In the 1996 federal budget, the government announced the end of the universal Old Age Security (OAS) benefit. The new "Seniors Benefit" will be an income-tested benefit.

Having cut one of the major pillars of Canada's public pension system, the Liberals are gearing up for cuts in the Canada Pension Plan (CPP).

To prepare Canadians for cuts, the media is filled with reports that the CPP is going broke, that Canadians should be more responsible and save for retirement; that today's seniors have it too good. Canadians are asked: "Why should young people have to pay for seniors' pensions?" The solution, they say, is individual Registered Retirement Savings Plans (RRSPs).

The financial industry is leading the attack on public pensions with misinformation and fear mongering. In reality, Canada has created a cost-effective public pension system that provides a secure retirement for millions of working people.

It's our pension plan and we must become involved in the debate. Tell your member of parliament that you want a strong public pension system; that you oppose cuts in the CPP; that you support the universal OAS.

Contents of this article:

• Canada's public pension system: A model program for the common good
• Labour's struggle for public pensions
• Canada's public pension system: how it works
• What's so great about "universality"? Why not just target the poor?
• Is the CPP going broke?
• The privatization of public pensions. What can we learn from other countries?
• How Canadian taxpayers support pensions for the rich
• CAW-Canada's position on public pensions

Before we had a pension system, many Canadians, particularly labourers and the poor, "worked themselves to death". Unions and the CCF/NDP, joined by churches and other community groups, fought for universal pensions.

Today, we can be proud of our pension system. Canada has made tremendous gains in overcoming poverty among seniors. But our public pension system is much more than a stop gap for the poor. Public pensions have enabled middle and lower income Canadians to maintain a decent standard of living upon retirement.

Our public pension system is an excellent example of Canadians working together for the common good.

In the 1960s, when the C/QPP, Medicare, and the GIS were introduced, 40% of elderly Canadians lived in poverty. Today 20% of elderly Canadians live in poverty.(1) Improvements in the OAS dramatically reduced poverty rates among elderly women: from 70% in 1980 to 45% in 1993.(2) Today, public pensions provide about 58% of retirement income for seniors compared to 34% from employer plans and 8% from RRSPs.(3)

Labour's struggle for public pensions

No government "gave" Canadians a public pension system. Trade unions and the CCF/NDP, joined with churches and other progressive groups to force governments to provide public pensions. The current fight to maintain public pensions is part of a long history of struggle.

1930
Old Age Security introduced The CCF's J.S. Woodsworth leads a labour coalition to force a Liberal minority government to introduce OAS. The monthly benefit is $20 at age 70. Aboriginal people and immigrants are excluded.

1952
OAS increased to $40 per month (increased to $75 in 1963) UAW-Canada negotiates "top up" to provide a benefit of $100 per month.

1957
OAS extended to all Canadians at age 70

1958
CCF calls for Canadian pension plan: "Half your income at age 65."

1965
CPP/QPP introduced and OAS becomes payable at age 65 Although not "half your income", the C/QPP replaces 25% of income for the average worker.

1966
Guaranteed Income Supplement is available at age 65 The GIS is to be a temporary support for low-income seniors until the C/QPP takes full effect. But today, 40% of OAS pensioners qualify for the GIS.4 The majority of them are women.

1975
Spouse's Allowance (SPA) introduced The SPA is an income-tested benefit payable from age 60 to 65 and only available to the spouse of an OAS pensioner.

1977
OAS reduced for immigrants The full OAS had been payable for anyone with 10 years residency. Now, Canadian immigrants must have 40 years residency to get a full benefit.

1983
Parliamentary Task Force on Pension Reform Recognizing the extreme poverty of elderly women, labour joins churches and anti-poverty and women's groups in calling for expansion of public pension plans to 50% of earnings.

1985
Federal government introduces some reforms to public plans: improved provisions for women and persons with disabilities, strengthen funding. But government caves in to business lobby and increases tax breaks for RRSPs and refuses to increase basic C/QPP benefits. Tories try to de-index OAS but back down when seniors march on parliament hill. Mulroney introduces the OAS "clawback" _ a weaker version of de-indexing. Tories also increase the foreign investment limits on pension funds from 10% to 20% by 1994.

1996
The Liberals announce that by the year 2001, the OAS/GIS will be replaced with one income-tested "Seniors Benefit".

For years, the OAS was a model universal program. All Canadians with 10 years residency got the same benefit. Homemakers, bankers, and labourers were recognized equally for their contribution to society. The "clawback" and "Seniors Benefit" have ended the universal OAS benefit.

In the year 2001, the Seniors Benefit will replace the OAS and the GIS. Until then, Canadians will have a choice between the current OAS/GIS and the Seniors Benefit.

In a deceitful manner, the government, by delaying the cutbacks, is trying to avoid a political backlash by not targeting current retirees and those about to retire.

Under the "Seniors Benefit", single seniors with no other income will receive $11,420 per year and couples will receive $18,440. For those with other income, the benefit will be "clawed back". The Seniors Benefit is based on family income. A woman with no personal income cannot claim the "Senior's Benefit" if her husband's income exceeds the threshold.

