Occupational Pension Plans in Canada: Trends in Coverage and the Incomes of Seniors

Transcription

1 Occupational Pension Plans in Canada: Trends in Coverage and the Incomes of Seniors by Edward Tamagno December 2006

2 Occupational Pension Plans in Canada: Trends in Coverage and the Incomes of Seniors by Edward Tamagno Prepared as part of a study of occupational pension plans in Canada undertaken in collaboration with le Centre de recherche EURIsCO Université Paris Dauphine Paris, France December 2006

3 Copyright 2006 by The Caledon Institute of Social Policy ISBN Published by: The Caledon Institute of Social Policy 1390 Prince of Wales Drive, Suite 401 Ottawa, Ontario, Canada K2C 3N6 Phone: (613) Fax: (613) Website:

4 Table of Contents Introduction 1 Number of members of occupational pension plans 2 Coverage of paid workers by occupational pension plans 4 Percent of plan members in DB and DC plans 6 Pension income of senior households 8 Pension income of individual seniors 9 Composition of the incomes of senior households 12 Composition of the incomes of individual seniors 14 Low-income rates 15 Conclusions 17 Endnotes 18 References 19

5 Introduction Occupational pension plans 1 are an important part of Canada s retirement income system. Along with public pension programs Old Age Security (OAS) and the Canada/Quebec Pension Plan (C/QPP) and registered retirement savings plans 2, they assist Canadians to maintain a standard of living after retirement comparable to the one they had before retiring. This study provides a statistical overview of the evolution of occupational pension plans in Canada and the contribution those plans make to the incomes of seniors. It draws on data from Statistics Canada, the statistical agency of the federal government. Over the 30-year period from 1974 to 2004, there were significant changes in the membership in occupational pension plans. Figures 1 to 3 track some of the most important trends. Figure 1 looks at changes in the number of persons, by sex and by sector (public and private), who are members of occupational plans. Figure 2 examines the same data, but expressed in terms of coverage that is, as a percentage of all paid employees in the Canadian workforce. Figure 3 focuses on a development which is at an advanced stage in the United States and the United Kingdom and much discussed in regard to Canada: the shift in membership from defined benefit (DB) to defined contribution (DC) pension plans. 3 Data is examined which looks at the total Canadian workforce and at the workforce broken down by sector (public and private) in DB and DC plans. Just as there have been significant changes in the membership in occupational pension plans, there have also been important changes in the part played by occupational pension plans in the overall incomes of Canada s seniors (persons aged 65 and over). These changes are examined in Figures 4 to 7. Because of limitations on the available data, income from occupational pension plans is aggregated with income from registered retirement savings plans in these charts, and the total is referred to as pension income. In reading the charts, it is important to keep in mind that pension income does not include income from public pension programs (OAS and C/QPP). Figure 4 looks at changes from 1980 to 2004 in the percentage of senior households 4 receiving pension income and the percentage which that income represents of their overall income. It also looks at the average amount of pension income by household type (single seniors and senior families 5 ). Figure 5 examines similar data, but for individual seniors rather than for senior households. The data is broken down by sex. The data for individual seniors is taken from a different source from that for senior households and is only for the period from 1991 to Figures 6 and 7 look at changes in the overall composition of the incomes of Canada s seniors and, in particular, the part played by pension income. As with the preceding two charts, Figure 6 examines the income of senior households and Figure 7 of individual seniors. Finally, Figure 8 examines changes in the rate of low income often referred to as the poverty rate among seniors from 1980 to The low-income rate for seniors is compared with that for Canadians of all ages. The low-income rates for senior women and senior men are also compared.

