FEWO Committee Report

Since this study has been undertaken by the Committee, a recurring question was whether there is a difference in the access of women and men to retirement income. The testimony heard by the Committee allows it to conclude, as did Ontario’s Expert Commission on Pensions, that while women have almost achieved parity with men in terms of pension coverage, the same cannot be said for pension adequacy. The Ontario Expert Commission on Pension pointed out three reasons why the pensions of women are inadequate: women who take time out from paid employment for child-rearing and elder care will have fewer years of pensionable service; women often earn less than their male counterparts; and women retirees can be expected to live longer than their male colleagues.^[2] These conclusions corroborate what the Committee has heard from the vast majority of witnesses.

A. Women and the Labour Force

Earlier generations of women had limited attachment to the paid labour force. In many cases, this has left them to face higher levels of poverty in their senior years. This is particularly the case for older women living on their own. The Committee heard that in 2005, 80% of unattached low-income seniors were women.[3] Older groups of women are the most susceptible to poverty. While the low income of some of these women may be mitigated by family support, others may not benefit from this type of support, which may leave them vulnerable. The Committee proposes options to alleviate the poverty of this group of women in Chapter 2 of this report.

The Committee has heard that “changes in labour force participation have played the primary role in the changes in the composition of women’s retirement income”.[4] Future generations of women will benefit increasingly from the 2nd pillar of the retirement income system, the CPP and the QPP. Data from the CPP indicates a dramatic increase in the proportion of women over 65 receiving the CPP. According to Statistics Canada “[b]etween 1980 and 2006, the proportion of senior women in Canada receiving CPP or QPP benefits more than doubled, from 35% to 84%, and of those who are receiving benefits, the median amount…increased from $3,100 to $5,500.”[5] The Committee has also heard that women are now as likely as men to be covered by a workplace pension plan. The proportion of women receiving retirement income from RRSPs, pensions and superannuations increased from 20% to 55% between 1980 and 2006, and the median amount received by recipients increased from $4,600 to $7,400.[6] In their presentation to this Committee, Statistics Canada predicted that the women who are now in their thirties, forties and fifties will have higher lifetime earnings than any preceding generation of women. The Chief Actuary of the CPP told the Committee that:

Based on the most recent CPP actuarial report, the overall labour force participation rates in Canada from 1976 to 2006 clearly show a narrowing of the gap between male and female rates. While this gap was 32% in 1976 it has narrowed to 10% in 2006, and is expected to narrow further but at a slower pace.[7]

These statistics demonstrate that women are increasingly retiring with income of their own. While these indicators bode well for future generations of women upon retirement, they do not tell the whole story.

While women are now almost as likely as men to draw CPP income, the amounts they receive from CPP are much lower than the amounts received by men. This is projected to be the case until at least 2050, according to projections by the Chief Actuary of the CPP. Similarly, women who are covered by a workplace pension plan earn less than men and are therefore likely to receive less money from these pension plans in retirement. Women also continue to have lower annual earnings than men (see Figure 1.1)

Figure 1.1 Distribution of Earnings by Sex

Source: Library of Parliament, based on Statistics Canada Cansim table 202-0101.

The Chief Actuary of the CPP told the Committee:

The gap in employment earnings between women and men has also narrowed over the last 40 years. The ratio of female-to-male average employment earnings stood at about 48% in 1996 and was 71% in 2006. The 23^rd CPP actuarial report projects that this ratio will further increase to 84% by 2050.[8]

While the Committee joins the Chief Actuary in expressing optimism that these trends indicate that future generations of female retirees will have access to more adequate retirement income, the Committee is nonetheless concerned with the conclusion that there is expected to be an ongoing gap in earnings between women and men, and the implications of this gap for the retirement income of women.

Tammy Schirle, assistant professor of economics at Wilfrid Laurier University indicated that while annual earnings ratio is about 70%, the hourly wage ratio between women and men is 85% (see Figure 1.2). She clarified the difference between the two measures as follows:

The difference in annual earnings is in part what women receive as the hourly wage but also what they work in terms of hours over the year. On average, women are working many fewer hours than men are, so that gives them lower annual earnings than men.[9]

Figure 1.2 Female-to-Male Average Hourly Wage Rate Ratio

Source: Library of Parliament, based on Statistics Canada Cansim table 282-0074.

There are a number of ways to compare the earnings of women and men. Some measures compare the earnings of full-year, full-time workers. Using this measure, the average earnings of women in 2007 was 74.5% of the average income of men.[10] Other measures compare the annual earnings of women and men. Since women are more likely to work part-time or part-year, the gap in earnings is larger using this measure — the average annual earnings of women for 2007 is 65.8% that of men.[11] The female-to-male average hourly wage rate ratio compares the hourly wage of women and men. According to this measure, women aged 25 to 54 earn 84% as much as their male counterparts.[12]

All witnesses who reported on the earnings ratio between women and men suggested that this ratio currently is in the range of 70 to 75%. Witnesses have identified a number of reasons why the annual earnings of women are lower, on average, than that of men. Ms. Martine Sohier of Watson Wyatt Worldwide identified a number of these factors, and the implications of these factors for the pension income of women:

Many women face interruptions in their working career, generally to take care of children and other family members. These interruptions translate into fewer years of potential pension coverage for women who have access to a pension plan. As women leave and re-enter the labour force, they most often transition into new jobs. This means that new waiting periods must be observed before they qualify for membership in a new pension plan. We know that part-time work is more prevalent among women than men. Part-timers may accrue significantly lower pension accruals during their working period, which can easily range from a decrease of 20% to 40% compared to full-time employees.[13]

From the evidence above, it is clear that future generations of women will have more access to their own retirement income than older women today. All indicators suggest, however, that there will continue to be a gap in the retirement income of women and men. As noted earlier, projections by the chief actuary suggest that this will still be the case in 2050, the last date for which he has prepared projections.

