HUMA Committee Report

The architects of CPP(D) fully anticipated that beneficiaries would also have access to other sources of income to replace their earnings in the event that a severe disability precludes work. We mentioned this earlier in our report and discuss it in greater detail in the next chapter. Suffice it to say that the expectations of CPP(D)’s architects have only partially been met, since a recent estimate suggests that less than one-half of CPP(D) recipients receive disability income support from another source. Members of the Subcommittee are also concerned that the proportion of CPP(D) beneficiaries with access to multiple sources of income support seems to have declined in recent years, since Statistics Canada estimated in 1995 that 60% of CPP(D) recipients received disability income support from another source.⁹³ The low and declining incidence of multiple sources of disability income support among CPP(D) beneficiaries and the absence of a well integrated disability income support system is of great concern to us and raises the issue of the adequacy of the level of income support provided under CPP(D).

CPP(D) benefits consist of two parts — a flat-rate component and an earnings-related component. The flat-rate component is a payment set at $370.32 per month in 2003, while the earnings-related component is a payment equal to 75% of the retirement pension that a CPP(D) beneficiary would have received at age 65 (up to a maximum $600.94 in 2003). Dependants of CPP(D) beneficiaries may be eligible for a flat rate children’s benefit. CPP(D) benefits in pay are fully indexed⁹⁴ to inflation and are taxable.

In 2003, the maximum monthly CPP(D) benefit was set at $971.26 or $11,655.12 per year. However, the average CPP(D) recipient received $730.08 per month in January 2003. The average monthly CPP(D) benefit is about three-quarters of the maximum payment, down significantly from 1993 when the average CPP(D) monthly payment was equal to about 96% of the maximum allowed (Chart 5.1). In 2003, dependants of CPP(D) beneficiaries may receive a maximum flat-rate children’s benefit worth $186.71 per month or $2,240.52 per year.

As a result of concerns over the future viability, sustainability and affordability of the CPP, many changes have been made to this program. Some of the changes that took effect in 1998 that served to reduce the amount that was spent on CPP(D) payouts were:

5.1       Should Canada Pension Plan Disability Benefits Be Increased?

Our issue poll asked respondents to agree or disagree with the claim that the CPP(D) monthly benefits should be increased to reflect the high cost of living.⁹⁶ A vast majority of respondents (90%) either agreed or strongly agreed with raising CPP(D) benefits for this reason. The lowest level of agreement in favour of raising benefits was found among individuals who identified themselves as employees of a disability income support program, although approximately 67% of these respondents either agreed or strongly agreed with raising benefits. The highest level of agreement (96%), not surprisingly, was among respondents who identified themselves as a CPP(D) recipient, a CPP(D) appellant or a person with a disability.

I receive $578/month ... which is topped up $133/month by the BC government. I can’t believe I had to fight so hard for so little. I live alone, with no other source of income. I never knew poverty before becoming ill. Federal and provincial disability benefits are totally inadequate. (Melissa, BC, E-Consultation Participant)

All I wish to say is that it is almost impossible to manage on the income provided through the disability pension. I have a small amount of money which is being depleted — I have been using it for food, medication etc. It will be gone soon. The anxiety created by this situation is hard to bear and does increase my symptoms — you see without the ability to earn an income I do not have any control about how my destiny will materialize. (Elizabeth, ON, E-Consultation Participant)

The maximum benefit level is now approximately $960 per month. An annual income of $11,500 (as a maximum) is clearly NOT adequate as income support, since this amount would still be well below the poverty line for a single person. While we recognize that no income-replacement system will ever equal the amount that earnings would have generated, the rate needs to be increased in order to adequately support the disabled contributor. (Northumberland Community Legal Centre, ON, E-Consultation Participant)

Issue poll respondents were also asked if they agree or disagree that the CPP(D) program should raise the monthly benefit for dependent children of CPP(D) recipients. A majority of respondents (78%) either agreed or strongly agreed with this proposal. A breakdown of respondents revealed that people who identified themselves as employees in the insurance business were divided on this question: 44% either agreed or strongly agreed, 30% neither agreed nor disagreed and 26% either strongly disagreed or disagreed. The highest level of agreement was found among people who identified themselves as CPP(D) appellants, as 62% strongly agreed and another 31% agreed (for a combined total of 93%) that the CPP(D) program should raise the monthly benefit for dependent children.