6 Numbers of members of occupational pension plans Figure 1: Number of members of occupational pension plans, by sex, (a) Public and private sectors combined Men Women Both sexes 3,500 6,000 Number of members in thousands 3,000 2,500 2,000 1,500 1, ,000 4,000 3,000 2,000 1, Men 2,497 2,841 2,953 3,098 3,181 3,039 3,047 3,119 3,128 3,129 2,966 2,895 2,842 2,905 2,966 2,959 Women 927 1,062 1,241 1,378 1,477 1,525 1,621 1,715 1,981 2,189 2,249 2,255 2,247 2,363 2,505 2,630 Both sexes 3,424 3,902 4,193 4,475 4,658 4,565 4,668 4,834 5,109 5,318 5,215 5,150 5,088 5,268 5,471 5,590 (Numbers in thousands) 0 (b) Public sector only Men Women Both sexes Number of members in thousands 1,800 1,600 1,400 1,200 1, ,000 2,500 2,000 1,500 1, Men 935 1,103 1,101 1,152 1,148 1,154 1,156 1,197 1,134 1,228 1,199 1,121 1,056 1,050 1,063 1,069 Women ,132 1,327 1,357 1,355 1,341 1,381 1,459 1,529 Both sexes 1,480 1,755 1,855 1,970 1,976 2,029 2,086 2,159 2,266 2,555 2,556 2,476 2,396 2,430 2,521 2,598 (Numbers in thousands) 0 2 Caledon Institute of Social Policy

7 (c) Private sector only Men Women Both sexes 2,500 3,500 Number of members in thousands 2,000 1,500 1, ,000 2,500 2,000 1,500 1, Men 1,562 1,738 1,851 1,945 2,034 1,885 1,892 1,921 1,995 1,902 1,767 1,773 1,786 1,855 1,903 1,890 Women ,046 1,101 Both sexes 1,944 2,147 2,339 2,505 2,682 2,536 2,582 2,675 2,844 2,764 2,658 2,674 2,692 2,838 2,949 2,991 (Numbers in thousands) 0 Source: Author s calculations based on data from Statistics Canada [2006a]. There was a significant increase over the 30-year period from 1974 to 2004 in the number of persons in Canada who belonged to occupational pension plans. As Figure 1(a) shows, in 1974 the number of such persons stood at 3,424,000. By 2004, it had grown to 5,590,000 an increase of 63 percent. More than a third of the overall increase in the number of persons belonging to occupational pension plans occurred between 1974 and However, even if this period is excluded and if only the increase from 1978 to 2004 is considered, the growth in membership in occupational pension plans was still 33 percent. Gender was a major factor in the growth in membership in occupational pension plans. Between 1974 and 2004, the number of women belonging to such plans almost tripled. For men, on the other hand, the increase was much more modest less than 20 percent. When the period 1978 to 2004 is considered, the role played by gender becomes even more evident. In that period, almost all the increase in the number of members of occupational pension plans was by women. In 1978, only 1,241,000 women belonged to occupational pension plans. By 2004, that number had more than doubled, to 2,630,000. For men, on the other hand, the number of members was virtually unchanged over the period: in 1978 it stood at 2,953,000, while in 2004 it was 2,959,000. Caledon Institute of Social Policy 3

8 Several factors explain the growth in the number of women belonging to occupational pension plans. Schembari [2006] has pointed out three that are of particular importance: the increased labour force participation rates of women, changes made in the late 1980s to pension benefit laws 6 allowing part-time workers to become members of occupational pension plans, and the growth in sectors of the economy in which women predominate (for example, public administration, health care and education). Figures 1(b) and 1(c), which look at the public sector 7 and the private sector separately, give further insights into the growth in membership in occupational pension plans. The rate of growth in the number of members in the public sector was almost always greater than that in the private sector. In the period from 1974 to 2004, for example, membership in occupational pension plans in the public sector grew by 76 percent, while in the private sector the rate of growth was 54 percent. While the overall trend in membership in occupational pension plans from 1974 to 2004 was upward, there were periods of decrease in the early 1980s and again in the mid 1990s, as shown in Figure 1(a). In both instances the decreases can be largely explained by the recessions that the Canadian economy suffered during these periods [Schembari 2006]. Part of the decrease in the mid 1990s was also due to reductions in public sector employment as the federal and most provincial governments sought to bring down their deficits, in part by reducing the size of their workforces. The deceases in membership in the early 1980s and the mid 1990s, in aggregate, were almost entirely borne by male employees. Except for a decrease in the public sector between 1994 and 1998, the number of women members of occupational pension plans grew consistently in both the public and private sectors. Membership by men, in contrast, decreased by 142,000 between 1982 and 1984, and by 287,000 between 1992 and The latter decrease occurred at a time of ongoing restructuring of the Canadian economy which particularly affected male-dominated industries (especially manufacturing and construction) [Schembari 2006]. Coverage of paid workers by occupational pension plans As the discussion of the data in Figure 1 has shown, an examination of changes during the past quarter century in the number of members of occupational pension plans indicates a positive trend. However, a different image emerges when the coverage rate is considered that is, the number of persons in Canada belonging to an occupational pension plan as a percentage of the total number of paid workers. 8 As Figure 2 shows, in 1977 this stood at 46.2 percent. By 2003 it had fallen to 39.3 percent. Although the number of members of occupational plans grew substantially between 1997 and 2003, the number of paid workers grew at an even faster rate. The coverage rate, therefore, declined. 4 Caledon Institute of Social Policy

