[Recorded by Electronic Apparatus]
Tuesday, June 6, 1995
The Chairman: Good morning members of the committee. Ladies and gentlemen, welcome to the Standing Committee on Human Resources Development. The topic this morning is the aging of the Canadian population and its implications on pension plans and other related matters.
I'd like to welcome all of you here this morning to the Standing Committee on Human Resources Development, which today is going to be examining the broad question - and it is a broad question - of the changing structure of the Canadian population and the implications that this phenomenon and other related phenomena could have for the design of the Canadian pension system and social security facing the elderly.
This topic we are examining today is one that is made all the more relevant in the context of the general issue of social security reform, but also in particular with the undertaking made in the recent budget to study the question of the sustainability of Canadian pensions in light of changing demographic trends in the Canadian population and other related issues.
Today we have assembled, for the purposes of opening up this question and some of the broader implications, quite a distinguished panel of experts, who are going to present to us an overview of some of the current thinking on these issues as well as answer some of our questions as a committee. Hopefully, before the day is out we will engage in more of a dialogue for the purposes of educating the committee members themselves and the listening and viewing public.
I note that this forum today is being televised, so it may well be picked up later on the CPAC channel. It will help those who are interested in the subject to hear about it on TV.
Before I begin our morning session, let me just give you an overview of how the day will go and introduce the speakers we have before us.
We will divide our day into two parts. The first part, this morning, will be a consideration of some of the more general contextual issues that bear upon the Canadian pension system. This afternoon we'll get a little bit more detailed and consider more specific pension design questions. We will finish with hopefully about an hour of round table between 3:30 p.m. and 4:30 p.m., which will cover and involve all of the panellists and the committee members. That is the overall structure of the day. I hope we will be able to have some good dialogue as we move along in our session this morning.
Let me begin by introducing our panellists for the committee members. We have five of our six panellists here today and I will begin by introducing the ones who will appear this morning, beginning with Professor John Myles, who is professor of sociology and director of the Pepper Institute on Aging and Public Policy at Florida State University. He's been a visiting scholar at Harvard University and Statistics Canada. Before going to Florida State, Dr. Myles was a professor of sociology at Carleton University, and he has written considerably on issues related to the welfare state, aging, and pension issues.
Our second presenter this morning will be Craig McKie, who is a senior analyst in the housing, family and social statistics division at Statistics Canada and an associate professor in the department of sociology and anthropology at Carleton University in Ottawa. He is former editor in chief of Canadian Social Trends and is a contributing editor with that publication. He has researched and published in the areas of demography, population aging, and labour force trends, and has recently published the book Population Aging: Baby Boomers Into the 21st Century.
Our third presenter this morning will be Susan McDaniel, who is professor of sociology at the University of Alberta, past president of the Canadian Population Society, and chair of the Statistics Canada Advisory Committee on Demographics, Statistics Studies. She is the author of Canada's Aging Population. She has published widely in the area of social policy, demography, and aging.
This afternoon, as I mentioned, we will have a more focused discussion on pension issues. We will hear from two panel members who are here this morning. They will be invited to participate in the morning session as they see fit, to address commentary, but they will have an opportunity to make presentations of their own this afternoon.
To begin with, we have Dr. Robert Brown, who teaches at the Department of Statistics and Actuarial Sciences at the University of Waterloo. He is also president of the Canadian Institute of Actuaries and the author of Economic Security in an Aging Population. He has also published in the area of homemakers' pensions and financial security for older Canadians.
We also have professor André Lux who recently retired from his position as professor of sociology at Laval University. He was special advisor on demographic policy to the Canadian International Development Agency. He has researched and published on demographics and aging and its social consequences. Among his most recent publications, let me mention ``Le poids du vieillissement: idéologies, paradoxes et stratégies''.
Finally, we will have Ken Battle, who is director of the Caledon Institute. He was unable to be here with us this morning, but he will address us this afternoon. He's no stranger to members of the committee.
After this introduction, we will immediately go to the first part of our session today. We will deal with the general context of aging in Canada and its impact on the pension system. We will first hear professor John Myles.
Professor Myles, we invite you to address us. We will follow with Professors Craig McKie and Susan McDaniel, and then we will move into questions by the committee members and possibly a dialogue to take us until noon. Without any further ado, let me turn the floor over to Professor Myles.
Professor John Myles (Director, Pepper Institute on Aging and Public Policy, Florida State University): Thanks very much Mr. Chairman. Let me say from the outset that I'm pleased to be here this morning, because I think if the world unfolds as it is expected to in the next few months, this committee may have an extremely important role to play.
I think what we are anticipating, in part because of the announcement of this year's budget, is a discussion or a debate probably in the next year about reforming the Canadian pension system. I don't know how many of you remember the last great pension debate, as it was called in Canada, in the late 1970s and early 1980s. There's a tendency for these debates, because of the complexity of the issues, to take place if not behind the backs of most Canadians, at least over their heads because of the technical nature of some of the issues involved.
I think that's really unfortunate because at the heart of the matter the issues are fairly straightforward. The choices involved can be clearly presented to the Canadian public. I hope you will take on that task, to make clear to Canadians exactly what are the issues they're confronted with, what are the choices and what are the costs involved.
In my remarks this morning I have been asked to clarify what a retirement income system is, the various forms it can take, and its objectives.
There are three elements in Canada's old age security system: retirement pensions, retirement savings plans, and old age assistance. In my remarks this morning I will focus my attention mainly on retirement pensions.
I think the distinction between a retirement pension and old age assistance is probably clear enough to you. Old age assistance programs such as the guaranteed income supplement are designed to provide subsistence to people who arrive in their old age without an adequate pension to support themselves. A good measure of the quality of a pension system is whether or not many or few people require social assistance, whether many or few people require and qualify for something like the guaranteed income supplement. The fact that the number of seniors who are getting the supplement has been declining slightly in recent years is in fact a sign of the improving quality, really the maturation of the pension part of the system. The fact that about 45% of Canadian seniors receive some form of guaranteed income supplement is still an indicator of comparative weakness on the pension side. So I want to emphasize the pension side in my discussion this morning.
The distinction between retirement pensions and retirement savings such as RRSPs is a little more subtle and I won't have time to discuss it in my remarks. Perhaps we can return to it in our discussion.
Without being too blunt or too unfair, I think the reason we are here this morning is that the Department of Finance and many other policy advocates in Canada would like to see at least a partial withdrawal of government from the pension field.
As a result of the claw-back on OAS in 1988, and in particular because of its related indexing provisions, this withdrawal process is already under way and will take place slowly in the years ahead. Many proponents of reform of the system concerned with cost issues would like to accelerate this process of withdrawal. If we can assume that middle-income Canadians will substitute private pensions and RRSPs as a result of a decline in the public pension, then we can think of this change as a process of privatization, much like the privatization of Air Canada. If this substitution does not take place, then reduced public pensions simply means a reduced standard of living for future generations of seniors.
Perhaps I should mention at the outset that when we're talking about pension reform in 1995, the targets of that reform are not principally old people; that is, today's seniors. We're talking about the pensions of the working-age population when they retire. That should be the main audience for your discussion, particularly the population under the age of 45, who are the population of main concern.
Since the federal government more or less at the same time as it introduced the claw-back also expanded the room for RRSP contributions, I'm going to assume in most of my discussion that the aim of pension change is primarily privatization; that is, cost shifting from the public sector to the private sector, not lower living standards for seniors. I'm going to suggest to you that the case for privatization is not all that clear cut. At least, I want to draw to your attention some of the implications.
The second reason we are here today is because of a general concern about the long term, about the costs of an aging population. There are two and only two ways of reducing the costs of population aging and neither is without problems. Cost reduction will soon hit upper limits. The only sure-fire way to absorb the costs of an aging society is to ensure that the working-age population has the jobs and wages to support themselves, their children and their aging parents. The key issue is going to be the issue of economic growth.
Let me make a preliminary remark of a somewhat historical nature. Public pensions as we understand them today are a comparatively modern invention. The first really modern public pension system was introduced by Adenauer in Germany in 1957. Similar reforms followed in Sweden in 1958, in Canada in 1965, and in the U.S. in 1971. In most countries, public pensions, as we understand them today, are a product of the 1960s.
What was new or modern about these reforms was that for the first time governments took on the task of providing retirement pensions to all wage earners. To make sense of this statement, I have to make clear what I mean by retirement pension.
The main objective of a retirement pension is to provide individuals and households with a flow of income sufficient to maintain pre-retirement living standards after retirement - to provide continuity, if you like. This is what we mean by income security. A pension is intended to replace the wages and earnings that are lost when an individual leaves the labour market through retirement.
Most experts will agree that a pension does not have to replace 100% of previous wages since many costs associated with employment disappear on retirement. As a rough rule of thumb, economists and actuaries usually consider a ratio of 70% to 80% of pre-retirement earnings as an ``adequate'' pension for the average wage-earner. I'd like to flag this a little bit and give you a term that I hope will stick in your minds for the future.
