Reports & Studies

The Committee on Economic Security (CES)

"Social Security In America"

APPENDIXES

APPENDIX VIII

THE CANADIAN PENSION SYSTEMS {1}

Legislation in Canada provides for a Dominion-provincial system of noncontributory old-age pensions in provinces where old-age pensions legislation has been enacted,{2} as well as a system of voluntary annuities.

NONCONTRIBUTORY PENSIONS

Under the terms of the Dominion statute old-age pensions administration is vested in a Provincial pension authority established by each Province, while the Department of Labour administers the statute for the Northwest Territories. The statute provides for payment by the Dominion Government to each Province of an amount equal to 75 percent of Provincial disbursements for old-age pensions. Section 8 of the Old-Age Pensions Act, which defines the qualifying provisions for eligibility to pensions, reads as follows:

Provision shall be made for the payment of a pension to every person who, at the date of the proposed commencement of the pension--

(1) Is a British subject, or, being a widow who is not a British subject, was such before her marriage;

(2) Has attained the age of 70 years;

(3) Has resided in Canada for the 20 years immediately preceding the date aforesaid;

(4) Has resided in the Province in which the application for pension is made for the 5 years immediately preceding the said date;

(5) Is not an Indian as defined by the Indian Act;

(6) Is not in receipt of an income of as much as three hundred and sixty-five dollars ($365) a year; and

(7) Has not made any voluntary assignment or transfer of property for the purpose of qualifying for a pension.

Under a separate parents' maintenance act financially competent children are made responsible for the support of their parents in all Provinces which have old-age pension statutes.

The maximum amount of pension payable is $240 per annum, subject to a reduction of the amount of pensioner's income in excess of $125 yearly, and, in cases where a pensioner has during part of the 20 years immediately preceding the date of the proposed commencement of pension resided in a Province where the act is not in force, the pension payable is reduced by the same proportion as the duration of the pensioner's residence in these Provinces bears to 20 years.

Table VIII-1 gives a summary of the date of enactment of noncontributory old-age pensions in each Province of the Dominion, the number and percent of the pensioners as of December 31, 1934, the average monthly pensions, and the total payments by the Provinces and the Dominion. Table VIII-2 shows the increase in pensioners, both in actual numbers and as a percentage of the population over 70 years of age from 1931 to 1934.

{1} This report was prepared by Walter F. Eade under the direction of Edwin E. Witte.

{2} The Old-Age Pensions Act, R. S. C. 1927, ch. 156, as amended by ch. 42 of the Statutes of Canada, 1931.

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(IMAGES OF TABLES 1 AND 2)

VOLUNTARY ANNUITIES

In addition to gratuitous pensions for the aged, Canada provides a voluntary system of contributory old-age pensions. Because of the similarity between the United States and Canada in monetary unit and costs and standards of living, it will be of interest to consider the Canadian Government annuity plan in some detail. The plan is purely voluntary and is operated on a nonprofit basis. The maximum limit of the annuity is now $1,200, an amendment in 1931 having reduced the maximum from $5,000. The contracts pay 4-percent interest, compounded annually, the interest and administrative cost being paid by the Government.

The plan of Government annuities can, of course, reach only those who are able and willing to save a portion of their earnings under Government supervision. The small size of the annuities sold in 1930 is indicated in table VIII. Nearly 84 percent of the contracts written in that year were for less than $600.

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The 1931 amendment to the Annuities Act, which fixed the upper limit at $1,200 a year, was influenced by the fact that only 4.4 percent of the contracts in force were for more than $1,200.

There appears to be no direct basis on which the Canadian annuity plan can be compared with other types of old-age pension systems. Assuming, however, that all annuity contracts were made to provide an old-age pension to the annuitant at the age of 70, some idea of the coverage can be obtained. During the year ending March 31, 1931, there were 1,772 contracts written in all Provinces combined. Figures based on that portion of the population who were over 70 years of age in 1931 show that only one-half of 1 percent were covered. During the same period in six of the Provinces alone there were 65,951 noncontributory pensioners on the list, representing about 19 percent of the population over 70 years in all Provinces.

The Government Annuities Act has been in operation in Canada since September 1, 1908. Since its inception and up to March 1933, the number of annuity contracts written amount to only 16,394 with a total annuity valuation of $36,214,050. Of this number of contracts written, 1,994, or 12.2 percent, have been canceled, leaving only 14,400 contracts still in force.

The annuities are divided into two classes--deferred annuities and immediate annuities--and may be purchased to mature at 50, 55, 60, 65, and 70 years at the option of the annuitant.

There are four plans upon which deferred annuities may be purchased.

Plan "A" is the most popular and provides for the payment of the. amounts contributed plus 4 percent compound interest to the annuitant's family upon death before the time annuity commences, or should the annuitant reach the retirement age, he or she will receive the annuity in quarterly payments thereafter until death.

Plan "B" is suitable for those who have no dependents, and provides the largest annuity for the least money. This plan permits no refund should the annuitant die before annuity begins but provides for quarterly payments to the annuitant for the rest of his or her life. Premiums, of course, vary according to the age of retirement selected. Usually the annuities are purchased to mature at 55, 60, or 65 years.

The third plan is called the "guaranteed deferred annuity." This plan is exactly like plan "A" but further provides, should the annuitant die after the annuity time occurs, for payment to the deceased's family for a fixed period of 10, 15, or 20 years. Should the annuitant live beyond the guaranteed period, the annuity will be paid for life. The cost of this plan is slightly higher than plan "A."

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The fourth plan is termed "deferred last survivor annuity." Under this plan, two people, such as husband and wife, take out an annuity with conditions similar to the other plans; the annuity is paid as long as both live, and the full amount is paid to the survivor as long as he or she lives.

Deferred annuities may be purchased by a lump-sum payment in advance, or by small monthly, quarterly, semiyearly, or yearly payments. There is no forfeiture if payments are not kept up. They may be made later, or the annuity to be paid will be adjusted accordingly.

Immediate annuities are designed for older people who have passed the working age and who have savings to invest. These savings are invested with the Government in the form of an annuity, and quarterly payments are made to the individual commencing 3 months after purchase of the plan, as long as the annuitant lives.

In the class of immediate annuities there are three plans--ordinary life, guaranteed annuity, and the last survivor annuity.

The ordinary life plan is the cheapest form and requires that all the money be paid in one lump sum. Annuity commences 3 months thereafter and terminates with the last payment before death.

The guaranteed annuity plan is purchased by a cash payment, and commences 3 months from purchase date, but by this plan the annuitant is guaranteed payment of the annuity for a fixed number of years--10, 15, or 20. Otherwise, this plan is the same as the "guaranteed deferred annuity."

The immediate last survivor annuity is identical to the "deferred last survivor annuity", except that the purchase price is paid in full at the outset.

The advantages set forth by the Canadian Government annuities are: Their security; their exemption from taxation; that they are payable for life; that they are nontransferable; that they cannot be lost or stolen, forfeited, or seized or garnisheed by law or courts; that they require no medical examination; and that the age eligibility ranges from 5 to 85 years.

The number of annuities in force on March 31, 1933, was as follows: Immediate, 5,824 ; deferred, 8,576 ; a total of 14,400. The total amount of immediate annuities purchased was $2,435,272, an average of $418 per contract.

The financial statement for 1932-33 and the valuation as of March 31, 1933, are as follows: {3}

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