The C/QPP is funded through employer and employee contributions. The total contribution rate is 5.6% of earnings. The maximum level of earnings is $35,400; any worker with a basic level of earnings ($3,500) is a plan member.

Pension benefits are set at 25% of average industrial lifetime earnings (in current dollars). The maximum is $727 and fully indexed to inflation. The benefit is based on lifetime earnings but the "drop out" provision allows workers to drop 15% of low earning years (ie., almost 5 years in 1996) and any additional years for raising a child up to 7 years of age.

The C/QPP has features to deal with life experiences. In addition to a normal retirement benefit at age 65, the plans offer early retirement at age 60, disability pensions at any age, a lump sum death benefit, survivor benefits, and dependent benefits.

All figures are for January 1, 1996.

"When I was young, I thought that money was the most important thing in life; now that I am old, I know that it is." Oscar Wilde English playwright, 1890

Why public is better than private

The financial industry claims that Canadians should abandon the CPP and buy individual RRSPs. But C/QPP have many excellent features:

What's so great about "universality"? Why not just target the poor?

• Universal plans are simple to administer so costs are low. OAS administration is less than 1% of costs.

• Programs targeted to the poor are easily cut. Look what Ralph Klein and Mike Harris did to welfare benefits. Targeting a benefit to the poor is a step towards elimination.

• Middle and working-class Canadians also need the protection of universal plans. Job loss, periods of lay-off, or an injury or prolonged illness in the family can destroy plans for a comfortable retirement. Universal public pensions provide an important safety net.

• Canadians are proud of social programs like the OAS, C/QPP, Medicare. Working together to create a responsible retirement system also serves to unite us as a nation.

The CPP is a pay-as-you-go plan. Employer and employee contributions pay for current retiree benefits. There is no fund to "go broke".

Since the beginning of the CPP in 1966, the contributions have been more than enough to pay for benefits. The provinces have borrowed the excess contributions to build public transit, railways, libraries, hospitals. The CPP funds have been invested in our communities and benefitted Canadians of all ages.

Every 5 years, the provinces and the federal government review the 25-year contribution schedule. In the 1995 review, the Chief Actuary proposed an early increase in the current (1990) schedule:

Contrary to the doomsayers, the actuary did not "suddenly discover" an aging crisis. It has always been understood that the contributions will increase over time and eventually reach about 14%. The increase will have to happen sooner than planned.

So why didn't the actuary get the schedule right the first time? Several events have placed unexpected demands on the CPP: The recession of the early 1990s reduced contributions; and there has been an increase in disability pensions. Future economic growth, a reduction in disability claims, and many other factors could serve to reduce the contribution rates.

Are these rates reasonable? For years, Canada has paid less than any other G-7 nation including the United States and Japan.

"I advise you to go on living solely to enrage those who are paying your annuities." Voltaire French writer, 1750

So, is there a problem?

In 1995, the Chief Actuary released his report on the funding of the CPP. Suddenly the media was filled with reports of "ticking time bombs" and the demise of the Canada Pension Plan. So just what did the Actuary say to create such a stir?

What he really said . . .

"According to the chief actuary, the projected costs are so much higher than expected, he predicts the CPP fund will be exhausted by the year 2015. It is in the face of this alarming crisis that the Reform Party has undertaken a review of the CPP . . ."

Manning got his idea from the Chilean military dictator General Pinochet. In 1981, Pinochet passed a law privatizing the public system. Despite claims that Chileans have become "a nation of savers", almost half the workers are in arrears on their contributions. There are serious problems:

• 10% of earnings are deducted from the worker's paycheque and deposited in a special bank (AFP). The employer contributes nothing.
• The government does not regulate AFP administration fees. Up to 30% of the worker's investment goes into administration fees _ much of it is advertising.
• The UN International Labour Organization estimates that future retirees will replace less than 30% of their earnings through the AFP scheme.

But we need not go to Latin America for examples of pension privatization. In Britain, the Thatcher government partially privatized pensions in 1988.

The British people could drop out of the government plan and/or their employer plan. Eight years later, there is a rash of protest from teachers, miners and health care workers who opted out of employer plans only to end up with less in the private plans.

Even the conservative business magazine, The Economist, criticized the Thatcher's privatization scheme:

In Britain, [there was] a sudden burst of government enthusiasm for private portable pensions . . . [which] enabled eager salesmen to talk large numbers of people into switching from perfectly good occupational pensions to overpriced and unsuitable policies. . . Insurance companies have since been ordered to pay compensation. Such incidents suggest that the government must play a big regulatory role in private pension schemes _ particularly if they provide a subsidy through tax concessions.

It's your money they're after!

The financial industry tells Canadians the CPP is going broke. Then they hold up public opinion polls reporting that Canadians are fearful the CPP will go broke. And then they conclude we should dismantle the CPP!