Respondents were further questioned on whether they agree or disagree that the CPP(D) program should consider all sources of income before calculating the level of benefits for an individual. While a majority of issue poll respondents (62%) either agreed or strongly agreed with this statement, 50% of people who identified themselves as legal representatives of persons with disabilities strongly disagreed (29%) or disagreed (21%) and only 39% were in agreement. Of those who identified themselves as CPP(D) applicants, appellants, or contributors; family members of a person with disabilities; rehabilitation specialists; and/or employees of a disability association or advocacy group, over one-third strongly agreed with considering all sources of income before calculating the CPP(D) benefit rate for an individual.⁹⁷ The strongest approval was among respondents who identified themselves as rehabilitation specialists with an 80% rate of approval (40% agree and 40% strongly agree).

Respondents were also asked whether they agree or disagree that the CPP(D) program should be mindful of the costs of increasing CPP(D) benefits. Over two-thirds of respondents (71%) either agreed or strongly agreed that we should consider the costs of increasing CPP(D) benefit levels before doing so. The strongest support for considering the cost implication of higher benefits was found among respondents who identified themselves as employees in the insurance business (95% either agree or strongly agree). The lowest level of support for the need to consider costs before raising CPP(D) benefits was found among individuals who identified themselves as legal representatives of persons with disabilities.

Some of our online consultation participants and witnesses indicated that because CPP(D) benefits are calculated partly on the basis of earnings, this approach affects adversely those with low earnings, particularly women.

Because part of disability payments is based on an earnings-related calculation, not all recipients receive the same monthly benefit. This is particularly important when considering gender. Due to the overall higher earnings of men, women as a whole receive fewer benefits. For example in 2000, the average disability benefit for men was $737.21 per month, compared to $625.15 per month for women. (Canadian Aids Society/Canadian Working Group on HIV and Rehabilitation, ON, E-Consultation Participant)

… there are significant gender differences in the benefit amount. These are 2000 figures. Men receive an average of $737 monthly, and women $625 monthly. In 2000, men’s average monthly benefit was 80% of the maximum amount, which is $11,473, and women’s was 68.1% of the maximum, which is $7,800 yearly. Women are also less likely than men to receive employer sponsored long-term disability benefits. (Sally Kimpson)⁹⁸

The issue of providing partial benefits also surfaced, implying that CPP(D) benefits should be means-tested. While we know that CPP(D) benefits alone are unable to provide an adequate level of income support, we also recognize that this program was never intended to be a stand alone program for covering all the earnings replacement needs of individuals with a severe disability. In addition, as noted elsewhere in our report, CPP(D) offers universal coverage, an important program feature in the Subcommittee’s opinion. We fear that if partial CPP(D) benefits were introduced, the universal nature of the current program would be compromised. One way around this problem might be to provide a means-tested supplementary payment on top of the flat rate portion of CPP(D) benefits if the income of CPP(D) beneficiaries is below a certain threshold. However, we hasten to add that this is a role that is supposed to be played by provincial/territorial social assistance programs and in this context, all members of the Subcommittee fully support a stronger interface between both of these programs to address more effectively the needs of low income CPP(D) beneficiaries and their children. In terms of the latter group, it is important to note that low-income CPP(D) beneficiaries with dependent children will benefit from the February 2003 budget measure to increase annual support for a first child under the Canada Child Tax Benefit to $3,243 by 2007, an increase of almost 25% over the maximum payment as of July 2003.

Continued eligibility under the current program allows CPP(D) beneficiaries to earn some employment income, provided a client does not demonstrate regular capacity to work and earn more than an amount known as Substantially Gainful Occupation (SGO). This amount, discussed further in Chapter 7 of our report, could be increased, but we recognize that a measure of this sort would do little to help the majority of those who are unable to work at all. A change in the SGO could also have an impact on benefit eligibility as this earnings threshold, as previously discussed, is used along with other factors to define a “severe” disability.

Even though we support reforms that would enhance the overall level of income protection afforded by CPP(D), the reality is that this program is poorly integrated with other income disability support programs across the country, as discussed in the next chapter of our report. Suffice it to say that any attempt to raise CPP(D) benefits under the current integrated system may have little or no impact on the level of CPP(D) benefits that recipients actually receive. Furthermore, an increase in CPP(D) benefits could very well make some recipients worse off, since provincially-provided disability supports are means-tested and if an individual’s income rises due to an increase in CCP(D), these disability supports may in fact be withdrawn by the provinces.