9 Figure 2: Coverage of paid workers by occupational pension plans, by sex, Men Women Both sexes Percent Men Women Both sexes Source: Author s calculations based on data from Statistics Canada [2006a]. The change in the coverage rate was very gender-dependent. In 1977, 52.2 percent of all male paid workers belonged to an occupational pension plan, while the coverage rate for female paid workers that year was only 36 percent a very large gender gap of over 16 percent. By 2003, the gender gap had virtually disappeared. The coverage rate for male paid workers was 39.4 percent and that for female paid workers 39.1 percent. Although it is encouraging to see the gender gap disappear, it must be stressed that this was largely the result of a sharp decline in the coverage rate for men. Limited data indicates that there are significant differences in the coverage rates of occupational pension plans in the public and the private sector. According to this data, the decline in the coverage rate from 1977 to 2003 was entirely in the private sector. In 1977, 35.4 percent of all paid workers in the private sector more than one in three were members of occupational pension plans. By 2003, this had declined to 26.8 percent, or only somewhat above one in four. By contrast, in the public sector over this period, the coverage rate rose from about 77 percent to over 86 percent [Schembari 2006]. Caledon Institute of Social Policy 5

10 Percent of plan members in DB and DC plans Figure 3: Percent of plan members in DB and DC plans, (a) Public and private sectors combined DB DC Percent DB DC (b) Public sector only DB DC Percent DB DC (c) Private sector only DB DC Percent DB DC Source: Author s calculations based on data from Statistics Canada [2006a]. 6 Caledon Institute of Social Policy

11 Figure 3(a) shows the percentage of members of occupational pension plans belonging to defined benefit (DB) schemes and to defined contribution (DC) schemes in the public and private sectors taken together. In 1974, only 5.6 percent of all members of occupational pension plans were in DC schemes. The great majority of members 92.7 percent belonged to DB plans. 9 By 2004, membership in DC schemes had grown to 15.7 percent, while membership in DB plans had declined to 81.5 percent. This demonstrates that the shift from DB to DC schemes, which has been very pronounced in the United States and the United Kingdom, is also taking place in Canada, but at a slower rate. Once again, an analysis of data for the public sector and the private sector examined separately shows a marked difference between the two. In the public sector, membership remains overwhelmingly in DB schemes in 2004, 93.3 percent. While there was some shift from DB to DC schemes in the Canadian public sector from 1974 to 2004, it was relatively small. In 1974, 1.1 percent of all members of occupational pension plans in the public sector belonged to DC schemes, and by 2004 this had increased only to 5.7 percent. In the private sector, in contrast, the shift to DC schemes was much larger. In 1974, 9.4 percent of all members of private-sector occupational pension plans a little under one in ten belonged to a DC scheme. By 2004 this had increased to 25.2 percent about one in four. It should be noted that the data in Figure 3 is based only on membership in registered occupational pension plans that is, plans that are registered with the federal tax authorities as well as (for plans in the private sector) with a federal or provincial agency responsible for regulating pension plans. It does not include persons contributing to group registered retirement savings plans (group RRSPs) which are almost identical in outcome to DC occupational pension plans but which are not considered as such and, therefore, are not subject to registration with a federal or provincial regulatory agency. If data on group RRSPs were included (which it cannot be because comparable data is not available), the growth in DC-type schemes (i.e. formally registered DC schemes and group RRSPs taken together) in the private sector would undoubtedly be greater than that shown by the figures cited in the previous paragraph. Caledon Institute of Social Policy 7

