Module 11

Question 1

Canada’s Income security system

Answer 1

considered one of the best in the world.
*provides diversified income in retirement and aims to replace 70-80% if a person’s pre-retirement income
*allows older adults to receive an income which is about 90% of that of the average Canadian

Question 2

Low Income in old age

Answer 2

there are still a # of older adults who live below or just above low-income line
*Stats Canada defined low income as “the income below which a family is likely to spend 20 percent points more of its income on food, shelter, and clothing than the average family”
*low income lines vary based on your place of residence

Question 3

Certain groups of older adults are more likely to fall below the poverty line:

Answer 3

*people with low-income/low education background
*people living in rural areas
*immigrants/minority group members
*women (particularly widowed/divorced)
*unattached individuals
*the very old

Question 4

Canada’s Pension System History

Answer 4

1st public pension benefits introduced in 1927 under the old age pensions act. Since then there have been several significant developments to the Canadian Pension system
1927: Old age pensions Act: Age 70+ for income less that $365/year. Receive $20/month
1951: Old age security and old age assistance act: max pension $40/month
1966: Canada Pension Plan (CPP)(QPP): protected workers: benefits were based on amount contributed
1967: Guaranteed Income Supplement (GIS)
1975/85: Spousal Allowance/Widows Allowance
1980-current: no new benefits

Question 5

Canada’s current system is often referred to as a 3-tiered pension system

Answer 5

1. Government transfers (OAS/GIS/ALW)
2. Public Pension Plans (CPP/QPP)
3. Private Savings, Income, and Investments

Question 6

Tier One: Government Transfers
Old Age Security (OAS):

Answer 6

*received by almost all Canadians 65+
*adjusted for inflation
*taxable income

Question 7

Tier One: Government Transfers: Guaranteed Income Supplement (GIS)

Answer 7

*additional supplement for those with low incomes
*receipt based on yearly income test

Question 8

Tier One: Government Transfers: Allowance (ALW)

Answer 8

*for spouses or supervisors (aged 60-64) of GIS recipients

Question 9

Tier One Overview

Answer 9

No direct contributions are required to receive benefits from the first tier; the federal govt pays for these benefits through tax revenue. However, these benefits are not universal, as you must have lived in Canada for 10 or more years to be eligible
*older adults with high incomes will have their benefits clawed back; if your income exceeds 73,756 you must repay OAS 15 cents/$1.00 of your income over this amount
*Govt also claws back GIS income at the rate of 50 cents for every dollar of other income
Low income older adults get 77% of their income from OAS/GIC and other govt transfers. Without GIC/ALW almost half (47%) of all oder Canadians would be living in Poverty. The hight costs of gov’t transfers, however, make them a target for clawbacks

Question 10

Tier Two: CPP/QPP

Answer 10

public pension plans that supplement tier one and save the federal govt money in GIS/ALW payments. The benefits you receive from the CPP are based on the amount you have paid in over your working life. Quebec administers their own pension plan, the QPP

Question 11

Strengths of CPP include:

Answer 11

*plan adjusts for inflation and are indexed to cost of living
*covers almost all workers (85.8& of women and 95.8% of men) and applies same rules for men and women
*plan can be moved between jobs (portable) and locks in contributions
*pays up to 1/4 of pre-retirements pensionable earnings
*provides survivor and disability benefits
*allows for early (60) or late (70) retirement

Question 12

There have been concerns that the CPP may face fiscal challenges in the future as:

Answer 12

Today there are 5 canadians workers to every 1 retiree and by 2030 it will be 3:1
*in response to these concerns, the fed government contribution rate and created a CPP investment board to help with these challenges. The liberal government has announced plans to further enhance the CPP and beginning in 2019 CPP enhancements will occur with the aim of increasing CPP payouts to 1/3 of your pre-retirement income. This will involve a gradual increase of both employer/employee contributions up to 5.95% each

Question 13

Tier 3: Private Income, Investments and Savings

Answer 13

*Income from working later in life
*Private Pensions: Registered Pension Plans
*RRSPs or other savings
*Subsidies available in old age (seniors discounts, lower property tax rates etc)

Question 14

Private Pensions:

Answer 14

may be offered by your employer separate from the CPP

Question 15

Defined benefit (DB):

Answer 15

Guaranteed monthly benefit in retirement based on years of service and highest salary

Question 16

Defined Contribution (DC):

Answer 16

Defined what a person will pay in, but does not specify return

Question 17

approx 75% of private pensions are defined pension plans

Answer 17

while DB pension plans provide much greater security to workers, there are concerns over the solvency of defined benefit plans and have been several high profile bankruptcy cases in recent years

Question 18

Registered Retirement Savings Plans (RRSPs)

Answer 18

allows individuals to deposit income into the RRSP account and defer paying taxes until it is withdrawn during retirement (at which time an individual’s income should be lower, so they will pay less taxes. RRSPs must be converted to a Registered Retirement Income Fund) by the time you reach age 71, and after that minimum yearly withdrawals must be made. In 2015 approx 6 million Canadians made contributions to RRSPs
*RRSPs do not benefit everyone equally as wealthier people are more likely to use RRSPs and receive greater benefits from them. Low-income people gain little benefit from RRSPs in retirement and may in fact lose benefits if they have an increased income due to RRSP withdrawal.

Question 19

Saving for Retirement

Answer 19

*never too early to start saving. You need to replace 70% of your annual income in your three highest earning years of employment. The actual amount required varies though based on a # of factors such as desired lifestyle, health, resources available, living arrangements, etc.
*over time inflation will decrease the value of your savings and increase costs of necessities. The CPP and OAS/GIS/ALW are adjusted for inflation, but other savings and pensions may not be

Question 20

Pension Systems Reforms:

Answer 20

*CPP now allows deductions of some years outside the workforce (e.g. childcare) and also credit splitting (can split pension credits between divorced couple
*Joint life/last survivor benefit for private pension plans
*outreach and simplification of GIS application process

Question 21

Most recent reform

Answer 21

the conservative gov’t had increased the age of eligibility for OAS/GIS from 65 to 67 and ALW from 60 to 62, to be phased in the beginning of 2023 in an attempt to save money. The liberal government, however, restored the eligibility age for OAS/GIS to 65 and ALW to 60
*The liberal govt also plans to introduce CPP enhancement in 2019, with the aim of increasing CPP payout to 1/3 of your annual income.
*gradual increase of both employer/employee contributions to 5.95% each

Question 22

Sustainability of the Pension System
*Research suggests that yes, it is sustainable

Answer 22

1. Canada spends modest amount on public pension
2. General revenue rather than payroll taxes supports most of public system
3. Gov’t can cut spending in other areas
4. Most of the money spent on pensions goes to poor seniors, which has wide social acceptance
   Economic analysis by federal government suggests that both OAS and CPP should be sustainable for the foreseeable future