What Canadians Received

By the late 1960s, the essential structure of Canada's current retirement income system was in place. At its base was the universal, flat-rate Old Age Security pension. Complementing the Old Age Security pension was the Guaranteed Income Supplement, originally designed to be a temporary program available only for those born before 1910 (who had no chance to build a full Canada Pension Plan benefit before retirement). It was to be a transitional measure until the Canada Pension Plan and Quebec Pension Plan matured in 1976. Instead, the Guaranteed Income Supplement became a permanent, integral and necessary part of the Old Age Security system in 1971.

The Guaranteed Income Supplement was originally designed for Canadians whose working lives and saving potential had been affected by war and the Great Depression, and who would have little or no income beyond Old Age Security when they retired. Nearly 1.3 million people were receiving the Old Age Security pension in 1968, with almost half that number also receiving the Guaranteed Income Supplement.

F.H. Leacy, ed., Historical Statistics of Canada, 2^nd Edition (Ottawa, 1983) Series C92-104

The Canada Pension Plan, a contributory, earnings-related social insurance program, constituted the second tier of the government's retirement income structure. It was designed to ensure a measure of protection to a contributor and his or her family against the loss of income due to retirement, disability, and death. The qualifying age for both the Old Age Security pension and Canada Pension Plan retirement benefits was reduced one year at a time after 1965 so that it would be 65 by 1970.

In the 1970s and 1980s there was considerable expansion and reform in Canada's public pension programs, as the federal government's retirement income system increasingly became a tool to promote greater income equality among Canadian seniors. The massive pension reform effort resulted in resources such as the National Pensions Conference, the Economic Council of Canada's One in Three report, the Senate's Retirement Without Tears report, Ontario's Haley Report on Pensions, the federal study entitled The Retirement Income System in Canada: Problems and Alternative Policies for Reform (also known as the Lazar Report), the 1982 federal Green Paper Better Pensions for Canadians, and the Frith Committee report which led up to major Canada Pension Plan reforms in 1987 and the introduction of the Widowed Spouse's Allowance.

Many of the initiatives were undertaken in cooperation with the provinces, business, women's groups, labour and the general public. The goal was to combat the effects of rising inflation and assist those groups most vulnerable to poverty. Over the next two decades numerous reforms to Old Age Security and the Canada Pension Plan were enacted.

1971
Initiatives to combat poverty and inflation were introduced in the Old Age Security program. In 1971, the Guaranteed Income Supplement that augmented the basic Old Age Security pension was converted from a temporary to a permanent program, and combined Old Age Security and Guaranteed Income Supplement benefits were indexed to inflation.

1972
The next year, the two per cent ceiling on increases to Old Age Security benefits was replaced by the linking of benefits to full increases in the Consumer Price Index. From 1973, indexation was applied every three months.

1974
Workers make Canada Pension Plan contributions on earnings between a basic exempted amount, called the Year's Basic Exemption, and a maximum or ceiling, called the Year's Maximum Pensionable Earnings. The amount of those earnings, as well as the number of years worked, determine the amount of benefits that a worker will ultimately receive.

In 1974, with wages rising more quickly than had been anticipated and inflation eating away at the value of pensions, legislation was passed that would raise the Year's Maximum Pensionable Earnings (YMPE) figure. There was an ad hoc $1000 increase of the YMPE from 1973 to 1974, then an agreement to raise the ceiling by 12.5 per cent per year until it caught up to the average wage as measured by the Statistics Canada Industrial Composite. It took until 1986.

Legislation enacting this change and, as well, reducing the Year's Basic Exemption from 12 per cent to 10 per cent of the Year's Maximum Pensionable Earnings took effect two years later, on January 1, 1976. The level of the Year's Basic Exemption, the amount of earnings at which a person starts contributing to the Plan, was adjusted so that it could be maintained at a lower level than before. This meant that more people could participate in the Plan. The Year's Basic Exemption was $700.

In 1974, too, benefit levels became linked to increases in the Consumer Price Index, rather than the old Pension Index with its two per cent ceiling. Indexation of Canada Pension Plan (CPP) benefits on other than an annual basis was said not to be compatible in a number of ways with the design and operation of the Plan. For example, the contributory period was measured in years, pensionable earnings were recorded by the year in the Record of Earnings and when a benefit was calculated, the annual earnings in each of these years was adjusted upwards in line with average wages and salaries for the year in which the benefit would be paid, along with the two previous years. While these points were debatable, it was clear that quarterly indexation of CPP credits would have required a major reconstruction of the benefit calculation to avoid serious anomalies.