This ratio of your post-retirement income to your pre-retirement earnings is usually called a replacement ratio. This is what the concern is about. This is what the concern is about. I hope you keep this term in mind in your deliberations in the months ahead.
Quite simply, this is the first question you should ask with respect to any reform that is presented to you. What will this reform do to the income replacement ratio of the average Canadian wage-earner, of the secretary, of the truck driver, of the school teacher or factory worker? These are the people who make up the majority of your constituents. This is what is of concern to them.
The Canadian pension system as it developed is sometimes referred to as a three-tier system. You'll see tiers reappear today. Some people talk about these tiers in different ways.
The first tier I'm referring to is old age security, OAS, the system established in 1951. OAS provides benefits that are equal to approximately 15% of average earnings.
The second tier is the Canada and Quebec pension plans. These plans add an additional 25% to the replacement ratio for average wage-earners. So what this means in effect, if we think of that target replacement ratio of 70% to 80%, is that the Canadian public pension system provides about a 40% replacement ratio. The difference, presumably, is then made up through private pensions and savings.
I might note in passing that the replacement level of the public system in Canada, this 40%, is in fact quite modest by international standards. In continental Europe and Scandinavia the public pension system alone comes close to meeting the replacement needs for the average wage-earner. The corollary is also true. Our contribution rates to the public pension systems are among the lowest in the developed western countries, and considerably lower than those in the United States.
The Achilles' heel of the Canadian system is that private pension coverage has never lived up to expectations. Private pension coverage of the labour force has never exceeded 50%. Without mandatory legislation, no one really expects it to rise beyond its current levels.
Recognition of this fact came in the mid-1970s and it sparked what was then called the great pension debate. As a result of this debate, new regulations for private pensions and more tax room for people to participate in RRSPs were introduced in the mid-1980s. While the changes in private pension regulation were beneficial, the overall picture really hasn't changed very much since that debate began at the end of the 1970s.
Private pensions in Canada should really be called semi-private pensions. They are administered privately, but they receive huge public subsidies to the tune of $15 billion to $20 billion a year. As you know, government tax expenditures for private pensions and RRSPs go disproportionately to upper-income earners.
The result is that Canadian public pension policy draws a sharp division among Canadian wage-earners, which is sometimes referred to as a kind of dualistic system. On the one hand, you have those employees with no private pensions, who benefit mainly from OAS and C/QPP. That's one group. On the other hand are the more fortunate, those who have OAS and the C/QPP, but who also benefit from the privately administered but publicly subsidized private pension system.
I should also point out - or remind you again - that the public pension system has deteriorated somewhat since the late 1970s. The claw-back on OAS that was introduced in 1989 will eventually hit average-income earners, reducing the size of Canada's public pension system even further.
Indeed, under current legislation, one might say that for those entering the labour force today, OAS is history.
So this is the system we are talking about reforming. It's a fairly modest pension system by international standards, and one that was judged to be inadequate by the standards of 1980 and that has since undergone some reductions.
Unlike 1980, however, the next pension debate is not going to be about improving benefits, but about saving money both in the short and long terms.
In the short term, the aim is to reduce the debt and the deficit. In the long term, the concern is with the cost of supporting an aging population.
Let me consider the second problem first. There are only two ways of changing the costs of an aging population. First, you can change the size of the retired population in relation to the working population by raising the age of eligibility for benefits. That's done by increasing somewhat the normal retirement age. I think we'll discuss this again later today.
This may be feasible in the long run, but in view of the current employment crisis in Canada, it's hardly realistic in the short run. Even if the employment situation changes, you will face some daunting problems when you begin considering raising the retirement age.
First, with an increase in the retirement age, you will get a sharp upward spike in the cost of disability benefits.
Second, you will face both a moral and an economic dilemma since those most affected by an increase in the retirement age will be low-wage, less-skilled workers who lack the savings and private pensions to take early retirement. Women will be especially hard hit.
The second way of reducing costs for an aging population is to reduce the standard of living of those who are retired relative to the working population. Given the modest incomes of most retired Canadians, this will be a hard case to make on any dramatic scale.
Unfortunately, there are no other choices: raise the retirement age or lower the living standards of the retired. So if you want to reduce the costs of an aging population, your task will be a challenging one.
Having said this, it is possible to reduce the public sector costs of an aging population, hence the deficit, by a full or partial privatization of the pension system. That means shifting a larger share of the pension burden to employers and individuals.
This could happen, for example, if we can assume that most workers will compensate for reduced OAS benefits with higher contributions to RRSPs. Note that such a strategy will not result in a dollar-for-dollar shift to the private sector since tax expenditures for RRSPs would also increase proportionately.
There is some reason to think also that privatization could in fact increase the costs of an aging population because of the much higher overhead costs of administering private plans. Public costs will be reduced by privatization, but total costs to the Canadian economy could well increase.
Finally, for privatization - that is this cost shifting - to really work and be effective to ensure that reductions in the public system are compensated for by increases in the private sector, you would, in all likelihood, have to make either employer plans or RRSP contributions mandatory. Here you would be following the lead of Australia, for example.
You will hear in the months ahead, if you haven't already heard them, many proposals for privatization, although they may not always be called that. The World Bank, the C.D. Howe Institute, The Globe and Mail, and even Peter Newman are all advocates of this strategy.
The most likely proposal you will hear is one having to do with accelerating the claw-back on old age security benefits. What I'd like to leave you with this morning are not answers, but rather some questions you might pose to people who come before you with proposals to reform the system.
The first question I would ask, and I would expect any proponent of reform to be able to address, is the following. What is the expected behavioural response to such a cut-back or to your reform plan? If you use the term ``behavioural response'' rather than just ``response'', finance people will be impressed. Quite simply it means, how do they expect the truck driver in Chicoutimi or the school teacher in Calgary to react to their proposed reform, for example an acceleration of the claw-back on OAS? Do they expect them to put more money into RRSPs, demand better employer pensions, or what?
Once we know the answer to this question, we could go on and ask several more. The second question - and I mentioned this earlier - I hope you will ask any proponent of reform is quite simple: What will the long-term impact of your reform be on the income replacement rate of the average Canadian worker?
Third, when you hear a package of reform, you're going to hear about savings; the savings to the public treasury, if you will, that could come about as a result of this reform. Most likely you're going to get figures that represent gross savings. You should be interested in net savings to the treasury. A cut-back in OAS will produce savings but it will also generate costs. As people invest more in RRSPs, it will create costs in the form of tax expenditures. This is why the behavioural response question is so important.
Fourth, I hope you will ask for estimates of the distributional impact of any proposed privatization or reduction of the government sector. What will it do to the distribution of income among Canadian seniors? One basic fact that comparative pension research has established is that inequality among the elderly is directly related to the share of the private sector in providing retirement income.
Advocates for privatization will tell you that privatization will increase national savings, investment, and hence economic growth. The reason they will suggest this to you is because there is some good economic theory that suggests this should happen. But please ask for evidence, not theory. I've examined the evidence and the results are, at best, ambiguous. Moreover, there is no inherent reason why the savings investment function cannot be administered through a public plan, and I can speak to this in the discussion, if you like.
Finally, be aware of the major fallacy many people make when they speak of reducing the public costs of supporting the elderly. The fallacy is to assume that reducing public costs also reduces the total costs of supporting the retired, of reducing the burden on future generations of young people.
If pension spending as a percentage of GDP must be doubled to provide the elderly of 2030 with the same living standards as today, it matters very little how it's paid for. It will be financed either by higher taxes for public pensions or rising dividends that are paid into the funds on which private pension funds depend. In either case, the share of national wealth going to the retired will rise and the share available to the young will fall. The only sure-fire way of supporting an aging society is to ensure that our young people have good jobs and good wages.
The impact of an aging population is conditioned by two parameters: the employment levels in the working-age population and the wages they earn. Sweden, for example, with employment levels that are about 20 percentage points higher than in continental Europe, faces a much easier task facing old age pensions than Germany and France, for example, where employment among men under the age of 65 has declined precipitously in the last 20 years.
I don't wish to imply there's nothing in our pension system that needs fixing. Tax expenditures for private pensions and RRSPs require re-examination, as do the CPP/QPP contribution rates. Let me also encourage you to look closely at the absence of estate taxes in Canada. While my parents were alive, my brothers and sisters and I were very grateful for the security they received from OAS, the Canada Pension Plan and OHIP. The reality, however, is that all three programs were securing my inheritance. The Canadian public was sharing the task of supporting my aging parents. The benefits on the output side will be highly concentrated in the hands of four children. If you think of family size in this generation of one or two children, they will be more concentrated in the future.
