Signing of the Dominion-Provincial Agreement on Old Age Pensions, May 18 1928. Source: Library and Archives Canada / C-013233
By Jay Young
Change to Old Age Security emerged as a controversial element of the Harper Conservatives? last federal budget.? Much speculation had been brewing in the months leading up to the budget?s introduction in March of this year, when federal Finance Minister Jim Flaherty announced its details in the House of Commons as part of C-38, his government?s omnibus budget bill.
Starting in April 2023, the age of eligibility for Old Age Security (OAS) benefits will shift from the current policy of 65 years of age to 67 years. The transition in policy will be complete by 2029.? In other words, Canadians born before April 1958 ? anyone aged 54 or older ? will be unaffected by the change. But those born after will not enjoy the income benefits provided by Old Age Security for another two years in their life.
The recent change to OAS provides a chance to reflect on not only the history of Canada?s pension system, but also the wider historical context of the baby boom generation.
OAS, the biggest component in Canada?s social security system, is a monthly sum of funds that helps provide a minimum quality of life for elderly Canadians. ?The program is unrelated to employment history, in contrast to the Canada Pension Plan (CPP), the other main prong in the federal government?s pension system for Canadians (Quebec has a separate contributory pension scheme, the Quebec Pension Plan).? Another difference is that OAS draws from general tax revenues, whereas employers and employees contribute to CPP through paycheck deductions.? The OAS is indexed to inflation and seniors with lower incomes receive a greater amount than their more well-off counterparts (a claw-back begins for individuals with an annual income just under $70,000). In early 2012, the maximum monthly payment of OAS was $540.12.
Defenders of the increased age requirement for OAS argue that such a policy change must occur in order to maintain the financial viability of the program.? Reform is needed, notes Service Canada?s website, so that ?the program remains on a sustainable path.?? Over the next decade, over four million Canadians will retire, a number that will mushroom to over 5 million in the 2020s.
Baby boomers are coming home from work to roost, fiscally speaking.? And improvements in the average life expectancy of Canadians will result in retirees living longer.? These factors mean an unprecedented demand on OAS funds for a longer period of time. ?By increasing the age requirement of OAS from 65 to 67, the federal government estimates it will save approximately $10 billion a year.
Before the budget went public, Diane Finley, whose ministry of human resources is responsible for OAS, emphasized the demographic challenge.? She predicted that ?dramatic shifts? as a result of baby boomers? retirements will require change in order to make OAS financial sustainable in the future.? Whereas at present Canada has 4.4 workers for each retiree, this figure will shift to 2.5 workers.? ?Even if you do just the simple numbers,? Finley noted, ?you have half as many people paying for a bill that?s three times higher in the upcoming decades.?
However, some analysts have argued that the age requirement change is unneeded.? A report commissioned by the Federal Department of Finance in 2009, for example, noted that the program is sustainable.? Kevin Page, Parliamentary Budget Officer, acknowledged earlier this year that a growing elderly population poses greater demands on OAS costs, yet he reiterated that ?changing the eligibility age by a couple of years for Old Age Security should not lead to any large savings for the government.?? Critics also underline that the current problem of an aging baby boom cohort will peak in 2030, before returning to a more even age pyramid in subsequent decades.
The main consequence of increasing the eligibility age, they argue, falls on low-income seniors who will be forced to wait two more years before receiving OAS. Although the government says the change keeps OAS on a sustainable path, the reform also seems like an attack on the principle of income redistribution to the less affluent through general taxes.
The federal government?s involvement in pensions for elderly Canadians dates back to the early twentieth century.? Since then, it has become a key aspect of the Canadian welfare state.? In Dennis Guest?s The Emergence of Social Security in Canada (1980; 3rd ed.1997), he argues that the dominant understanding of welfare in Canada shifted from a ?residual? concept ? whereby family and the market were seen as the basis for one?s security ? to an ?institutional? approach by the 1940s.? He notes that the institutional concept became dominant because of a ?growing recognition? within Canadian society that ?in an urban-industrial society, the risks to an individual?s social security are part of the social costs of operating a society that has provided higher standards of living for more people than ever before in our history.? Furthermore, this line of thought argues that public programs must ensure the security of Canadians as a basic right.? Guest notes that the residual approach has ?increasingly dominated? public debate on social security since the mid-1970s.