1975
In 1975, senior couples struggling to manage on one pension were given assistance when an income-tested Spouse's Allowance for 60 to 64 year-old spouses of Guaranteed Income Supplement recipients was added, to be indexed quarterly.

In the Canada Pension Plan, measures were taken to end sex discrimination in the area of survivor and children's benefits which, incidentally, benefited men as much as women. For instance, from 1975 on, widowers were no longer required to show that they were disabled or had been economically dependent on their contributor spouse in order to be eligible for survivor benefits.

Reforms in the Canada Pension Plan that helped provide greater income protection for women and families were also implemented:

• Extended benefits to surviving spouses where the marriage followed the contributor's retirement or disability, and to children born or adopted after disability.
• A change in the definition of "dependent child" to include disabled children between the ages of 18 and 25 who were not in full attendance at school or university.

Moreover, in 1975, the earnings test requirement for the payment of a retirement pension was eliminated.

1976
When the first full retirement pensions became available in 1976, a general "drop-out" provision came into effect that would eliminate up to 15 per cent of a worker's total contributory months. In this way, low earning periods would be removed from the contributory period and not penalize those who had been out of the work force from time to time.

1977
Starting in 1977, Old Age Security and the Canada Pension Plan were included in international social security agreements. Social security agreements co-ordinate the operation of the Old Age Security program and the Canada Pension Plan with the comparable programs of other countries that provide pensions for retirement, old age, disability and survivors. Agreements have four objectives:

• to allow a person who has lived or worked in another country to be eligible for social security benefits, either from that country or from Canada;
• to reduce or eliminate restrictions, based on citizenship, that may prevent Canadians from receiving pensions from other countries;
• to reduce or eliminate restrictions on the payment of pensions abroad; and
• to permit continuity of social security coverage when a person is working temporarily in another country, and to prevent situations where a person would have to contribute to two countries' social security programs.

Also in 1977, partial Old Age Security benefits became available based on a formula that granted 1/40 of the Old Age Security rate for every year of residence in Canada as an adult. A full pension would be granted to persons with 40 years residence. Those who, at the time, were 25 and had lived in Canada as an adult, however, could continue to qualify for a full pension under the previous residence rules.

1978
The splitting of Canada Pension Plan credits upon divorce or separation was introduced in 1978. The provision was mainly designed to protect women who did not participate or who had limited participation in the paid workforce because they worked in the home. For marriages legally dissolved after January 1, 1978, Canada Pension Plan credits accumulated by both spouses during a marriage could be split equally between them. Either spouse could apply for this provision.

The splitting of credits earned during marriage became mandatory for divorcing couples in 1987, except where otherwise provided for by provincial law and agreement of the parties. Credit-splitting would also apply to legally separated spouses or common-law partners from that year on, if an application was made.

1979
Since 1975, near-seniors receiving a Spouse's Allowance had their benefits stopped when their spouses died. In 1979, these "extended" payments were continued for six months following the pensioner's death or until the age of 65, if death occurred earlier.

1980
In the 1980s, the landscape for disability issues as a whole was in the process of transformation. The International Year of Disabled Persons in 1981 was a catalyst for action on disability issues. Federal actions in this period aimed to increase the economic and social participation of Canadians with disabilities in their communities.

During this decade, several changes were made to the Canada Pension Plan disability program, generated in part by the creation of the Special House of Commons Committee on the Disabled and the Handicapped, formed in 1980 to identify the key obstacles faced by disabled persons in Canada. The Committee's report identified twenty key areas of concern, ranging from human and civil rights to database development, and made 130 recommendations for improvements.

As a first step towards comprehensive reform, the Committee proposed several improvements to the CPP disability benefit. It recommended that the amount of the benefit be increased and that more people be covered. The inadequacy of the benefit was confirmed by a survey of Canada Pension Plan disability beneficiaries in 1980, which concluded that the financial situation of this population was deplorable, not only in terms of the average income of Canadians, but also in terms of poverty levels in Canada.

1983
On January 1, 1983, a child-rearing drop-out provision came into force. It allowed parents to eliminate from their contributory period the amount of time they stopped working or reduced their work to look after children under the age of seven. The provision ensured that they were not penalized for these periods of low earnings when their CPP benefits were calculated. It took effect when it was provincially ratified in 1983, but was applied retroactively to 1978.