There are a number of other issues I'd like to raise with you, but I've probably gone beyond my time. I've spoken mainly about old age pensions, which only form one part of the system. We should also speak about old age assistance and how it's related to the pension system. It's important to discuss the difference between retirement pensions and retirement savings, and we have not really discussed ways in which revenues might be increased. If you'd like to return to these issues in discussion, I'd be happy to do so.
Thank you for listening to me.
The Chairman: Thank you very much, Professor Myles. That gets us quickly and deeply into the issues of our discussion today.
I will now turn the floor over to Professor McKie to continue.
Professor Craig McKie (Department of Sociology and Anthropology, Carleton University): Thank you very much, Mr. Chairman.
I want to depart on a slightly different track than John did. I understand my task here this morning is to talk about trends in the population or in the characteristics of the Canadian population and how they might relate to labour-force activities and possibly some of the things people are doing occupationally today. So it's a slightly different track, but I think we arrive at the same basic conclusions.
I should probably say at the outset that I'm here with my professorial hat on. That allows me a greater degree of latitude to make comments than if I were appearing as a representative of Statistics Canada. So if you would keep that in mind, it will make it easier for us.
I have a number of overheads to show you. That will be the main part of my presentation to you here today. But at the outset I would like to make just a few comments about a change in the population.
John has alluded to the fact the population is aging. I would like to show you how that is proceeding and perhaps how long we have to go in that process. We are perhaps a third of the way through the complete process of aging in the Canadian population. It's perhaps too soon to imagine what the Canadian population will be like in 20 or 30 years, when perhaps in excess of a quarter of the people will be 65 years of age or over.
I have not seen such a population. I suspect nobody here has. It's a little difficult to imagine. But from your point of view it means there will be a very large number of potential beneficiaries of both public and private plans seeking some return on the contributions they've made over their working lives.
A certain equity issue is involved here. If one makes contributions, one does expect something in return somewhere down the line. So we can anticipate at the very least more beneficiaries for the pension schemes to deal with in some fashion or another.
There will also be fewer potential workers as a proportion of all citizens. That is a concomitant of the aging of the population. As much as one can speak about encouraging current retirees to volunteer and perhaps re-enter the workforce, there are certain limitations. One's willingness to get up on a roof to fix it declines at a certain point in one's life. Some jobs will require young workers, and they will be a much smaller proportion of the total population in the future.
I would like to refer in these introductory remarks to some other processes that are going on concurrently. It can't have escaped you that the nature of employment is changing; that telecommunications are rather radically altering the nature of work and employment and occupation today. We see some of the evidence of that around us in this room, I think.
Internal migration in Canada continues to concentrate the population in the three great urban centres. This is a different population from the one I experienced as a young person. It's urban, in contrast to the substantial rural component that existed when I was young. That's a concurrent process of change.
We have vast dislocation in the labour force, urbanization, rapid aging of the population, plus a growing importance for the immigration process and the immigration settlement process. So we have before us a rather grand social experiment of change in at least four major dimensions of Canadian society simultaneously and in an unplanned way, since no czar of planning is involved in this process at all.
With those remarks, I would like to show you some of the evidence and perhaps summarize it a bit.
To give you some sense, first of all, of what happens when a population ages, this is a representation of the median age in the Canadian population, or that age at which exactly half the population would be below it in terms of age in years and half would be above. You can see a rather critical turning point that incurred in the late 1960s, or perhaps as late as 1970, where a line reversed.
The Canadian population had been getting younger for many years. In the press of the time it was referred to as a ``youth-dominated culture'' or a ``youth culture'' per se. That changed on or about 1970. The line reverses. The population starts to get older. For our purposes here, that line continues to go upward for some 20 or 25 more years. We are not fully aged, as it were. That's a critical turning point in Canadian society, in my opinion.
What this produces is a population in which the 65-plus years of age component continuously increases. This is expressed in real numbers if you look at 1992, where 1.34 million males were over 65 years of age and 1.89 million females were over 65 years of age, you see where the totals go.
In the year 2036, when I think most of us won't be here to experience the full glory of this process, there will be 3.6 million males over 65 years of age and 5.05 million females.
So you get a sense of the dimension of the change going from the present figure of possibly 3.5 million persons over 65 years of age, up to 8.5 million, using present population parameters. That's a very marked change.
That has occurred for many reasons. Principal among them, I suppose, would be the fact that fertility in Canadian society has been below replacement now for a quarter of a century. We have not been replacing ourselves, if you will, in sufficient numbers of children.
Now, some things have happened concurrent with that aging.
John has alluded to placing more importance on private pension arrangements for the future. Those pension arrangements would normally have been part of a career employment relationship with a single employer that might last over 20 or 25 years. That kind of relationship with employers, however, has been severely undermined both by high levels of unemployment and a change in the nature of contract for work. Part-time work, contract work, and sporadic kinds of employment arrangements have become much more prevalent.
So reliance on employer pension plans and the assumption that one might work for them for more than 5 years in the future might seem to be undermined by the reality of things.
Clearly unemployment rates are and continue to be related to level of education. Some people appear not to have sufficient credentials to work in any capacity whatsoever now in our current economic framework. That leads us off into a discussion of what might be appropriate employment skills for the future, which is kind of beyond what we have here. But there is a serious question as to what might constitute employment credentials for the future in order to avoid the consequences of sporadic employment patterns.
On labour force participation rates, John referred to the German situation of a somewhat precipitous decline in employment rates for German men. The situation is not really the same here. But you will notice that the labour force participation rate for all men 15 and over is going down. The fastest rising rate of labour force participation is for women with children under 3 years of age - persons who under the old regime of family might have been expected to stay home.
That is a concurrent set of trends that, together with aging, produces a rather new and unknown set of social circumstances.
When you look at labour force participation rates by age and gender, in the youngest age groups now - males 15 to 19 and females 15 to 19 - the rates of participation are almost exactly the same. I don't know whether we can expect that this cohort of people will continue to exhibit that closeness or parity of labour force participation rates, but clearly the behaviour of these people up here is quite markedly different from that in older cohorts, where the male participation rate is significantly higher.
As to what people are working at, the goods-producing sector in this country has not grown very much, if at all, in the period 1970-1992. So the ability to provide employment within the goods-producing sector is, at best, limited to what has existed in the past in this country. The growth, such as there has been in employment, has tended to be concentrated in the service sector. And let me remind you that in the service sector, part-time work and short-term employment arrangements are typical, where the prevalence of employer pension schemes is much less than it would be in the goods-producing sector.
So if new jobs are being created in an economic context in which there are fewer employer pensions, then it seems unreasonable to expect that the employer pension scheme might come to your assistance in the kinds of things you're thinking about. It doesn't seem to be likely, at least in my view.
Some other things that have been going on in the labour force are worthy of consideration as well. The average duration of unemployment incidence has dramatically increased. Say you are in one of these part-time or sequential-term employment situations when you lose a job or a job comes to its normal and natural conclusion. The period of time that you can expect to be out of work is much longer now than it was before, causing you to draw down on whatever savings you have.
You might well say that persons who are in these short-term employment arrangements, through necessity, might make private provision for their futures. They might have private savings. But if you then consider the necessity to draw down on those savings for long periods of unemployment, then that doesn't seem to be too realistic either.
How exactly you manage this mix is the substance of what John was trying to say, and I'm really just reinforcing it here. There doesn't seem to be any magic way of transferring the burden to individuals in these figures.
To give some sense of how many people are in these non-career kinds of work situations, this particular table, which is probably unreadable from your point of view, has to do with involuntary part-time employment or persons who, when asked, would say they would prefer a full-time career-oriented job but are making do with a part-time one in the interim.
Involuntary part-time employment, as a percentage of total employment, was 5.5% in 1992; 5.5% of all persons who went on unemployment reported themselves as working involuntarily on a part-time basis. About one-third of all persons working part time are doing so not because they want to, but because they can't find full-time employment. These people are at risk in a pension sense because they are not accumulating private pension entitlements, both because of intermittent, sporadic employment and because of the very nature of the employment that is available, which is in the service sector.
This represents the proportion of men and women working part time by age group. It is clearly more prevalent amongst the female labour force in this country. These proportions are much larger. In that middle-age group for women 25 to 44 years of age in 1992, 31% were working only part time.
If your concern is the retirement incomes of women specifically, and it's often cited as a problem area, then many women in the labour force today are not working in such a fashion as to accumulate large private pension benefits for the future.
Here is a little bit about how the nature of work has changed. I don't want to use up Susan's time here this morning; I have done that before and I've heard about it.
Here are some declining major occupation groups. These would be traditional occupations in the Canadian context from the turn of the century perhaps to 1950. They are traditional occupations, for men for the most part, forestry and logging, product fabricating and farming and so on. These are all experiencing absolute declines in numbers of positions. What's replacing them are service sector jobs, largely now related to the telecommunications industry or the education sector.
