FEWO Committee Report
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Chapter 2: the First Pillar of the Retirement Income System — Old Age Security and the Guaranteed Income Supplement The primary role of Canada’s Retirement Income System is to provide older Canadians with adequate and stable income in retirement. The Committee examined whether this goal is being met for Canadian women. Mr. Edward Whitehouse, Head of Pension Policy Analysis at the OECD told this Committee that Canada “has the fifth-lowest old age poverty rate among the 30 OECD countries, around 4%, compared with the OECD average of around 13%.” [18] In comparison with old age poverty rates of 25% in the United States, and 30% in Australia and Ireland, the rate of 4% places Canada in an enviable position.[19] Despite this, some older Canadians continue to have incomes beneath
the Low-Income Cut-Offs established by Statistics Canada. Although the
low-income rate for seniors in couples is very low, it is considerably higher
for unattached seniors. Figure 2.1 Persons in Low Income after Tax (92 LICOs base), Showing Prevalence and Estimated Number — Canada
Source: Statistics Canada, Income in Canada 2007 pp. 87 and 88. The first goal of Canada’s retirement income system is to prevent
and alleviate low-income among Canadians sixty-five years of age and over. OAS
is a virtually universal non-contributory public pension provided to 98% of
Canadians sixty-five and older. In their presentations to this Committee, the Department of Human Resources and Skills Development Canada and the Department of Finance provided a brief overview of OAS and GIS, indicating that OAS provides a basic monthly income of $517 per month to virtually all seniors who meet residency requirements. In addition to the basic OAS pension, low-income seniors may also qualify for the GIS, which provides a monthly benefit of up to $652. Low-income spouses and common law partners of GIS recipients, who are aged 60 to 64, can receive the Allowance. For low-income survivors aged 60 to 64, there is an Allowance for survivors. OAS benefits are indexed to inflation, and funded from general revenues. Spending for 2009-2010 on these programs is expected to be $36 billion.[21] As we saw in Chapter 1, some women have a different pattern of paid and unpaid work than men. The OAS Program and GIS are not linked to labour force participation, thus they provide pensions for those who have had only limited involvement in paid employment, and supplement the earnings of those who have inadequate employment-related pensions. As Monica Townson, Research Associate with the Canadian Centre for Policy Alternatives noted, the “OAS is paid to individuals, it doesn't depend on labour force participation, and it doesn’t depend on the earnings of a spouse. It gives women a pension in their own name and it respects women's economic autonomy.”[22] As some witnesses noted, and as Figure 2.2 below indicates, it is worth noting that women constitute more than half of OAS recipients, two-thirds of GIS recipients, and 90% of allowance recipients. This reflects the fact that women are more heavily reliant on this first pillar of the retirement income system. Figure 2.2 OAS, GIS and Allowance Beneficiaries
Source: Correspondence from Human Resources and Skills Development Canada to the Standing Committee on the Status of Women, based on data in the 8th Actuarial Report of the OAS Program. Witnesses applauded recent changes to OAS and GIS, including the
increase to monthly GIS benefits made in 2006 and 2007, and an increase from
$500 to $3500 in the amount that can be earned in employment before the GIS
benefit is clawed back. Recommendation 1 That the exemption on earned income in the Guaranteed Income Supplement be extended to other forms of income, such as RRSP income. The Committee heard that, whereas previously an application for the Guaranteed Income Supplement had to be filled out every year, there is now a one-time application to get the GIS. The Committee urges the Government to continue efforts to simplify the application process for receiving the GIS. The income floor of the OAS and GIS is still slightly below the poverty line for some seniors — particularly those living on their own. The OECD reported that OAS plus GIS bring households to about 90% of the poverty thresholds they have calculated for Canada. The Committee recommends: Recommendation 2 That the Guaranteed Income Supplement be raised to the after-tax low-income cut-off. As noted earlier, unattached seniors are much more likely to face low income. Seniors in couples are vulnerable to facing poverty when they lose their partners due to death or divorce. Because women have a longer life expectancy than men, this is a situation which is disproportionately experienced by women. The costs incurred by a person living on their own are lower than the costs incurred by a couple, but the OAS program recognizes that certain costs (such as rent and property taxes) are fixed whether or not they are shared. This is accounted for in the adjustment factor for the OAS program. The Committee heard that the adjustment factor currently used by HRSDC to calculate the costs incurred by an individual on their own compared to a couple is 1.4. Witnesses have suggested that this does not accurately reflect the actual costs of living alone, so the Committee recommends: Recommendation 3 That the adjustment factor for single individuals be adjusted from 1.4 to 1.6 of the couple amount in recognition that the adjustment factor of 1.6 more adequately reflects the costs of living on ones’ own. The Committee has heard that the survivor benefit in the OAS was initially designed under the assumption that the surviving spouse (usually the woman) had provided unpaid caregiving work which had limited her labour force participation, leaving her dependent on the retirement income of her spouse. Several witnesses noted that, as a result of a growing rate of divorce, the individual who provided that care role is not necessarily the surviving spouse who receives the benefit. As a result, the initial goal of the OAS survivor benefit is not being consistently met. [18] Evidence, 2nd Session, 40th Parliament, November 5, 2009 (Mr. Edward Whitehouse, Head of Pension Policy Analysis, Social Policy Division, Organisation for Economic Co-operation and Development). [19] To calculate the poverty rate, the OECD uses a measure of equivalized disposable income , which is established by summing up all monetary incomes received from any source by each member of the household (including income from work, investment and social benefits) plus income received at household level and deducting taxes and social contributions paid and certain unavoidable expenditures. In order to reflect differences in household size and composition, this total is divided by the number of “equivalent adults” using a standard (equivalence) scale. The poverty threshold used by the OECD is a relative threshold; it is half of the median of this equivalized household income. (Based on information retrieved on the Eurostat Web site at: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Equivalized_disposable_income and the testimony of Mr. Edward Whitehouse, November 5, 2009). [20] Although Canada does not have an official poverty line, the after tax low-income cut-offs (LICOs) are often used as a proxy for a poverty line. LICOs are established using data from the Family Expenditure Survey, now known as the Survey of Household Spending. They convey the income level at which a family may be in straitened circumstances because it has to spend a greater proportion of its income on necessities than the average family of similar size. For more information on the LICOs, see the Web site of Statistics Canada at: http://www.statcan.ca/english/freepub/75F0011XIE/2004001/notes_lowincome.htm#lico. [21] Evidence, 2nd Session, 40th Parliament, November 3, 2009. (Mr. Chris Forbes ,General Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance). [22] Evidence, 2nd Session, 40th Parliament, November 19, 2009 (Ms. Monica Townson, Consultant and Research Associate, Canadian Centre for Policy Alternatives). |