12 Pension income of senior households Figure 4: Pension income 1 of senior households, (a) Percent of senior households receiving pension income, and pension income as a percent of their aggregate income Households Aggregate income Percent Households Aggregate income (b) Average amount of pension income of senior households Single seniors Senior families All senior households 25,000 20,000 Constant 2004 dollars 15,000 10,000 5, Single seniors 7,700 8,700 8,500 8,200 9,500 9,100 10,500 10,800 11,700 12,700 12,800 14,200 14,300 Senior families 12,100 12,200 13,300 12,300 13,300 15,400 15,700 17,000 18,300 19,100 20,300 22,100 22,900 All senior households 10,500 11,000 11,700 10,800 12,000 13,100 13,900 14,800 15,700 16,500 17,300 18,700 19,300 Source: Author s calculations based on data from Statistics Canada [2006b]. 8 Caledon Institute of Social Policy

13 Figure 4(a) shows that there was a marked increase from 1980 to 2004 in the percentage of senior households receiving pension income (income from occupational pension plans and registered retirement savings plans). There was also a marked increase in the percentage of the total income of senior households derived from pension income. In 1980, 37.2 percent of senior households received pension income, and this income constituted 11.5 percent of the aggregate income of senior households. By 2004, the percentage of senior households receiving pension income had grown to 71.0 percent (almost double the 1980 figure), and the percentage of the total income of senior households derived from pension income had climbed to 33.9 percent (almost triple the figure for 1980). Figure 4(b) shows the average amount of pension income received by senior households having any pension income at all. To remove distortions caused by inflation, all amounts in the chart are given in constant 2004 dollars. 10 In 1980, the average amount of pension income received by senior households 11 was $10, By 2004, it had increased to $19,300. Pension income of individual seniors Figure 5: Pension income of seniors, by sex, (a) Percent of seniors receiving pension income Men Women Both sexes Percent Men Women Both sexes Caledon Institute of Social Policy 9

14 (b) Pension income as a percent of the aggregate income of seniors Men Women Both sexes Percent Men Women Both sexes (c) Average amount of pension income of seniors Men Women Both sexes 18,000 16,000 Constant 2001 dollars 14,000 12,000 10,000 8,000 6,000 4,000 2, Men 12,956 13,574 14,344 14,450 14,815 14,831 14,836 15,434 15,400 15,483 15,762 Women 7,701 7,934 7,931 8,456 8,952 8,496 8,636 8,699 8,765 9,085 9,428 Both sexes 10,710 11,273 11,565 11,932 12,261 11,982 12,014 12,278 12,273 12,455 12,737 Source: Author s calculations based on data from Statistics Canada [2003]. 10 Caledon Institute of Social Policy

15 Figure 5 shows data on the income of seniors in Canada from occupational pension plans and registered retirement savings plans broken down by sex. 1 As Figure 5(a) shows, over the course of the ten years from 1991 to 2001, there was a substantial increase in the percentage of seniors receiving pension income. In 1991, 38.1 percent of all seniors in Canada received pension income. By 2001, this had increased to 54.5 percent. The rise in the percentage of senior women receiving pension income was even greater than for seniors as a whole: from 28.5 percent in 1991 to 46.3 percent in This is primarily the result of two factors: the increased labour force participation rates of women in the 1970s, 1980s and 1990s, which resulted in more women becoming members of occupational pension plans, and reforms to federal and provincial pension benefit laws in the 1980s to require survivor pensions, for which women are more likely to become eligible than men because of women s greater longevity. Figure 5(b) shows that pension income made up a growing portion of the income of seniors. In 1991, 18.8 percent of the aggregate income of seniors came from pension income. By 2001, the proportion had grown to 30.3 percent. Again, the data broken down by sex shows important gains for senior women. In 1991 they received only 12.7 percent of their aggregate income from pension income. By 2001, the proportion had increased to 23.4 percent. In terms of the average amount of pension income for those seniors receiving any pension income at all, Figure 5(c) shows that there was a positive real gain between 1991 and In 1991, the average amount, measured in constant 2001 dollars, was $10,710. By 2001 it had increased to $12,737, a rise of 19 percent. The percentage gain was virtually the same for senior women and senior men. The fact that the percentage gains for senior men and for senior women were the same meant that the relative size of the gap between the average amount of pension income received by senior women and that received by senior men was also unchanged. In both 1991 and 2001, the average amount of pension income received by senior women was about 60 percent of that received by senior men. Caledon Institute of Social Policy 11

