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Aging and the Economy

Aging and the Economy. Gero 300 Chapter 14 Nov 2008. Introduction. The pension system in Canada makes significant contributions to the income of older people-2004 28.6 billion dollars.

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Aging and the Economy

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  1. Aging and the Economy Gero 300 Chapter 14 Nov 2008

  2. Introduction • The pension system in Canada makes significant contributions to the income of older people-2004 28.6 billion dollars. • Retirement is a recent concept and relies on a pension system as part of the “Welfare State” benefits in this country. Govt transfer payments make up 47.7 % on income of people over 65 cf 34% from private pensions. • In essence this is to protect, foster equality, and provide social security in the form of universal benefits.

  3. Social Assistance • OAS Act 1951 to prevent the elderly going on to relief. CN had a compulsory pension plan in 1874 which had mutual contributions and kept a worker attached to the company. It was forced savings and a form of corporate control. • Canada’s first pension act 1919 was applied to soldiers. The early plans did not include women (unpaid family laborers) • OAP came in 1927-see p 364 bottom. By 1951 less than 50% of aged received benefits.

  4. SA to SS • Social Insurance-under OAS all Canadians 70+ paid a flat rate of 40 dollars/month-no means test. Age and citizenship only criteria. Old Age Assistance 65-69, means tested. By 1965 OAS reduced qualifying year to 65 where it is today. • Benefits were to provide a “Safety Net” not to replace market income. Individuals were to build their own savings and retirement plan. • A COLA related to Consumer Price Index was added in 1972

  5. CPP • CPP added in 1965-compulsory contributions with benefits linked to those contributions. Open to all Canadians, somewhat redistributive, • GIS is income tested and a form of SA introduced in 1966. Added in 1975 is the income tested Spousal Allowance for partners of GIS recipients • Two tiered government programs supplemented by private pension incomes or other investments

  6. The Pension Debate • Third tier pensions have not live up to expectations 48% of workers covered by 1980 only ¼ women covered. No coverage for self-employed or part time workers and anticipated a linear life course. • Low income cut offs-68% of Canadians over 65 had incomes below LICO. These numbers were higher for unattached women and men. Read p368

  7. Current Pension System • See Fig 14.1 page 369 • OAS-flat rate fully taxable, 65 or older, Canadian citizen residing in Canada for at least 10 years after the age of 18. Means tested and claw-back arrangements. CPI adjustments are in place four times yearly. 2005 4.2 million Canadians received 2 billion dollars in payments • GIS-means tested non taxable available to OAS recipients-see 14.2 page 371 for benefit rates. In 2005 1.55 million beneficiaries 80% single females

  8. Pension System • Only 41% of those eligible for GIS applied in 2001. Low take up and barriers to application are a problem with such benefits. This would cost the Feds an extra $300 million if all applied. • Spouse and Survivors allowances. The “Allowance” 60-64, lived in Canada 10 years after 18, be within established income limits p372 and spouse/CL or same sex couple. Spouse allowance-90% female in 2005-see limitations page 373

  9. Pensions • CPP/QPP-see top page 374 for details of calculations. Replaces approx 25% of worker’s pre-retirement income averaged over lifetime earnings. 50% men and 49% women receive benefits although women’s benefits are lower. Program is portable and with reciprocal arrangements in other countries. Benefits are taxable except death benefit. Adjusted yearly with CPI. • Review table 14.4 page 377

  10. Employer Plans • 2004-5.6 million workers covered by occupational pension plans. Two types of plan-non-contributory –employer makes all contributions. Contributory- shared contributions-58% of plans in 2003 were contributory-read bottom 379-380 for details on calculations. Benefits are often locked in(age 55), portable, vested(time frame when employer starts to contribute). Not good for low income earners-lower contributions and payouts, lower tax breaks.

  11. RRSP’s • 38% of all eligible tax filers contributed to RRSP’s in 2004- $25.2 billion. 45-64 biggest contributors. Can contribute up to 18% of earned income up to a max of $18,000 in 2006 if no private pension plan in place. Draws after retirement in annuities save on tax payments. Median contributions-males $3,000 females $2,200. RRSP’s can be used to finance a first home purchase and education and training.

  12. How are we doing in Canada? • 2003-17.7% of unattached single persons 65+ lived below the after tax LICO. Income before tax-poverty figures are 38% of older unattached persons. Overall poverty has been reduced, but older unattached people are still poor but in a stable state. Wealthy are still in an advantaged position over poor males and females by any number of measures. Read pages 385-387

  13. Looking Forward • 49% of widows who had previously worked lived below the low income levels. • Women over-represented in service industry sectors and part-time work, non-unionized low wage employment-See middle page • Women off work to raise families and provide eldercare. • Strategies for the future-raise age of retirement, introduce flex-time and job sharing, shift pension costs to the private sector • Increase contribution rates and reduce benefits

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