Those occupations that are growing strongly - on this particular chart - are community planners, aerospace engineers and computer programmers. I don't think there are any great surprises in there. Those are urban community oriented jobs. They do not involve cutting down trees or dragging stuff out of the ground, which were the traditional occupations in this country.
For women, the group experiencing the highest rate of growth is lawyers and notaries. But, again, I must caution you that some of that is part-time work, work that does not contribute to the formation of a career.
Economists is second. That's ominous.
I don't want to use much more of your time on this initial round here, but I did think I would show you, to give you some sense how this matches with private employers and pension plans, what the most frequently reported jobs for men in Canada were at the time the last census was taken: sales clerks, truck drivers, sales and advertising managers, motor vehicle mechanics, and carpenters. You really have to get down to this point before you find one of the traditional occupations from the turn of the century, namely farmers.
None of these jobs could reasonably be referred to as a career in a professional sense. In many cases, these jobs would not carry with them contribution to benefit plans, private pension plans nor the expectation of benefits down the line.
We can't go into why this occupational structure has been built in this country - that's an interesting story in itself - but I think the major message here would be that it is not productive in the main either of long-term careers or the kind of benefit plans we may have grown accustomed to in the past.
Finally, to bring the demographic transition to an older population and the changing nature of work together, I give you an exhibit of an ad that was dropped in my home mailbox. It contains all of the themes we've been talking about here: smaller families, aging people with nobody to take care of them, and a lack of careers so that one has to make up a service sector job. I think there is also a spelling mistake here, which I think is indicative of the educational attainment of the people who left this ad.
I have a few last things to say about this area.
The uncertainties in the labour force undermine the ability of young people to accumulate savings. That to me is obvious. Periods of unemployment, uncertainties of various sorts.... It affects the ability to buy a house. Where the house was the principal saving vehicle of my parents' generation, the ability to obtain mortgage financing is difficult with a sporadic unemployment history. They all tend to be interlocked.
If the master trend of what is going on in Canadian society is aging, then clearly what's happening in the labour force is playing right into it, to compound the difficulty for younger workers today. If you come along and say, well, there won't be any OAS or GIS for you, you simply add a further compounding factor. How on earth will workers make provision for an old age in which there will be few children, very few surviving kin, and rather meagre support networks, in addition to everything else I've been discussing?
I think the major challenge for you is to work your way through this morass, in recognition of the fact that it's not just pensions or income. It's all of these other things playing together to create a rather unpalatable situation for young people today.
The Chairman: Thank you very much, Professor McKie, for that very interesting, although not necessarily optimistic, presentation.
We now turn the floor over to Professor Susan McDaniel, who will complete the morning's trio of presentations.
Professor Susan McDaniel (Professor, Department of Sociology, University of Alberta): With the staffers I have agreed to talk about two things. One is whether or not demographic aging is indeed a crisis for public expenditures, particularly pensions. The second thing I would like to talk about is some new research that I've done but that is not yet in the public domain. Research takes a little while to get into press, so by the time it's in press, it's already outdated, in some instances. This is new research that focuses on demographic aging, the aging workforce, and families and how generations connect. I think this provides a different focus from what we've heard so far.
I've divided this into four parts, and they'll be brief. The first one is demographic aging and pension costs; is it a crisis? My answer is no, and I'll share with you why I think that.
The second issue I want to talk about with you is the ratio of pensioners to labour force participants and what some new insights are about that, which is why I call this ``looking at demographics of pensions with better glasses'' - certainly an aging image; most of us need glasses, I guess.
I'll also talk about the changing bases of security in Canada and what they might mean for pension reform, or potential pension reform, and then I'll make some recommendations on what might be done.
As I begin, I must tell you I am a demographer. This was mentioned in the beginning. I emphasize this not because it's true confessions - it's pretty well known - but because some of what I say, given my stature as a demographer, might surprise you.
``Demographics'' has, in essence, become a buzz-word. In 1987 I described it in an article as a paradigm that is used to explain almost anything. Some examples I used as long ago as 1987 were these. It explained why there would be greater demand for young people in the funeral industry; why there would be limited promotion prospects for young people - not anything to do with the economy, but rather simply demographics...and of course problems with pensions are explained in pure demographic terms.
Much of what we understand about demographics is misunderstood. That's partly because people don't get into it to figure it out and partly because, as was alluded to earlier, some stories that are covered only cover the tops of the waves of what's going on.
For example, a popular perception among Canadian people, including students to whom I teach and many in the public with whom I speak in public lectures, is that demographic aging is a new phenomenon and that we essentially never had this problem before, only now. If you look at Canadian history, which I won't go into, we've always been an aging society, even before Confederation.
So Canada, like all western societies, is not aging because we're doing something wrong. Some of the imagery about demographic aging is that we must be doing something wrong because there are all these old people about.
In fact, we're doing something right. Demographic aging is a measure of our success. That simply works, being quite brief about it, because we have managed to control our fertility. Demographic aging is largely a consequence of fewer young people coming into the society. But we've also managed to control death to some degree; we've at least postponed it.
So demographic aging is a sign of success. The problem with it, of course, is that even if we, in our generation, can control our own fertility, at least to some limited degree some of the time, we cannot control the fertility of our grandparents and our great-grandparents.
So what we have in Canadian society - this is rather important in a family context - is a tree of older relatives that flows out like a big oak tree. We're a tiny, puny, little stem supporting all these older relatives. This is an abiding image, and something that I'll return to.
The belief that demographics are inexorable forces sort of like the weather or the orbits of planets is what James Schulz, the past president of the Gerontological Society of America calls ``voodoo demographics''. That's where I borrowed the title from. David Levine, a Canadian social historian, calls the same phenomenon in history ``barbarian demographics''. I prefer voodoo.
Part and parcel of voodoo demographics is the idea of demographic predictability. Here we have the notion - this is quite common in today's society - that if we all age one year at a time, which most of us do if we're lucky, then everything will fall completely in lock step. Ten years from now, this is what we'll have in terms of population. That suggests everything is crystal clear in demography, we can predict the future, and we can plan.
In fact, demography as a discipline - I thank heaven I was young enough to avoid this problem - failed to predict both the baby boom and the baby bust. So the predictability of demography is not terrific. I emphasize that I am a demographer, so I'm speaking about something I know rather well.
U.S. demographer Joel Cohen perhaps said it best when he talked about what a demographer is. He said a demographer is someone who guesses wrongly about the future of populations, and a mathematical demographer is somebody who uses mathematical models to guess wrongly about the future of populations. I'm saying this not to discount my own discipline, but rather to say that one should be cautious about interpreting this predictability.
Ivan Fellegi, the Chief Statistician of Canada, did a comprehensive analysis in 1988 of data on public expenditures in relation to demographic trends. He provides an answer to his question that he asks in his title: can we afford an aging society?
This was a study published in the Canadian Economic Observer in 1988. I emphasize that this is by the Chief Statistician of Canada, who sits on the best data we have available.
His conclusion is simply - this is a very important conclusion - that should long-term economic growth continue as it has in the past with unit costs evolving as assumed, then public expenditures in health, education and pensions would represent, 50 years from now, about the same claim on the economy as what's at present, in spite of the aging of the population.
I spoke with Ivan Fellegi two days before I came here. He tells me that he is updating this study in 1995. It will be out in one or two months. The conclusions are essentially unchanged. The notion is that the aging population can be handled if economic growth remains at a reasonable level. So it's not a crisis, according to the best data we have available.
Demographers are very fond of numbers, and are particularly attracted to ratios. Dependency ratios are those famous things that relate populations of various ages to each other.
This is a graph that shows the population of Canada from 1851 projected to 2031. The crucial point is marked with a bar. The red bars are the proportion of children in the population; the blue bars are the proportion of the elderly. The significance is clear. The proportion of children in the population is declining. There's no question about it; the birth rate is going down. It's also true that the blue bars are increasing in proportion.
But the significant thing to do is look at 1981 and 1991. Together, the proportions of old and young people are the lowest they have been at any other time in Canadian history. So it's curious to me that at the very time when we're concerned about so-called dependency - this is not real dependency - old and young people taken together comprise the least proportion of the total population, and we're so worried about a crisis. I think that's important to keep in mind.
As well, it's important to note here that the ratio of young to old has changed. There are more old than there were young in the population. But the total is smaller than it ever has been in Canadian history.
One ratio of particular interest to this group might be the ratio of pensioners to labour force participants. That's the concern that relates to pension reform. The gaze so far in Canadian society and in public debate about this issue has been almost exclusively on the numbers of pensioners there will be in the future.
There are two cautionary remarks I want to make about that and then I'll focus on the other side of the ratio, the labour force participants.
The first cautionary remark is that as eligibility for pensions changes over time, since we have fewer people participating in jobs for which they're eligible for pensions in the private workplace because they're working part time or in some other kind of arrangement, the numbers of actual pensioners might decline even though the people who are in the age group to collect pensions could increase. We have to keep that in mind.