Notwithstanding these integration issues, the Subcommittee would like to see the calculation of CPP(D) benefits and retirement benefits of CPP(D) beneficiaries return to the pre-1998 method. Prior to the changes introduced in 1998, retirement benefits were based on an average of the last three years’ YMPE (Year’s Maximum Pensionable Earnings), instead of the current five years. Since workers’ earnings tend to be highest in the most recent periods, any average that captures a longer period of time usually entails the inclusion of lower-earnings years and, therefore, a lower average over that period. Thus the maximum CPP(D) benefit would be higher with a shorter YMPE averaging period. The calculation of retirement benefits of CPP(D) beneficiaries also changed from one based on the YMPE when the recipient turned 65 and then indexed to wages to one based on the YMPE at the time of disablement and then indexed to the Consumer Price Index.⁹⁹

The Subcommittee was informed that CPP(D) payments begin in the fourth month after the date that HRDC deems a person to be disabled. We regard this feature as being nothing more than a way of reducing the cost of benefit payments. Since we do not believe that a moral hazard problem exists in the context of a severe disability, we find this four-month “waiting period,” which is akin to a deductible, to be totally unnecessary and unacceptable.

5.2       CPP(D) and Disability Supports

Canadians, who shared their experiences with the Subcommittee through stories and solutions, paid a lot of attention to the need for some form of benefit to help pay for medication and assistive devices for those who are not eligible for any other type of plan or insurance that covers such costs. Depending on where you live in Canada and on the eligibility criteria of various provincial and private programs, two people with the exact same set of life circumstances may not have the same access to benefits to cover the costs of medications and assistive devices. Some participants not only questioned the fairness of such a system but also pointed out the important social and economic impact that such an inequity entails, particularly in view of the fact that individuals who do not take their prescribed medications may aggravate their health, suffer serious complications and become more regular consumers of health care services. Such a situation contributes not only to the high cost of health care to Canadian taxpayers but also — and more importantly — to an immeasurable human cost. In the words of one storyteller, “Canada has an enviable standard of living, UNLESS one is disabled.”¹⁰⁰

I just finished going through the Issue Poll for CPP — Disability benefits. I am an authorizer for sight enhancement adaptive equipment through the Assistive Devices Program (ADP, Prov.). I recently dealt with a client who was not able to purchase reading equipment. As a recipient of CPP-Disability Benefits, he was not entitled to benefits to cover the $600 (for new equipment) or $200 (for used equipment). His finances were VERY limited and he was not eligible for ODSP (which would have covered all but $100). This client also experiences costly fees for medication — I don’t know the specifics. This scenario illustrates the problem when CPP makes an individual ineligible for a provincial program. He has still not been able to purchase his own equipment. (Shannon, ON, E-Consultation Participant)

CPP benefits are often not adequate to allow a reasonable standard of living including medication costs (frequently hundreds of dollars per month). One of our main concerns is for individuals who are covered by CPP, but who are not covered for medication costs by any other program. Therefore these individuals must choose between paying for medication and living in greater poverty or not paying for medication and becoming ill — increasing demands on the health care system and costing taxpayers more money in the long run. Even individuals who are able to access Community Services assistance to cover medication costs — provincial standards result in these individuals still living below the poverty level, with all its negative impacts on health status and increased health costs to all taxpayers. (Noel, NS, E-Consultation Participant)

My chief complaint is the fact that CPP benefits do not include medication. It sure is a sad situation when people who do not work or are drunks or druggies can receive pills, dental and glasses etc. through welfare or welfare disability, and someone like me has to pay for them. This is definitely not fair. … I think it’s about time that CPP reconsider the situation of someone receiving benefits and include pills, glasses, etc. Amend the act to include the benefits that the welfare recipients receive. (Anonymous, ON, E-Consultation Participant)

Persons in receipt of CPP disability benefits should be provided with coverage for prescription medications and assistive devices. Presently many of our clients whose income exceeds the ceiling for social assistance, must cover their own prescription costs and disability supports. Given the low rates of CPP assistance this results in extreme hardship for such persons and their families. (Algoma Community Legal Clinic, ON, E-Consultation Participant)

Our testimony, including the stories and solutions received through the online consultations, supports the findings of numerous studies profiling the lives of persons with disabilities that, over the last 30 years, have concluded that this population is more likely than other Canadians to live in poverty. We recognize that persons with disabilities not only need income support but may require a vast array of disability supports that are also essential to live. We are mindful of the fact the constitutional amendment that gave rise to CPP(D) did not include disability supports and services. Hence, direct federal delivery of these supports is not something that we are anticipating. However, we do encourage the federal government to continue discussions with provincial/territorial governments regarding a pharmacare initiative, including those recommended in the Kirby and Romanow reports.