16 Composition of the incomes of senior households Figure 6: Composition of the incomes of senior household, (a) Aggregate amount of income, by source OAS/GIS CPP/QPP Pensions Investments Earnings Other 100,000 90,000 80,000 Constant 2004 dollars in millions 70,000 60,000 50,000 40,000 30,000 20,000 10, Other 2,452 3,127 3,186 3,415 3,731 4,719 5,708 5,228 4,359 4,450 4,419 4,504 5,034 Earnings 13,572 11,679 13,044 13,476 13,354 13,489 12,222 12,877 7,095 7,348 8,231 9,369 9,099 Investments 11,686 14,228 11,876 12,184 11,792 16,504 13,282 10,563 11,681 10,600 11,365 10,065 10,542 Pensions 5,761 6,160 7,326 8,361 10,485 12,633 14,525 16,837 20,253 23,135 25,804 29,855 33,264 CPP/QPP 3,857 4,420 6,009 7,313 9,338 11,078 12,454 14,924 14,596 15,963 16,716 18,011 18,857 OAS/GIS 12,887 14,705 16,063 17,333 18,471 19,511 20,432 21,133 19,540 20,361 19,875 19,841 21,233 (b) Percent of total income from each source OAS/GIS CPP/QPP Pensions Investments Earnings Other 100% 90% 80% 70% 60% Percent 50% 40% 30% 20% 10% 0% Other Earnings Investments Pensions CPP/QPP OAS/GIS Caledon Institute of Social Policy

17 (c) Number and average income of senior households Households Average income 3,000 42,000 2,500 Number of households 40,000 Number in thousands 2,000 1,500 1,000 Average income 38,000 36,000 34,000 Constant 2004 dollars , ,000 Households 1,482 1,547 1,645 1,758 1,913 2,038 2,125 2,209 2,144 2,205 2,264 2,345 2,423 Average income 33,900 35,100 35,000 35,300 35,100 38,200 37,000 36,900 36,200 37,100 38,200 39,100 40,500 (Number of households in thousands) Source: Author s calculations based on data from Statistics Canada [2006b]. As Figure 6(a) shows, the aggregate income of senior households increased significantly in real terms between 1980 and 2004 as measured in constant 2004 dollars, from a total of $50,215 million in 1980 to $98,029 million in 2004 almost double. However, a large part of this increase was due to the growth in the number of senior households. As Figure 6(c) shows, there were 1,482,000 senior household in 1980, and 2,423,000 senior households in 2004 an increase of 63 percent. Therefore, to understand the trends in the incomes of senior households in Canada from 1980 to 2004, it is necessary to look at the change in their average real (inflation adjusted) incomes over this period as well as the changes in the percentage that each source of income represents in relation to the total income of senior households. These are shown in Figures 6(b) and 6(c). From 1980 to 2004, as Figure 6(c) illustrates, the average income of senior households measured in constant 2004 dollars increased from $33,900 to $40,500 a rise of almost 20 percent. The rise in the average income of senior households was largely due to the increasingly important role played by the two parts of the Canadian retirement income system related to earnings from employment and self-employment pension income (income from occupational pension plans and RRSPs) on the one hand, and the Canada/Quebec Pension Plan on the other. In 1980, as shown in Figure 6(b), these made up, respectively, 11.5 and 7.7 percent of the aggregate income of senior households. By 2004, the portion of aggregate income from these sources had grown to 33.9 and 19.2 percent respectively. Caledon Institute of Social Policy 13