The second thing to keep in mind is some findings from some recent research I have done on labour market transitions. They essentially show that for people with less than high school, high school or some post-secondary education, the modal transition is from being in employment to being not in the labour force. This is for the population aged 55 to 64 in all of Canada. It's represented by the big yellow-green bars.
The crucial thing to note here is the other bars - the purple ones and the blue ones - are also common transitions. People you might be thinking are leaving the labour force for retirement are in fact entering the workforce at that age. They are in fact going into unemployment because they're looking for new work. So the notion that all people are leaving employment and going into retirement is not quite clear from their age. Age alone doesn't cut it, in other words.
Now let's focus for a moment on the labour force participant side of this ratio. The ratio is pensioners to labour force participants. The real problem with this ratio is that people of labour force age, traditionally defined as 18 to 64, are possibly not in the labour force. Everybody knows at least someone - probably lots of someones - in that age group who is not in the labour force at all, is looking for work, or is perhaps unemployed.
They are out of the labour force more often than they were in the past and for longer periods of time. They are retired early - long before age 65 - and may or may not have access to a pension. They may have a severance package or may have no pension at all. They may be working part-time, or when they do work they may not have access to pensions or benefits. So when we talk about labour force participants, we're talking about a profoundly different group from that of the past.
I'd like to share with you this graphic. The bottom two lines show full-year, full-time work for men and women. You can see the line is declining precipitously for men. This is full-time, full-year work in Canadian society going up to 1992. It has declined further since then. All earners are still keeping pretty well even for men and are increasing a little bit for women, but it's this full-time, full-year work that's declining, and it's still declining.
So in all the fights about what constitutes employment and unemployment, we're perhaps missing the notion that full-year, full-time employment overall is declining for both men and women, but particularly for men.
The labour market is being polarized increasingly into two groups. One is older workers who are out of the workforce for longer periods of time. In fact, for people over 45, the length of time they're out of the workforce has skyrocketed. Just a week ago Stats Canada said about one-half of all people who are unemployed in Canada right now are no longer eligible for unemployment insurance benefits because they've been out of work for too long, and the vast majority of these people are 45 and above.
So the unemployed are polarized into two groups. One is the people aged 45 and above who are out of work for long periods of time. The other group is the people aged 15 to 24 who are unemployed in greater numbers. These two groups relate, and I'll talk about that. It's an important part of what I want to share with you.
There are also tremendous life course changes in labour force participation. Without going into the detail my colleague did, one simple reality is young people are finding it harder and harder to find work. Most people know that because they know of someone who comes back to the family home and lives with parents because they can't find work. So we have what's called the cluttered nest.
We have people entering the workforce later and leaving earlier. Over the life course, that means there are fewer years to participate in the paid labour market, even if one is participating in full-year, full-time work. Somebody estimated jokingly - except it's not entirely a joke - that it might be declining to as low as 15 years out of our entire lives. If you enter the labour force at age 30 and you leave at 45, you have 15 years, and all of this time before and after to live somehow. That's pretty exaggerated, but nonetheless, it does occur with some people.
There's a disjunction between what we call retirements and what we call pensions. I won't elaborate on this too much, but essentially, someone out of work may be defined by their employer as going into early retirement, but they may have no access to any pension whatsoever until Canada Pension or Quebec Pension or something else kicks in when they're 65, or 60, or 62. But they may be out of work for some 15 to 18 years in between, when they're not on pensions. They have no access to anything.
The retirement system, according to a French researcher, Guillemard, has lost the power to regulate the exit from paid labour for substantial portions of the older workforce. She estimates that in Europe as much as 50% of the paid workforce is not regulated by retirement. I would ask what kind of society we are creating here, and what the implications are for pension reform.
Women are a particular issue and challenge, both as pensioners and as labour force participants. When I was first invited to be part of this group, Monica Townson, who in the spring of 1995 produced a study on mid-life women, was to be on the panel. She's produced an excellent report on this.
Women are more often dependent on government pensions for their income in later life. This column is for women; the coloured bars show the different ages of women above the age of 65. This column is for men.
In later life, women are differentially dependent for their income on public pensions. So if public pensions change - and they have - women are differentially affected. Women are also differentially affected by working in part-time work involuntarily.
So the issue might not be too many pensioners - they after all don't pop out of the woodwork unexpectedly - but too few labour force participants, working for too short a period of time, contributing to pension income.
What about changing bases of security in Canada? Canadians are quite deeply concerned about family security and growing problems of insecurity.
I have a couple of findings. An Angus Reid poll taken in the fall of 1992 found that over 50% of Canadians feel they are worse off now than they were a decade ago. A Decima poll in March 1992 showed that 82% believe things are getting worse and that it's harder and harder for them to get ahead based on hard work and merit. That's up from 68% in 1985. People seem to feel there is a real problem.
One particularly scary one was done by the Canadian Mental Health Association. It showed that one-half of Canadians feel really stressed for at least part of every week, and one-third feel really depressed once a month or more. Those findings cannot be ignored because they will have consequences on pensions and health care at some point. Insecurity is a growing concern.
Let me just share with you a quote from one of the phases of the research I did on the aging workforce. This is from an unemployed woman who's 42 years old. She says:
When families are insecure, they tend to do two things. One is that they protect each other and help support other generations. Parents, even retired pensioned parents, might be supporting adult children. This is a real fact in Canadian society. We don't know how prevalent it is, but it is a real fact. The dependency might be turned around, and that's something that has to be considered.
The second thing is that families tend to huddle together in insecurity. This might lead to problems of abuse, neglect, exploitation, etc. This is the oak tree of many generations ahead of us that creates problems.
In economic terms, both of these factors mean families are living on less income and therefore have less money to spend on consumer goods and services. This may not be lack of consumer confidence, as we hear so often, but rather the real lack of money to put out for consumer goods and services and a real fear and insecurity.
In social terms, family fears breed uncertainty, a severing of possibility for the future and a severing of hope, and I think that has to be considered.
What are we to do? What recommendations are to be considered? This is a demographic recommendation. Knowledge of demography may in fact be central to pension change, but not in the usually considered way.
Taxing RRSP benefits on after-tax wealth or reducing pension entitlements, as was mentioned earlier, or raising age limit eligibility for pensions entails a huge political risk. Why is this? Well, it's not the sums involved, the amounts saved and all of those things that matter. It's what some people have called - in fact what one journalist called - the ``impertinence'' of it.
What does this mean? There are two reasons. The first is that baby boomers are thinking about retirement. The notion that this is around the corner is not necessarily the case. ``Freedom 55'' is a tune they can sing already. Many of that age group are being quietly eased out of the workforce already and they are 48 or 49 years old. Some of those people are married to people who are leaving the workforce quite early.
So the baby boomers are already being affected by this. This is the largest generation the world has ever seen. Now, think of the political clout. If they have 18 or 19 years without any access to pensions because the eligibility is raised to 69, the political possibilities are mind-boggling.
Second, older and younger people are not separate interest groups, as some would have us believe, but are intimately and inextricably interconnected in families. Older people might be willing to and have said they're willing to trade off some pensions or retirement income perhaps through an increase in inflation if the younger people, their adult children and their grandchildren, have better job prospects or employment prospects or futures. But if the young people don't have those prospects, older people might feel it's profoundly unjust to make that trade-off because they would be the ones who would be required to support the younger generation in their trials.
I don't think later age of retirement or eligibility will work. What we'll have is a lengthening of the period of time during which a person is effectively retired but cannot collect a pension, so I would question that.
The last remark here is that the policy apartheid - that's what I call it and I've called it this in print - should be ended. By policy apartheid, I mean that pension reforms cannot be accomplished realistically without attention to other social policy, without attention to employment policy and without attention - and this is very important - to monetary policy and what the implications of interest rates and inflation and all of that are to this issue.
Thank you for your time. I will be interested in talking with you further.
The Chairman: We mentioned this morning that we were going to consider the broad context. Our speakers have definitely brought us into the broad context, including not only pension policy, but economic and social policy, and now even monetary policy, which gives you an idea of the interconnectedness of some of the issues involved.
I'm going to begin our questioning in the usual fashion, beginning with the official opposition, followed by the Reform Party and then the Liberal Party. I would ask our members to try to be relatively brief in their questions, but I understand that there will be a need to discuss some of the profound issues that have been raised by our first three panellists.
Mr. Dumas will be the questioner for the Bloc.
Mr. Dumas (Argenteuil - Papineau): My question is for Mr. McKie. During your overhead presentation, you said that aging of the population will continue for the next 30 years. Of course, later on you talked about the decrease in fertility. What makes you think that, in 30 years, the aging of the population will diminish?
Prof. McKie: What I should have said, or perhaps I would have said clearly if I had an hour in which to say it, was that once a population such as ours is fully aged, it stays fully aged. There is no internal dynamic to make it younger. The mass of an aged population is past the years in which fertility is possible. The only imaginable scenario to make it younger once again is to increase the immigration stream or the specific component of the immigration stream that is composed of younger people. There is no internal dynamic that can make an old population young again.