As Guest illustrates with his reference to the risks of urban-industrial society, the dynamics of social security were different when Canadians lived in an overwhelmingly rural, merchant-capitalist society before urbanization and industrialization gained momentum in the late nineteenth century.? In a pre-industrial society ? in which most Canadians engaged in agriculture, resource extraction, the trades, or small business ? many elderly (although certainly not all) could pass on their farms and businesses to their descendents in exchange for their care.? Live expectancy was lower, and few work-related pensions existed.
Ottawa?s first significant venture into this policy sphere was the Old Age Pensions Act of 1927.? A non-contributory scheme that drew funds from general taxes, it established a program of small monthly payments to those elderly Canadians who qualified.? About two decades earlier, the federal government had created a voluntary, contributory pension program with the Canadian Government Annuities Act, a system somewhat similar to today?s Registered Retirement Savings Plan, better known as RRSPs.? Canadians had the option to purchase government-guaranteed annuities, which would be regularly dispensed in later years of life. Yet ultimately it had a minimal impact on Canadians? retirement savings, since most people did not contribute to the plan.
Discussion of old age pensions in Parliament first occurred as early as 1906.? Compared to other industrialized countries such as Germany (the first country to enact a state pension system in 1889), debate on pensions came relatively late in Canada.
The passage of the Old Age Pensions Act of 1927 grew out of a wider context of the First World War and party politics during the 1920s. ?The war had further emphasized the negative social effects of urbanization and industrialization.? It also had led to measures of a nascent welfare state: benefits for veterans and relatives of deceased soldiers.? The 1920s saw the rise of new parties within the Canadian political system ? not only the Western farmer-based Progressive Party, but also the Labour Party, which favoured a stronger social security state, including pensions for the elderly.? Mackenzie King?s Liberals had relied on the support of such parties to control Parliament during its minority governments of the early 1920s, and had promised the creation of an old age pension system to Labour MPs James Woodsworth and Abraham Heaps before the 1926 election, in which the Liberals won the most seats. Although old age pensions had been a plank in the Liberals? party platform in 1919, they failed to implement the policy until 1927, in part because of concern about government debt (much of it generated from the war).
The old age pension system established in 1927 contained a number of shortcomings.? British subjects aged 70 years or older who had lived in Canada for at least two decades and in their current province of residence for five years were entitled to a maximum of $20 a month.? The government set the age of eligibility at 70 years, instead of age 65, the common age in many other countries? public pension systems ? an interesting aspect considering today?s debate.? Guest argues that pegging the eligibility age at 70 years, ?along with the monthly sum of $20, illustrates Ottawa?s cautious, conservative approach to social security in a pre-Keynesian age that feared government deficits.? It also assumed that most elderly Canadians had other sources of savings, since the monthly sum fell well below the amount needed for the basic necessities of life ($20 in 1927 dollars is about $270 today).
To determine eligibility, the system used a ?means test,? which many Canadians found humiliating.? The provinces, which administered the program and split the costs with the federal government, evaluated seniors? eligibility based on criteria such as income, property ownership, and the level of support from relatives.? The way in which authorities judged eligibility varied from province to province, which created inequality across the country (in fact, initially only Ontario, Manitoba, Saskatchewan, Alberta, and British Columbia passed enabling legislation, a requirement since welfare fell under provincial jurisdiction with the British North America Act of 1867).? And if seniors disagreed with the provincial assessment, their only recourse was to contact the same provincial pension authorities that made the evaluation, not an appeal to the courts.
The Great Depression underlined the inadequacy of the old age pension program as it stood and other welfare measures, while the dramatic increase in activities of the federal government during the Second World War influenced many Canadians to see the value of a strong state.? During the war, Leonard Marsh?s Report on Social Security for Canada (1943) and the Mackenzie King government?s Green Paper (1945) had outlined plans for a comprehensive welfare state in peacetime.? Yet improvements in social security for Canadians unfolded slowly in the postwar years.