The federal government provides some assistance indirectly to help cover the cost of disability supports through the medical expense allowance and the disability tax credit. However, both of these measures are of limited value to those whose incomes are too low to come into contact with the tax system. While the design of a more fully integrated disability income and support system is beyond the scope of this report, we recognize that serious gaps exist and much remains to be done to address the inequities and lack of coherency in the existing system. As we continue to explore a better approach for providing income support to persons who are unable to work, we will, of course, be mindful of the need to enhance the level of support for persons with disabilities, both in terms of income adequacy and disability supports. Some of these are briefly discussed in the last chapter of our report as next steps in our study.

5.3       Taxation of CPP(D)

While the solution to the problem of CPP(D)’s income adequacy is clearly one that will not be resolved in the near term, one step that the federal government could take to bolster the level of income support provided through CPP(D) benefits pertains to a change in the tax treatment of these benefits.

As previously mentioned, CPP(D) is treated as taxable income. In view of the financial challenges faced by persons with disabilities who are reliant on disability income support programs, many online consultation participants and witnesses raised concerns over the appropriateness of, and the rationale for, taxing CPP(D) benefits, given that other disability income such as social assistance, employee-pay-all long-term disability benefits and most workers’ compensation payments are not taxed.

CPP disability provides an already low income, and imposing taxes on a low-income program like this one doesn’t reflect the disability community’s idea of fairness. So we really suggest a review of whether or not the disability benefits should continue to be taxable. (Mary Ennis, Vice-President, Council of Canadians with Disabilities)¹⁰¹

The inadequacy of the level of benefit is further compounded by the effect of income tax. CPP benefits should be made tax-exempt, as are worker’s compensation payments. Both types of benefits are generated by participation in the workforce. There is no rational for disabled workers having to pay income tax on the receipt of CPP benefits, but not on their WSIB benefits. (Northumberland Community Legal Centre, ON, E-Consultation Participant)

It is impossible to survive on your monthly disability benefits alone, especially when they are considered "taxable income". (Stephen, ON, E-Consultation Participant)

I feel also that the taxability should be addressed. Those on welfare are not taxed and make no monies and few have the education that a lot of people on disability have. However, those who cannot work, are TAXED, WHY? (Nancy, ON, E-Consultation Participant)

I don’t think CPP(D) should be taxed. I am also really upset when the government says the inflation rate is 3.9 and us disabled people get an 1.6 percent increase... and are expected to suck it up and do without even more and be taxed to death on top of that. Every lousy dime I get in benefits is gobbled up by necessities and taxes ... there is no discretionary money left. … If my rent goes up ... it does not go up 1.6 percent ... it goes up 5-10 percent. Over the past 7 years of my permanent disability I have had to sell off lots of my personal belongings to survive. This included my share in my house ... because I could not afford the maintenance and property taxes. I have also had to file bankruptcy because I could not keep up with the income tax ... not enough was deducted. And if enough is deducted I have to move to a slum or get a supermarket cart and become a bag lady. I am tired. ... I live in a very bad and dangerous neighbourhood but cannot afford to move. (Hella, BC, E-Consultation Participant)

Members of the Subcommittee are fully aware of the taxation principle that if CPP contributions are deducted from income for tax purposes, CPP benefits should be taxable. However, since CPP contributions do not distinguish between amounts paid for retirement benefits and those for disability, it is difficult to apply this taxation principle. Moreover, since CPP(D) only represents about 15% of total CPP expenditures, notional contributions earmarked for CPP(D) should reflect this fact. We do not support the taxation of CPP disability benefits and a way must be found to adjust CPP contributions so that the CPP(D) portion is not deducted from income for tax purposes.

Recommendation 5.1

The Committee recommends that Human Resources Development Canada return to the pre-1998 method for calculating CPP(D) benefits and retirement benefits for CPP(D) recipients.

Recommendation 5.2

The Committee recommends that Canada Pension Plan Disability payments commence on the day that Human Resources Development Canada qualifies a person to be eligible for CPP(D) benefits.

Recommendation 5.3

The Committee recommends that the Technical Advisory Committee on Tax Measures for Persons with Disabilities established by the Minister of Finance examine how best to adjust CPP contributions deducted for tax purposes in order to remove amounts paid in respect of disability benefits and thereby eliminate the taxation of Canada Pension Plan Disability benefits. This measure should be fully anticipated in the next federal budget and be in place by the beginning of the fiscal year 2004-2005. Once in place, similar treatment should be afforded to all Canada Pension Plan Disability benefits in pay.