18 Composition of the incomes of individual seniors Figure 7: Composition of the incomes of seniors, by sex, selected years (a) Aggregate amount of income, by source OAS/GIS CPP/QPP Pensions Investments Earnings Other 50,000 45,000 40,000 Constant 2001 dollars in millions 35,000 30,000 25,000 20,000 15,000 10,000 5, Other 1,744 1,783 1,734 1,607 1,689 1,800 Earnings 4,851 3,736 3,969 1,147 1,380 1,324 Investments 5,788 5,002 4,894 7,113 5,952 5,440 Pensions 8,495 13,594 16,562 3,767 6,366 9,059 CPP/QPP 6,511 8,641 9,683 4,285 6,276 7,852 OAS/GIS 8,082 8,576 8,817 11,798 12,558 13,299 (b) Percent of total income from each source OAS/GIS CPP/QPP Pensions Investments Earnings Other 100% 80% 60% 40% 20% 0% Other Earnings Investments Pensions CPP/QPP OAS/GIS Source: Author s calculations based on data from Statistics Canada [2003]. 14 Caledon Institute of Social Policy

19 Figure 7 shows the evolution of the composition of the incomes of senior women and senior men from 1991 to As in previous charts, amounts are shown in constant dollars. As Figure 7(a) indicates, the aggregate incomes of both senior men and senior women saw substantial increases. However, even though the number of senior women was greater than the number of senior men, their aggregate incomes were consistently lower. The Old Age Security (OAS) program plays a much larger role in the incomes of senior women than for senior men, as shown in Figure 7(b). Because of their lower incomes, senior women are more likely than senior men to qualify for the income-tested Guaranteed Income Supplement paid under the OAS program. However, the proportion of the income of senior women from the Old Age Security program declined from 39.7 percent in 1991 to 34.3 percent in 2001, a reflection of the fact that senior women, as a group, derived progressively larger amounts of their income from other sources, particularly the Canada/ Quebec Pension Plan and occupational pension plans. Low income rates The most widely used measures of low income in Canada are Statistics Canada s low-income cutoffs 1. These are often referred to in the media and by many others as poverty lines. Figure 8: Low-income rate (after-tax low-income cut-offs), (a) All persons and seniors All persons Seniors Percent with low incomes Seniors All persons All persons Seniors Caledon Institute of Social Policy 15

20 (b) Women and men seniors Women 65+ Men Percent with low incomes Women 5.0 Men Women Men Source: Statistics Canada. Income Trends in Canada, In 1980, 21.3 percent of all seniors in Canada more than one in five had low incomes as measured by the low-income cut-offs after tax. In 2004, this had decreased to only 5.6 percent about one in 18. As a point of comparison, the low-income rate for all Canadians taken together stood at 11.6 percent in 1980 and 11.2 percent in In 1980 the rate of low-income among seniors was almost double that of all Canadians. By 2004, the situation had reversed, and the rate of low-income among seniors was only half that of all Canadians. An examination of low-income rates among senior women and senior men gives further insights. In 1980, 26.7 percent of senior women and 14.5 percent of senior men had low-incomes a graphic demonstration of the particular disadvantage that a great many senior women faced at that time. In 2004, there was still a substantial gender gap, with 7.3 percent of senior women with low incomes compared to only 3.5 percent of senior men, but the gap had closed to less than four percentage points. Several factors contributed to the reduction of low income among Canada s seniors. One was a series of increases in the early 1980s to the Guaranteed Income Supplement which raised the minimum income ensured to all of Canada s senior. However, of greater importance was the maturation of the earnings-related parts of the retirement income system occupational pension plans, RRSPs and the Canada/Quebec Pension Plan and the rise in the labour force participation rates of women, who thereby became eligible for pensions in their own rights from occupational pension plans and the C/QPP.. 16 Caledon Institute of Social Policy