The solution, they claim, is individual RRSPs. But the financial institutions sell RRSPs! They don't like public pensions because they can't make any money off the $40 billion in the public system. It's all very self-serving if not just plain greedy.

Although the wealthy and financial institutions complain about "irresponsible Canadians who rely on public pensions," they have no qualms about taking tax breaks for their chosen retirement program _ private plans and RRSPs.

The tax system on RRSPs favours high income earners: they can contribute more to their plans, and they receive a higher dollar-for-dollar tax break. Someone with an annual income of $75,000 will be able to contribute $13,500 to an RRSP for a tax deduction of $6,700 _ one and a half times the annual OAS benefit currently paid to seniors.

The government is using taxpayers' dollars to subsidize the retirement incomes of high-income Canadians while, at the same time, the government is calling for cuts in programs for low and middle income Canadians. Using the tax system to fund private plans is a costly program that only benefits a small group of wealthy Canadians.

Here is the real agenda behind privatizing public pensions: transfer billions of dollars from public control to the financial industry; create a fat retirement scheme for the wealthy through tax-sheltered private plans; force people into individual RRSPs and do away with the democratic public plan which gives all Canadians a measure of financial security and a collective voice.

• The richest 10% of Canadians make almost half of all the RRSP contributions.

• The richest 10% of Canadians contributed an average of $5,000 to RRSPs for an average tax break of $2,200. The lowest 30% of Canadians contributed an average of $900 for an average tax break of $240. And, workers, strapped for cash while unemployed, are forced to cash in their RRSPs.

• In 1991, the federal and provincial governments lost $8.5 billion in tax revenues for RRSPs alone. This amounted to over half the entire cost of the OAS program for the same year.6 The OAS provides a benefit of almost 15% of the average industrial wage to millions of seniors.

PENSION PLAN COSTS (1992)7

*Note-does not include loss in provincial tax revenues

CAW-Canada's position on public pensions

Canada has developed a model public pension system. In the current period of economic change, Canadians need a collective program more than ever. The federal government must strengthen our public pension system and make the taxation of private pension plans more equitable. We call on the federal government for the following actions:

• High unemployment means lower contributions to C/QPP and weakens the funded status of the plan.

• If the working age population is fully employed and enjoying a decent standard of living, support for senior's pensions will not be seen as a burden.

• The Chief Actuary has proposed a revised schedule to increase CPP contributions. The schedule must be adopted.

• Some "friends" of the C/QPP have suggested cutting the benefits in order to keep the plans. But there is no fat to cut. Removing from the CPP program or reducing disability and survivor benefits would create hardship for lower income Canadians. Delaying the age of retirement would destroy our efforts for early retirement and further jeopardize job creation for younger workers.

• Canada is a highly productive society and corporations are reporting record profits. Why should workers accept cuts in their pension system?

• Tax shelters for company pension funds and RRSPs cost the federal government over $15 billion for 1991. If the government is going to subsidize these plans, the Canadian taxpayer should gain some benefit.

• The government must reinstate the 10% limit on foreign investment (as in 1989). Up to 20% of pension plan funds can now be invested outside the country. The limit would ensure pension fund investment in Canadian industries. In 1993, over $40 billion of company pension funds were invested outside Canada.8

• The financial industry argues that workers have money in pension funds and benefit from high interest returns. While a few workers might gain from a speculative investment in foreign currency or investments in Mexican auto assembly plants, thousands of other workers continue to experience job loss. Canadian workers do not live off their investments.

• The government must regulate a portion of pension funds to be invested in industries such as affordable housing, food production, community development, and strategic Canadian industries _ investments that create jobs and improve the standard of living for the majority of Canadians.

• The clawback on the OAS must be eliminated. At the very least, the threshold should be raised and fully indexed to inflation.

• Proposals for an income-tested Senior's Benefit are an erosion in our public pension system. Canadians need the universal OAS.

• RRSP tax deductions are set up to benefit the wealthy. To create a more equitable system the government could set the limit on tax-sheltered income to two times the average industrial wage (about $70,000). Also, tax deductions, which favour high income earners, should be changed to tax credits.

1. Troubled Tomorrows _ CIA Task force on Retirement Savings, January 1995.
2. The Poverty Report _ National Welfare Council, 1994.
3. Government of Canada. The Seniors Benefit. March 1996.
4. The Caledon Institute of Social Policy, Roundtable on Canada's Aging Society and Retirement Income Saystem, June 5, 1995.
5. U.S. Department of Health and Human Services. Social Security Programs throughout the World (1993), May 1994.
6. Sid Ingerman and Robin Rowley, "Tax Expenditures and Retirement Savings", Canadian Business Economics, Summer, 1994.
7. The Caledon Institute of Social Policy, Roundtable on Canada's Aging Society and Retirement Income System, June 5, 1995.
8. Statistics Canada. Trusteed Pension Funds, 1993. Photography: Vincenzo Pietropaolo

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Last Updated by CAW Digital Collections on saturday, 17 august, 1996 at 3:05 pm.