Mr. Dumas: Apart from immigration, are there any other ways of ensuring population growth in Canada?
Prof. McKie: Where such things have been attempted, they have had very limited success. I'm not saying it's impossible to do, but the cash incentive would have to be very large indeed because the finished cost of raising an additional child in this society is roughly equivalent to the retail price of a Rolls Royce. You're asking people to make that kind of investment in an additional child, or perhaps two or three.
The Canadian population is not composed of stupid people. They understand there are substantial costs and sacrifices involved in that second or additional child. I can't imagine a circumstance where the average Canadian family would ever again have four children, as was the case in the late 1950s. I can't understand what inducement it would take to create that circumstance. But I do have to allow that it is possible, at least hypothetically, to imagine a cash incentive that might motivate people to do that, but it would have to be enormous.
Mr. Dumas: In Quebec, at one point, family allowances for third and fourth children were raised substantially, but without any real results, as I recall.
Prof. McKie: I believe there is a noticeable increase, but it's in the thousands, and increases in birth rates of thousands per year are irrelevant in the long run, in my opinion.
Mr. Dumas: Thank you.
The Chairman: Mr. Crête.
Mr. Crête (Kamouraska - Rivière-du-Loup): Listening to your presentations, I was impressed by how you linked employment in the population on the whole and the type of pension plan we can provide for ourselves in the future. If I understood correctly, this whole debate must be demystified for the general public. Right now there are a lot debates on the deficit, but your presentations prove to me that it could be economically beneficial for our society if more people work in terms of a pension plan on the whole. To me that's a very interesting contribution on your part.
Do you think that to ensure the future of our pension plan, we should think of a universal program based on the contributions of all workers, part-time workers, full-time workers and even people who work at home, who are mainly women, as we know? Would a solution for the future be a system that would go beyond the strictly budgetary and short-term issues and that would be based on the principles of 30 years ago as they apply to our new reality? Would you suggest such a solution?
Prof. Myles: If I understand you properly, you raise two points. First is the emphasis I put on employment and the emphasis we've all put on employment. Let me reinforce that fact. We look at demographic age structures sometimes as a surrogate for employment. We think of a working age population, and it's relatively easy to project the age structure in 2020. What we really want to know are employment population ratios. That is, what is going to be the level of employment, what is going to be the level of wages, and what is going to be the distribution of wages in the future? I might emphasize the distribution of wages is equally important.
One of the big changes during the 1980s was the dramatic decline in the relative wages and earnings of people under the age of 35. What did that decline trigger? It triggered an enormous expansion in transfers to young families. We went from about 5.5% of GDP going to non-elderly families to about 7.5% of GDP going to non-elderly families through the transfer system.
Those low wages among that young age population mean these young people below the age of 35 are also contributing less to the system in terms of taxes. They're also contributing less to support the old age pension system and the health care system. That's one side of what I think you're asking me.
I think the second part of your question really gets at the issue of what I would call the growing volatility and insecurities in the labour market. While many more people, especially women, are employed today than in the past - that is, employment/population ratios have risen since the 1960s - there's growing volatility in a number of ways. We've talked about the growth of part-time work, the changing character of labour contracts, and the secular long-term increase in unemployment rates in Canada.
This volatility creates uncertainties during the period of working life. It also creates insecurities with respect to old age because when you're out of the labour market through unemployment or if you have a sudden drop in income, this affects your capacity to put aside money for old age.
Under those conditions, it seems to me that some of the old principles of universality can be extremely important and extremely valid and valuable today. In some cases we might want to rethink what universality should mean. It doesn't necessarily mean what it meant in 1950; we live in a different world. But the whole notion of universality is, in a sense, trying to get at the notion of smoothing out risks, smoothing out some of that volatility, at a point in time for individuals of the same generation, but also and especially over the life course.
That's what I think a universalistic system is. I think that's what universality should mean to us now. In a dynamic, changing world with high risk or at least the perception of high risk and some real increase in risk for people, a social policy environment that can provide some sense of stability and security in the working-age population can be extremely important both in a political sense and in an economic sense. People who feel secure are much more willing to accept change.
Usually we want changes because they are of benefit in the long run to some group in the population. Providing that security to people and in a sense recapturing some of those notions of universality can also be important for the acceptance of change and the economic growth of Canadians.
Mr. Crête: I will repeat my question for Ms McDaniel.
Should we consider today job creation programs for 50 year olds to help them contribute to social expenditures until they reach the age of 65, which is what women asked at the march against poverty in Quebec? Society has made gains which could be used for programs enabling everyone to work, perhaps in other fields, and have a pension plan; these people did not contribute to any pension plan.
Do you think that our present social make-up could allow for such profound changes?
Prof. McDaniel: Thank you. I think you're raising a very important question, if I understand you correctly, and that is the pivotal aspects of the mid-life generation, the person, as you have mentioned, of 50 years of age.
Certainly this is a transitional generation. For one thing, it is right on the edge of the baby boom. The baby boom has not yet hit 50, but some of the first edge of them are now 49. So the person who is now 49 or 50 often has young children who are finding it difficult to become economically independent - well, sometimes independent in any way I guess, but economically is what we are talking about - and they also face often older parents who are struggling with disabilities and declining capacities to do things.
But the crucial thing about this group is that this group - and this is hidden I think in a lot of what we hear - is also being targeted for workplace lay-offs to a differential degree. That means they are feeling economically vulnerable themselves. They are worried about whether they have sufficient credits in their own pension plans to be able to retire at all at any age, and yet they feel economically insecure.
So I think indeed those people can be extremely important. If you focus on them, you can get a glimpse of how they connect both with younger and older people, and that would be crucial to making social policy.
I might add one further brief comment to your previous question to my colleague, John Myles; that is, when we look at risks in families, they tend to look quite a bit different from when we look at individuals. We think about people who are above the age of 65 and the risks they have; people who are unemployed and the risks they have; people who are single parents and the risks they have. Sometimes these people are in the same families.
I'll tell you one quick story of a family from my own research. A woman, a single-support mother, a professional, was laid off work as a middle-manager. She has two teenage children, one of whom cannot find a job and wants to go to university and the other one who works part-time in a fast-food franchise. The entire family lives on the income made by the young man who is 17 years old, working part time flipping hamburgers. The entire family lives on that income. If that child's wages or hours are cut back, they're going to lose their house because it will be foreclosed.
That looks quite different from when we look at individual risks, and I think that should be considered, particularly since we have just come out of the International Year of the Family, and Canada had quite a prominent role in that.
The Chairman: I will now turn the questioning over to Mrs. Ablonczy from the Reform Party.
Mrs. Ablonczy (Calgary North): Thank you, Mr. Chairman.
Dr. Myles, I was interested in your mention of estate taxes, and I would be interested in a brief exploration with you of the pros and cons of introducing such a measure, and also your idea of the potential revenue that may be there.
Prof. Myles: I will be perfectly frank with you. I had not considered the issue of estate taxes until four weeks ago. I lost both my parents this year, the most recent one four weeks ago. I was named as the executor of the will. I went to execute the will, and it struck me what had been going on. In other words, during the past several months my mother was confined to a nursing home, and most of those costs were paid for - the medical side of it - out of OHIP. They were quite elderly and their income needs were very few. During recent years both my parents were really able to live because of the Canadian income security system. That revenue, in fact, was virtually enough for them to meet their needs.
So what they were doing, in a sense, instead of spending down a fairly substantial pool of capital to support themselves in their old age, was in fact living off the income security system.
Now I think that's a good thing. They felt secure; they knew if they had an emergency that they were not eating up all their resources. This gave them security in old age, and that's what the system is supposed to do.
At the same time, that security was being provided to them, not by me and my brother and sisters, but by the entire working-age population of Canada. And that's the phrase I use: they ``secured my inheritance''.
When I went to execute the will and was able to divide close to half a million dollars among myself and my siblings, it struck me as odd that we have risk-sharing on the input side, but there's no sharing on the output side.
Mrs. Ablonczy: Are there any cons that you have discovered? As a possible public policy measure, what would be the downside of introducing such a measure, and do you have any idea of potential income?
Prof. Myles: I was just talking about this yesterday with a colleague. The United States has a fairly lax estate tax. That is, it only affects estates over $600,000. The first $600,000 is exempt, so it really doesn't affect most families.
The United States brings in about $15 billion a year from its estate tax, so even if we moved to something as light as the U.S. estate tax, we should be bringing in about $1.5 billion a year. Perhaps some other of my colleagues here know more about this.
Professor Robert Brown (Department of Statistics and Actuarial Sciences, University of Waterloo): Could I add one comment? One of the downsides is the capability of moving wealth. K.C. Irving has a will that says his children can only inherit his wealth if they do so outside of Canada. I would like to know how much of E.P. Taylor's estate is still in Canada.