21 Conclusion Drawing on readily available data from Statistics Canada, this study has shown some of the principal trends in the evolution of occupational pension plans and the incomes of seniors in recent decades. Much more, of course, can be said on these complex topics. Important new work is constantly being produced. To cite only one of the most recent, there is the study by Morissette and Ostrovsky [2006] that examines the pension coverage and retirement savings of Canadian families from 1986 to Based on an analysis of special runs from several Statistics Canada databases, the authors of this study have provided new insights that should significantly inform the development of pension and seniors policy in the coming years. The evolution of occupational pension plans and of the incomes of seniors always important topics in their own right take on a special importance in light of the rapid ageing of Canada s population. At the present time, 13.2 percent of Canadians are aged 65 and over [Statistics Canada 2006c]. By 2031, it is estimated that the proportion of Canadians aged 65 and over will be 23.4 percent almost double that of today [Statistics Canada 2006d]. Canada s retirement income system has done well to the present time in meeting its two fundamental objectives of ensuring a minimum income to seniors and assisting retired Canadians to maintain preretirement living standards after retirement. The system should continue to do well in future years in meeting these objectives, in spite of the ageing of the population. However, this outcome should not be taken for granted. Although the public pension programs in particular the Canada/Quebec Pension Plan have been put on solid ground through reforms made in the past decade (especially the financing reforms of the Canada Pension Plan enacted in 1997), occupational pension plans are showing strains. Some of these strains are discussed in a recent publication from the Caledon Institute [Tamagno 2006]. Further policy work, therefore, remains essential. Caledon Institute of Social Policy 17

22 Endnotes 1. These plans are sometimes referred to as employer-sponsored pension plans, workplace pension plans, private pension plans, or, in Canada, registered pension plans. 2. A registered retirement savings plan, usually referred to as an RRSP, is an individual account for retirement savings to which anyone in Canada aged less than 70 with earnings from employment or self-employment can contribute. Contributions to an RRSP, up to annual limits prescribed in the Income Tax Act, are deductible from income when calculating the total amount of income on which tax is due. Income from the investment of the funds in an RRSP is exempt from taxation as long as it remains in the RRSP. Amounts withdrawn from an RRSP are, with a few exceptions, taxable in the year in which the withdrawal is made. The same applies to payments from an annuity purchased with the funds in an RRSP. By the end of the calendar year in which an individual with an RRSP reaches age 69, he or she must either use the funds in the RRSP to purchase an annuity or transfer the funds to a registered retirement income fund (RRIF). A RRIF is similar to an RRSP, in that investment income continues to be exempt from taxation as long as it remains in the RRIF while amounts withdrawn from a RRIF are taxable in the year in which the withdrawal is made. However, in the case of a RRIF, a minimum percentage of the total funds must be withdrawn every year. The minimum percentage is prescribed in the Income Tax Act and increases with a person s age. 3. A defined benefit (DB) pension plan is one that defines the benefits by a formula stipulated in the plan text (the legal document setting out the terms and conditions of the plan). The employer s contributions to a DB plan are not predetermined but are a function of the cost of providing the promised pensions, taking into consideration the employees contributions, if any. A defined contribution (DC) pension plan is one that specifies the employee s contribution (if the plan is contributory) and the employer s contribution. A member s benefits are provided from accumulated contributions credited to his/her name plus the return on the investment of these monies [Statistics Canada 2006a]. 4. In this study, the term senior households means single seniors and senior families taken together. In this regard, the use of the term household differs somewhat from that normally used by Statistics Canada. 5. In this study, the term single senior means an unattached individual aged 65 and over living alone or with other persons to whom he or she is not related (e.g., a lodger). The term senior family means an economic family of two or more persons in which the person with the highest individual income is aged 65 or more. (Prior to1996, the criteria for a senior family was that the person deemed the family head was aged 65 or more.) An economic family is a group of two or more persons who live in the same dwelling and who are related to each other by blood, marriage, common law or adoption [Statistics Canada 2006b]. 6. The term pension benefit laws refers to the federal and provincial laws regulating occupational pension plans in Canada. The federal law is the Pension Benefits Standards Act, Provincial laws include Alberta s Pension Benefits Act, British Columbia s Pension Benefits Standards Act, Ontario s Pension Benefits Act, and Quebec s Supplemental Pension Plans Act (Loi sur les régimes complémentaires de retraite). Similar laws are in force in all of Canada s other provinces except Prince Edward Island. The federal law applies in Canada s three northern territories. 7. The public sector includes municipal, provincial and federal governments and enterprises, crown corporations, government boards, commissions and agencies, and public educational and health institutions [Statistics Canada 2006a]. 8. There are two different measures of the coverage rate of occupational pension plans. One measure looks at the number of members of such plans as a percentage of the total workforce, and the other as a percentage of paid workers (i.e., workers who have an employer). Both measures are valid, but they produce different results. The coverage rate based on the total workforce is always lower than the coverage rate based on paid workers because the total workforce contains groups, such as self-employed persons, who by definition cannot belong to an occupational pension plan. The measure that is most appropriate in a given circumstance depends on the objective of the analysis in question. 9. The percentages of members belonging to DB schemes and to DC schemes do not total 100 because there is a small group of other types of occupational pension plans. These consist of hybrid plans and mixed or combination plans. In 18 Caledon Institute of Social Policy