B. The Life Expectancy of Women is Higher than that of Men

Witnesses reminded the Committee that because women live longer than men, they need to save more. Martine Sohier of Watson Wyatt Worldwide suggested that “under current economic conditions, women may need to save between 8% and 10% more than men to maintain the same standard of living during retirement.”[14] The difference in life expectancy is not reflected in the current rules relating to programs such as RRSPs, leaving women vulnerable to run out of savings.

C. Unattached Women

The proportion of women who are approaching retirement in marital relationships has remained relatively stable at between 70 and 80% over the last 20 years. The remaining unattached women include those who have never been married, those who are widowed, and those who are divorced. While in earlier generations of seniors the majority of these women used to be widowed, today the larger proportion of them are divorced. A witness from Statistics Canada noted that the incidence of low income among unattached women who are divorced is higher than it is among those who are widowed or were never married. He noted that, for those who are 75 and over, the low-income rate before taxes was 28% for women who had never married during their lives, 29% for those who were widowed and 42% for those were divorced. For those in the 65 to 74 age group, the low-income rates for the widowed and never married are in the range of 25 to 30%, compared to approximately 39% for those who were divorced.[15] Several witnesses suggested that the incidence of late-life divorce was one that bears particular scrutiny, noting that the pension system had not been designed to deal with this situation.

Witnesses noted that most provincial jurisdictions provide for a roughly equivalent division of pension benefits earned during the marriage upon marriage breakdown. A number of difficulties remain, however. For example, the money transferred from a pension plan upon divorce is generally moved into a personal RRSP, where it is a challenge to manage the money so that it can accrue interest comparable to in the pension fund. Witnesses also noted that the divorced spouse who may have taken time out of the labour market to raise children is not necessarily the beneficiary of the survivor benefits of her or his former spouse. These will be addressed in the body of this report.

The Committee heard that while couples generally make financial choices jointly, these decisions are usually made on the assumption that the couple will remain intact. In the event of separation or divorce, the parent who may have chosen to stay at home may have to return to the labour force. The possible consequences of such a decision were outlined in the testimony of Dr.Tammy Schirle:

When you look at how decisions are made by families, we can definitely say that those decisions are made jointly. So a husband and wife are going to sit down together and decide how much each of them is working in the labour market, how much time each of them is spending in the household and on child care, and all of these things, and all of their financial planning would be done jointly as well. Now, there is some individual aspect to that. To the extent that if a woman spends time out of the labour force for child care, which might just be the choices they make as a family, she's the one who has to take the penalty in the sense that she's lost some labour market experience. She might have given up that raise, given up a job promotion. That happens, and you just take that as part of the package of staying home to take care of your children. The concern is that if that couple were to get divorced, you couldn't contract how to handle that loss in the labour market. You can try. We do try to account for these things in divorce agreements, at least to some extent, but it's not something we can measure perfectly, so it's not something we can contract perfectly.[16]

The Committee also heard that unattached women are unable to benefit from income splitting provisions, unlike their married counterparts.

Witnesses suggested that the retirement income system requires adjustments to take into consideration the impact of divorce and separation on women, as well as widowhood.

D. Summary

In his presentation before the Committee, Mr. Edward Whitehouse of the Organisation for Economic Co-operation and Development (OECD) encouraged the Committee to consider the changing role of women in society in pension design:

[I]f we have a world where we have men who go out to work and women who stay at home and look after children and have those caring responsibilities, then it is quite easy and simple to devise a pension system to suit that world of the single male breadwinner. If men and women participate in the labour market on equal terms, if they have similar hours of work, similar earning levels, and they work a similar number of years over their career, then equally it is very simple to devise a pension system that suits a world of that form. The trouble is, most countries are in a transition. Countries have been moving at different paces, but they are all moving in the same direction away from the single male breadwinner model towards a model of much more equality in the labour market between men and women. But our preliminary analysis suggests that we are still quite a long way from a position of there being equality between men and women in the labour market.[17]

The individual situation of women arises out of life choices, obligations and also unexpected circumstances. Some of their life choices, obligations and unexpected circumstances may have the long-term effect of reducing the retirement income women will receive throughout their retirement years. This report contains recommendations to support women in their choices, and to minimize the long-term costs of their obligations and unexpected life events.

The Committee notes that the differences in earnings between women and men are in part due to decisions they make regarding caregiving. The Committee recognizes that men are taking on increasing roles in providing care to children, the sick and the elderly across the country. The recommendations in this report will hopefully lead to a greater recognition of the role played by these men as well. Witnesses expressed a hope that policy-makers would pay attention to the issue of unpaid work and that the valuable unpaid care provided by men and women throughout this country will be adequately recognized so that that it will not come at the cost of poverty in their senior years.