You do have to understand in this day and age that you are going to see a lot of wealth move when you bring in taxes that don't match the taxation system of the rest of the world.
Mrs. Ablonczy: I appreciate those comments -
Prof. Myles: I think Robert is correct. I don't think you will ever create an estate tax that captures the wealth of the very wealthy, the top 300 or 400 families. They will always find ways to escape that kind of tax.
I think one can introduce some forms of estate taxation, however, that would capture and return to the Canadian public some of the revenues they provided the senior generation.
In terms of being in line with rest of the world, of course, we are now out of line.
Mrs. Ablonczy: I sense there's more to be said and discussed on that issue, but I would like to leave it and ask a question of Ms McDaniel.
One of the figures that has come to my attention is that by the year 2015, there will be 40% more seniors in Canada than today. Since you are an expert in demographics, I just wanted to test that figure with you before I used it too widely.
Prof. McKie: There are several scenarios; there is no one answer. It would be like predicting who will win the lottery next year. You can only cite parameters, and I would be leery of citing any specific percentage. All we know for sure is that it's going to be substantially larger than it is today, and after that year it will grow more substantially again. So we are maybe about one-third of the way through this process.
I think what you should convey and what you should understand is that these numbers will not increase trivially; there will be very large increases. You just have to look around to see that it's already happening.
Mrs. Ablonczy: I appreciate that, because we do want to be as responsible as possible when using those figures.
Prof. McDaniel: One issue to consider when looking at the future senior population is that the composition of that population will change rather dramatically, and this we are clear on: that the eldest of the old will increase at a higher rate than those who are younger. So it's the 85-plus population who are growing at the fastest rate. Those are the people who, of course, would be most likely to be in need of health care or interventions, although many of them are remarkably healthy as well. So I don't want to overplay that, but the composition matters.
The other thing that would matter greatly when we talk about the future is not the sheer numbers, which is what I refer to as voodoo demographics, but the differences among those people are increasing fairly dramatically. Some of them have been retired since they were 50, others are retiring only at 75, and the difference in access to services and in family composition and in every health indicator you can think of is widening.
So this is not a uniform population by any means - I'm not suggesting, of course, that you would be saying that in the 40% - but some people do think of it as a uniform population.
Mrs. Ablonczy: I think that's a very good point and it leads into my next question. You mentioned in your presentation that there was a conclusion to the effect that social spending demands would be unchanged even though the population will be aging considerably.
I would have thought, although I'm not an economist, that increased demand for pensions, and particularly health care, would substantially increase the pressure on those social services. I'm wondering how that conclusion could have been reached.
Prof. McDaniel: The conclusion you're talking about is not my conclusion; it's the conclusion of the study by the Chief Statistician of Canada. The conclusion has an important proviso and the proviso is that there would not be a problem in meeting those public demands provided economic growth continued at a reasonable rate.
Now, that's a pretty big proviso. We're not clear on that. And there are a number of other assumptions built into it, but still I think it is a profoundly important conclusion, that the problems in public expenditures are not being driven by demographic changes. It would not be a problem if current conditions continued, but if they don't, then indeed we have a problem, but the problem becomes then more in the economic and the social realm than the demographic.
Mrs. Ablonczy: To me - and I'd like Mr. McKie to respond to this - that seems like an ``if pigs could fly'' kind of conclusion, because what Mr. McKie is saying is that the labour force shifts are just not going to give us that result. But perhaps I'm misinterpreting what you said.
Mr. McKie: I think it's possible to disagree with the conclusions of the 1988 paper and still remain a loyal citizen. I think there are alternative interpretations to the situation.
I've had this argument specifically with the deputy minister in charge of health care in Manitoba in a public place, and it became quite heated. I believe that an aging population holds the potential to make vastly greater demands on the health care system. It depends a lot on the expectations of the people going to that system.
If you're using the system for purposes other than straight medical, perhaps the housing of elderly persons who lack any kind of family at all, and so on, if there is a residential function in there, then the health care costs do go up. If we are not to use the health care system as a residential system, then there must be an alternative residential system. If we don't have that, then the hospitals become residences of last resort for elderly persons who can no longer take care of themselves and who lack any kind of family assistance.
I think there is another spin on this, which I use myself, and it is not represented in that article. It's not as if I'm attempting to make light of it. It is an important article. But I think there is another spin and I think you can strike quite a different scenario on the basis of those figures.
Mrs. Ablonczy: Especially in light of the fact that Ms McDaniel was saying the eldest of the old are growing at a faster rate, and we know.... I think 80% of one's health care consumption is at that upper end of your life, if I'm correct.
Prof. McKie: May I comment specifically on that. Persons who are today 85 and above still have residual family members, because they were born at a time when families were large. They would have cousins - distant and perhaps disperse, but cousins nevertheless. We're talking about a future in which people arrive at their 85th year, firstly, devoid of living relatives because of generations of very small families or no families at all. So their reliance on institutions and on governments, frankly, is going to be higher, in my opinion, by virtue of those smaller families. When my children reach 85, the possibility is that they will have to rely more heavily on institutional care, by virtue of the fact they will probably not have immediate family members in the same geographical vicinity to help them out, such as is the case now.
Mrs. Ablonczy: I appreciate you making that point.
Thank you very much, Mr. Chairman.
Prof. McDaniel: I have two very quick small points in response to that.
The first point I make is that Ivan Fellegi is not the only person to have come to this conclusion. Similar studies done in Australia, the U.S. and in Britain have come to exactly the same conclusions. So it's not as if this were unique in the world.
My second point is, coming from Alberta right now where there are fairly dramatic changes going on in the health care system, I cannot possibly envision a future in which the acute care system would be used as residential care in Canada. I simply cannot foresee that.
Prof. Brown: I would like to intervene for just a second. I am a quantitative demographer and they're getting some knocks this morning. I don't know whether 40% is exactly the right number because I don't carry it in my head. In fact, I think it's probably a little bit low. But I tell you I am willing to go home and tell you what the number is and I will be right within a very narrow range in terms of the number of people who will be age 65 and over in the year 2015, because they are all here today. It's different from asking for the proportion of the population age 65 and over, which may depend on future fertility rates. I will tell you today how many people in Canada will be 65 and over in the year 2060 and feel I can lay claim to some credibility. So let's not throw quantitative demography out yet.
Prof. McKie: I have one small point to make. They are not all here today. The immigration stream is full of family reunification people. So you don't know how immigration policies can work in 10 years, and you don't know how many people who in their older years are going to come into the country.
Mrs. Ablonczy: That is interesting debate and I think it is very helpful. I appreciate the points all of you have made.
Thank you, Mr. Chairman.
The Chairman: Thank you.
Are there any other responses to that last exchange?
Mr. André Lux (Retired Professor, Department of Sociology, Laval University): I would like to add something to the question raised by Mr. Dumas concerning the reasons for which the aging of the population would stop. Until the middle of the 21st century, this aging of the population was partly conditioned by the heavy wave of the baby boomer generation. Now, when the last survivors of the last generation of boomers will be dead, automatically, the proportion of older people will be lower since it will correspond to generations having fewer people. There will then necessarily be a fall on the number of very elderly people in the general population.
The Chairman: Thank you, Dr. Lux.
I will begin the questioning with Mr. Scott.
Mr. Scott (Fredericton - York - Sunbury): Thank you very much, Mr. Chairman.
Thank you all. It's been quite helpful in terms of, if nothing else, scaring us to death. I guess you've made your points.
There are a couple of connections I would like to explore. I am not an economist; I am a sociologist, for what it's worth. Since I am not an economist, I am not sure of the validity of these things. But it strikes me we are oftentimes equating, in this discussion, economic growth and employment. In casual observation about these things, it strikes me there's a hole because of the nature of....
Mr. McKie, we talked about employment in the goods-producing and service sectors and showed how it is shifting. But I would suggest that economic growth, in terms of those sectors, would be quite different from that. So it is a question of... goods producing grows and economic growth continues, but that does not necessarily equate with employment. When you make these ratios, a lot of the contribution is based not on economic growth but on employment. So the ratios don't work, if you're using economic growth as some kind of an indicator of your ability to sustain these programs.
I make that as a casual observation, but I think it speaks to the distribution of work, which then in turn challenges some of the - I think it was in your presentation, Mr. Myles, where you talked about there being two solutions. One is diminishing the standard of living of people who are retired essentially, or extending the need or the eligibility requirements in terms of getting there.
It strikes me that there might be a third option, and that is some kind of gradual exercise between the time you are 40 or 45 and something later. We have this notion of 65 and it being a bigger deal than it has to be. It's an artificial construction, I think. We could have some kind of gradual evolving program. Is that beyond the realm of possibility?