In line with these developments, in 1951 the Liberals passed the Old Age Security Act.? Pushed by labour unions and seniors? groups, it replaced the old age pension system with the establishment of a universal pension plan.? Instead of a means test, all Canadians aged 70 and older received a monthly cheque of $40.? According to Guest, it ?removed once and for all the sense of personal failure that accompanied acceptance of an old age pension under the original act.?? The new act?s universality made it a watershed moment in the history of Canada?s welfare state.? Yet the government also passed the Old Age Assistance Act to help seniors aged 65 to 69 with modest incomes. Here, we see the continuation of a means test, along with administrative practices attacked by critics of the previous system.? ?
Not until 1965 did Ottawa start to eliminate the remnants of poor-law attitudes from the pension system.? That year, the Pearson Liberals established not only a compulsory, contributory CPP program but also a universal system of OAS, along with a self-administered, income-tested Guaranteed Income Supplement (GIS) in 1966. ?Benefits were indexed to the cost of living at a maximum of two percent a year.? Two years later, the government lowered the age of eligibility for OAS from age 70 to 65.? Such changes were part of the growth of Canada?s welfare state under the Liberals, a phenomenon partly explained by a booming economy and the Liberals? minority government status during much of the 1960s, when they came to rely on support in Parliament from the NDP, a situation somewhat reminiscent of the Old Age Pensions Act of 1927.
The fiscal sustainability of Canada?s pension system ? like unemployment insurance, health care, and other aspects of social security ? has became a growing concern since the mid-1970s.? A cooling economy, rampant inflation, diminished tax revenue, rising costs, and a general criticism of government spending influenced such sentiment, especially in the business world.? Popularity of the residual approach to social security had returned.? In 1989, Brian Mulroney?s Progressive Conservative government ended the universality of OAS, when it announced claw-back provisions for higher-earning seniors, a policy that remains today.
Much of the debate on current changes to OAS clearly revolves around the historical phenomenon of the baby boom generation, generally defined as people born between 1946 and the early 1960s. During these years, a high birth rate led to a demographic explosion. Canadian historians ? like their counterparts around the globe ? have emphasized the influence of this cohort on politics, culture, and the economy.? Doug Owram?s Born at the Right Time: A History of the Baby Boom Generation (1996) surveyed the generation?s effect in Canada on such essential themes as housing, child rearing, consumption, leisure, and pop culture, education, sexuality, and political activism.? His narrative ends in the early 1970s, but he aptly notes that the baby boomers? influence ?is not yet over.?
Owram?s work has served as a launching pad for historians who study postwar Canada.? More recent work has emphasized the diversity of identities and experiences within the cohort.? And as more baby boomers retire, the differences within this generation in terms of economic wealth ? and pension savings ? are likely to become a growing issue. ??
OAS and the Canadian pension system will continue to be a significant concern in the upcoming decades.? As part of the interest today in issues linked to aging baby boomers, the work of historians can play a role in policy development and the public debate for such issues as pensions, health care, retirement, and the demographic consequences and cultural understandings of aging.? Historians can speak to the differences and similarities of the past with the present, and can underline the contexts that led to policy choices during the last century ? choices that created legacies we face today and in the near future.?
Interested in this topic? Here is some further reading:
Bryden, Kenneth. Old Age Pensions and Policy-Making in Canada. Montreal: McGill-Queen?s University Press, 1974.
Guest, Dennis. The Emergence of Social Security in Canada. 3rd Edition. Vancouver: UBC Press, 1980 [1997].
?. ?Social Security.? The Canadian Encyclopedia. ?http://www.thecanadianencyclopedia.com/articles/social-security.
Heron, Craig. The Canadian Labour Movement: A Short History. 3rd Edition. Toronto: Lorimer, 2012.
Orloff, Ann Shola. The Politics of Pensions: A Comparative Analysis of Britain, Canada, and the United States, 1880-1940. Madison: University of Wisconsin Press, 1993.
Owram, Doug. Born at the Right Time: A History of the Baby Boom Generation. Toronto: University of Toronto Press, 1996.
Jay Young is an editor at ActiveHistory.ca.? He holds a PhD in history from York University.
Tagged as: 2012 Federal Budget, baby boom generation, Canada Pension Plan, Old Age Security, Pensions, Public Policy, social security, welfare
Source: http://activehistory.ca/2012/11/a-short-historical-primer-on-canadas-old-age-security-debate/
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