23 1974 such plans accounted for 1.7 percent of all members of occupational pension plans in Canada. By 2004, this had increased to 2.8 percent [Statistics Canada 2006a]. 10. The term constant dollars refers to dollars of several years expressed in terms of their value ( purchasing power ) in a single year, called the base year [Statistics Canada 2006b]. In Figure 4(b), the base year is It must be stressed that the average amounts are only for those senior households having any income at all from occupational pension plans and registered retirement savings plans. In other words, in calculating the average, senior households with no income from these sources were disregarded. 12. Whenever the dollar sign ($) and the term dollar(s) are used in this study, they refer to Canadian dollars (CAD). 13. The figures given in Figure 5 for all seniors taken together differ from the comparable figures given in Figure 4 for all senior households taken together. This is due to two factors. First, a senior household consisting of two seniors is counted as one household in the data in Figure 4, while both individuals are counted separately in the data in Figure 5. Second, a senior household may include a person who is not a senior (for example, the spouse aged less than 65 of a person aged 65 or more). The data in Figure 5 includes only the income of persons aged 65 and over. The data in Figure 4, on the other hand, is based on the total income of the household, including that of any members of the household who are not yet seniors. 14. The figures given in Figure 5 for all seniors taken together differ from the comparable figures given in Figure 4 for all senior households taken together. This is due to two factors. First, a senior household consisting of two seniors is counted as one household in the data in Figure 4, while both individuals are counted separately in the data in Figure 5. Second, a senior household may include a person who is not a senior (for example, the spouse aged less than 65 of a person aged 65 or more). The data in Figure 5 includes only the income of persons aged 65 and over. The data in Figure 4, on the other hand, is based on the total income of the household, including that of any members of the household who are not yet seniors. References Morissette, René, and Yuri Ostrovsky. Pension Coverage and Retirement Savings of Canadian Families, 1986 to Statistics Canada, Ottawa. Catalogue number 11F0019MIE. Available on the Internet at english/research/11f0019mie/11f0019mie htm. Statistics Canada. (2003). Canada s Retirement Income Programs, Catalogue number XCB. Ottawa. Statistics Canada. (2006a). Canada s Retirement Income Programs, 2006 Edition. Catalogue number XCB. Ottawa. Statistics Canada. (2006b). Income Trends in Canada, Catalogue number 13FO022XIE. Ottawa. Statistics Canada. (2006c). Population by sex and age group. Available on the Internet at l01/cst01/demo10a.htm. Statistics Canada. (2006d)Projected population by age group and sex according to a medium growth scenario for 2006, 2011, 2016, 2021, 2026 and 2031, at July 1. Ottawa. Available on the Internet at cst01/demo23c.htm. Schembari, Patricia. (2006). Employer-sponsored pension plans over the last 30 years. In Statistics Canada, Canada s Retirement Income Programs, 2006 Edition. Catalogue number XCB. Ottawa. Tamagno, Edward. (2006). The Management and Regulation of Occupational Pension Plans in Canada. Caledon Institute of Social Policy, Ottawa. Available on the Internet at Caledon Institute of Social Policy 19