1984
In 1984, the rate for single Guaranteed Income Supplement and Extended Spouse's Allowance beneficiaries was raised, and low-income pensioners who received partial Old Age Security pensions were given increased Guaranteed Income Supplements that would bring them to the level of a full pension. The residence requirement for full Spouse's Allowance benefits was reduced to 10 years, and single Guaranteed Income Supplement rates, which were higher than the married rate, could be acquired more quickly for separated low-income seniors.

1985
A Widowed Spouse's Allowance was introduced in 1985 so that all widows or widowers between 60 and 64 who met the income and residence requirements could receive assistance. This benefit was identical to the Spouse's Allowance benefit aside from the difference in marital status and the income used for calculation purposes (the former is paid to married people based on their combined income and the latter is paid to widows or widowers based on their individual income). The rate and payment rules were the same for the Extended Spouse's Allowance that had been created in 1979 and increased in 1984.

1987
Canada Pension Plan provisions expanded considerably in 1987 due to the passing of Bill C-116. The amendments were an answer to a lengthy process of negotiation between the federal and provincial governments.

The improvements included a flexible retirement pension that provided qualified contributors with retirement benefits as early as at the age of 60. Payment amounts would be reduced by 0.5 per cent for every month before age 65 that the retirement pension was taken, and increased by the same amount for every month after age 65 it was taken, up to age 70. As such, the maximum increase or decrease was 30 per cent.

New financing arrangements for the Canada Pension Plan were also part of these changes. This meant a gradual yearly increase in the current employer and employee rate of 3.6 per cent of contributory earnings, which had been in place since 1966. There would be a review of the financing arrangements by the Finance Minister and a re-setting of the rate schedule at least every five years to again cover 25 future years. The increases over the first five years were to be 0.2 per cent per year, with smaller increases planned in later years according to a 25-year rate schedule. As well, on-hand monies from the Canada Pension Plan Fund were to be targeted at two years' worth of benefits. This meant that the Fund, which at the time held about six years of benefits, would eventually be intended to have an amount equal to two times the yearly amount of benefits paid.

Another major change was to disability benefits. The flat-rate portion of the benefit was increased dramatically, matching the higher rate that had been in place in the Quebec Pension Plan since the early 1970s. Furthermore, the minimum contributory requirements were eased, providing earlier income protection in case of disability.

Other major amendments included:

• the continuation of survivor benefits on remarriage;
• the simplification of combined benefit calculation (a person could receive both a survivor benefit as well as a disability or retirement benefit, subject to a maximum amount);
• the improvement of children's benefits, permitting a child to receive up to two benefits in the event that both contributor parents were either deceased or disabled (children's benefits were payable even if the child married); and
• the division of Canada Pension Plan retirement payments, called "pension sharing" or "assignment", for still-married people who applied for retirement benefits. This helped women who had a relatively shorter work history and lower contributions to the Canada Pension Plan. One of the spouses would have to apply for pension-sharing, which resulted in tax savings for many couples. Pension-sharing would end on separation or at the death of either spouse.

1989
The most visible austerity measure came in 1989 when a "clawback" of the basic Old Age Security pension was introduced. In the future, Old Age Security recipients would have their benefits taxed back at a rate of 15 cents on the dollar if their income was over a specified limit. In 1990, that limit was a net income of $50,800. About five per cent of recipients were initially affected, although the impact was expected to increase over time.

Old Age Security benefits in 1970 were $79 per month and were paid to about 1.6 million pensioners at a cost of $1.6 billion. Average payments of the Guaranteed Income Supplement in that year were $29 per month, with an annual federal expenditure of over $274 million. The maximum Canada Pension Plan retirement benefit was $53; in 1976, when full retirement pensions became available, that figure was $154. The average yearly wage in 1970 was $6,592.

Conversely, by 1989, the monthly Old Age Security payment was $337, the average monthly Guaranteed Income Supplement was $240, and the maximum monthly Canada Pension Plan retirement benefit was $556. The average Spouse's Allowance payment (including the Widowed Spouse's Allowance) was $302 per month and was being paid to about 128,000 people, the overwhelming majority of them women.

At the beginning of this period, Canadians had been optimistic that the country could support the expansion of its retirement income system. As the period was coming to a close, however, an aging population, declining government revenues and a mounting national debt brought a search for ways to reduce costs and safeguard the long-term sustainability of the system.