging of the Canadian population the number of seniors would more than double in Canada by 2030. Therefore some adjustment in pension arrangements was imperative if the system was to remain viable. The key according to the government was to target the benefits of those most in need.

The Seniors Benefit
In the 1996 Budget Speech the government announced that the OAS/GIS and 2 tax credits for seniors would be ended in 2001 and rolled into a monthly tax-free payment to be called the Seniors Benefit. Under this new program the government said the vast majority of seniors would be as well or better off - 75% of single seniors and couples would receive the same or higher benefits and 9 out of 10 single senior women would be better off. Furthermore Canadians aged 60 and over and those already on pension would have the option of staying with the current system or choosing the Seniors Benefit. This proposal never materialized. In the 1997 Budget, the government announced that it would introduce income testing, which would result in increased benefits to seniors who qualified and would claw back benefits for those who exceeded the annual income level. This met with considerable opposition from the business community who deal with private pension plans. They argued that the proposed plan would penalize those who contributed to private pensions. Again the proposed changes were not implemented. Currently OAS/GIS support continues for seniors.

Changes to the Canada/Quebec Pension Plan
Every 5 years the federal and provincial governments review the operations of the C/QPP. During the 1990s the CPP was the subject of much gloomy speculation. The aging of the Canadian population, the unexpected increase in disability pensions and the declining ratio of workers to retired persons meant to some observers, notably those associated with the private pension industry, that the CPP was headed for bankruptcy. Therefore these observers urged that benefits be reduced, that the age of qualification be raised from 65 to 67 and that the wage-replacement ratio, set at a barely adequate 25% (and only if the worker has a company pension plan to supplement the CPP) be reduced to 22.5%. Again, these proposed changes did not materialize. The government dealt with budget concerns relating to pension funding by increasing pension contributions, reducing the Death Benefit, and making it more difficult to obtain the Disability Pension. There were others who argued that the talk of bankruptcy was nonsense and was put forward by people with either a political or financial axe to grind, and that contributions would rise as they were predicted to do from the outset. All money contributed to the C/QPP is placed into a fund. At one time, provinces were allowed to borrow this money at a modest interest rate. Recent federal legislation allows for a portion of this money to be invested on the stock market in hopes of increasing the fund. It remains to be seen how successful this investment strategy will be.

See also SOCIAL SECURITY.

Author DENNIS GUEST

Suggested Reading
Dennis Guest, The Emergence of Social Security in Canada (2nd ed, rev 1985).

Links to Other Sites
J.S. Woodsworth
View a brief video about James Shaver Woodsworth and his negotiations with Prime Minister Mackenzie King over the creation of the first elements of Canada's social-security system. A Heritage Minute from the Historica-Dominion Institute. See also related learning resources.

Régie des rentes du Québec
The Régie des rentes du Québec is responsible for applying the Act respecting the Québec Pension Plan, the Supplemental Pension Plans Act and administering the family benefits program.

The Inflation Calculator
Check out the Bank of Canada’s Inflation Calculator. This program uses monthly “consumer price index” data from 1914 to the present to determine changes in the cost of a fixed "basket" of consumer purchases. An increase in this cost is called inflation. For example, $100 in 1920 was worth $812.14 in 2000. The “Backgrounders” provide details about related topics.

Old Age Security Program
The Old Age Security program is one of the cornerstones of Canada's retirement income system. Benefits include the basic Old Age Security pension, the Guaranteed Income Supplement and the Allowance. After briefly describing the program's history and overall features, each of the specific benefits is described in turn.

Pensions
Politicians associated with the development of the Canada Pension Plan. From theCanadian Museum of Civilization.