Mr. Myles: You are absolutely right. In a formal sense, what you're suggesting is not a third solution. Playing with the retirement age...there are several ways to play with it. We are not just talking about making.... People do not now work until age 65. They simply become eligible for certain kinds of entitlements at age 65.
In fact, retirement already is a gradual process for many people. It occurs earlier for some and later for others. For some, there's a kind of exit from the labour market and then a re-entry to the labour market to get supplementary earnings. The role of earnings and the retirement packages are something that Robert Brown will talk about with you this afternoon.
In a formal sense, there still are only two solutions. Having said that, I think we are going to need some imagination about how we implement those solutions. There's absolutely no question that people are not only living longer, they are living healthier. For a lot of people, this means a capacity, certainly, to continue in the labour market beyond our traditional expected ages.
There is a whole lot of problems you get into as soon as you talk about how to do that. It's not necessarily an easy thing to implement, but that simply means we have to work harder and we have to use more imagination to come up with the right answers. Sweden, for example, has had a sort of partial retirement pension in place for a number of years. I don't have my papers with me here so I couldn't go through the details of how it works, but that has been part of the understanding of the retirement process in some countries, where you are partially in the labour market and partially getting a pension.
Prof. McDaniel: There are several countries in the European Community - Sweden is one, but there are other countries that have developed quite innovative and imaginative programs that connect systems of unemployment insurance at the public level with private severance packages and private pension plans, to provide what is called ``bridging funds'' to exactly do what you suggest, and that is gradual, evolving retirement.
The question we have in our society, of course, is what does this mean? What is the label that is used? We are increasingly putting people into boxes. They are unemployed, or they're looking for work, or they're out of the labour force if they've retired. What we are finding in data collection in this country is that those categories don't work. You can be retired and looking for work. You can be retired and outside the labour market.
The categories simply don't work any more. Neither do the systems. We need something that bridges people from early retirement, which is not collecting a pension, into some other kind of work and retraining and unemployment insurance, some scheme that perhaps could be a combination of public and private. There are examples of that in the European Community.
Mr. Scott: A second question. It strikes me that we also run the risk of having competing objectives here if we still have an objective of fairness. If sustainability is one of the things we are concerned with in terms of coming up with some kind of redesigned system, which I guess Professor Myles referred to in terms of privatizing, and depending more on individual initiatives rather than collective ones - if that is a fair way to characterize it - if that is the case, it strikes me that if you were to look at it in the macro way you could say the numbers are better now. But if there is a fairness value in the middle of this somewhere, I think the kind of gaps that I assume we are experiencing - I assume right now it is not getting better, if fairness is of value; it is probably getting worse - I would suspect the scenario you talk about in terms of, let's say, inherited wealth has a tendency to fall upon people who are less likely to need it. It strikes me the people who are going to inherit a large amount of money have a tendency to be people who are professionals and so on and so forth, as against the people who would.... If there were more justice in the world, perhaps it would work differently, but it doesn't seem to.
I assume the movement toward privatization is going to mean the system is going to be less fair, in a collective way, in terms of where that money is going to find itself. The gap between those people who are living at 80% of replacement in retirement and those who are living at 30% of replacement in retirement is going to get worse rather than better. Is that fair?
Prof. Myles: I don't want to predict a greater privatization in the Canadian system, but certainly what I was addressing was a lot of pressure building up in that direction. The World Bank has created a lot of attention this year with its report it released on the old age crisis, in which it uses a kind of benchmark model, the Chilean model. To think of the Chilean model in the Canadian context, you could imagine a system where we had the guaranteed income supplement, we had obligatory RRSPs and nothing else. You got rid of OAS and CPP, but kept those other two programs.
The model is one in which the role of governments is protecting the weakest members, those people who fall out of the market, who, for some reason, in their old age are really threatened with economic disaster. The rest of us are encouraged then to seek our welfare, if you like, our well-being in a sort of private retirement savings mode.
The motivation for that tends to be the fact that these private investments are going into potentially - Robert can speak better about this than I can - increased savings and investment and hence stimulate economic growth. That's what the argument is about and this is what you'll also read on the editorial page of The Globe and Mail - very similar kinds of arguments.
What is not talked about in those discussions are the objectives of a pension system. The capacity of that design to provide income security, to provide income replacement, and your question, the one of fairness or equity or equality, if you like - there is absolutely no question that under a more privatized system there will be much greater risk and variations in outcomes, certainly on a cross-national basis. The evidence is very strong that countries that rely more on private pensions and private savings vehicles also have higher income inequality among their elderly population.
Prof. McDaniel: Just one quick sentence. Canada, right now, in international comparisons already has more inequality in its pension system than many other countries. So the notion that it could get worse is very likely, because it already is starting in a deficit situation, so to speak.
Mr. McCormick (Hastings - Frontenac - Lennox and Addington): Thank you,Mr. Chairman.
Dr. Myles, we hear that the Chief Statistician of Canada in his report, which is being updated at this time, says we may not be in a crisis or whatever the demographics say. You are saying there are other ways of revenue. So if we took part of his report and your thoughts and shared that together, we may find we aren't quite all the way backed up to the wall.
You mentioned ways that revenue might be increased, of course, with estate taxes and increased contributions from employers and employees. Do you have any other studies or any other ideas?
Prof. Myles: First of all, the CQPP is not in a crisis in the sense that it's self-financing. There is a long-term problem in terms of contribution rates. You're going to hear about this from Robert this afternoon.
The projections are that if we continue on a pay-as-you-go basis, which essentially the Canada pension system is...it's not run like a private pension system where you build up a capital pool and that capital pool generates revenues. Today's beneficiaries are essentially getting payments that are paid for by today's contributors. The projection is that in about 2016 or later the contribution rate will have to rise to about 16%.
Is this a crisis and how should we think about that? It's a long way from a little over 5%, which it is today, if we combine the employer/employee contributions. It's tripling. It's still not very high. The Americans are already paying over 13% just for the social security side. They're low by European standards. In terms of levels, it's not a crisis. The amount of change, if it's abrupt, can be a shock to the system in an economic sense if you get a sudden, dramatic increase.
Some people, and I would be one of them - many will disagree, and there's legitimate debate - would like to see an increase in the contribution rate for CPP brought forward and accelerated so that there's a smoother transition to a higher contribution rate, so that the final rate will not have to be as high. When we start raising the rate slowly now, the increased contributions could create a capital pool that could be invested to generate revenues that would finance future pensions. Then all of a sudden that next generation, the young people in 2016, are not going to be stuck with this sudden big blast in taxes. But you'll hear a lot of disagreement and legitimate debate about that.
Mr. McCormick: You mentioned there's no reason why the savings investment function cannot be administered through a public plan. We could do it just as well as what the World Bank and everyone is going to lead us to believe we will have to do through a private.... All this, of course, would tie together. I just want to give you an opportunity to comment on that.
Prof. Myles: There is legitimate debate about that, but it's not unimaginable on the kind of scale I'm talking about. The reason many national pension systems are run on pay-as-you-go is that people have not trusted governments with all this capital. They might use it for bad things and make bad investments. It's assumed that the market makes better allocative decisions than will governments. There's already something there to debate.
But even if you accept that view, the government now creates a market for its debt. It auctions off its debt about every Thursday morning. I don't see why the government could not also auction off some of its capital on a regular basis...put it in the markets.
Mr. McCormick: Thank you very much. It is very interesting and controversial.
The Chairman: Before we finish this morning, I have a couple of questions of my own that build, to a certain extent, from what Andy Scott asked a little earlier. It has to do with the whole business of work and the distribution of work.
I think a concept that the statisticians can perhaps help us on is what it means to be working in the labour force. It seems to me that the sustainability of our ability to provide for the elderly - provide for ourselves when we get old, which is really what the pension issue is all about - is going to depend not only on the rate of economic growth, which was said earlier, but also on the composition of economic growth and the distribution of the benefits of economic growth. It's on the composition of economic growth that I want to focus on when I talk about what it means to be in the labour force.
If, as we were told earlier, we're seeing a polarization between the good jobs and the bad jobs, if we're seeing a shrinking in the number of years that someone who is in the working age population can actually expect to be working in the traditional sense, and if we are seeing, for example, in the case of adult males, a decline in the proportion who are in the labour force in a traditional sense, then obviously there's going to be a lot of time in which people in the so-called working age population, however that's defined, are going to be doing something that isn't going to be measured as economic activity adding up to economic growth.
As the mean age of the population increases, the demands of that population for goods and services, which make up GNP, will change. There will be an increase in the demand for health care. Therefore, the services and activities that people will be doing, which may or may not be measured as economic growth, and in which case may not able to be used as a basis for an investment that confers a benefit, will change.
I will ask the question in a statistical way, because I'm an economist by formation, since we're all acknowledging our backgrounds and our deformities. My question has to do with the statistical measure of how one is defined as being working or not working in the labour force and what constitutes productive activity that can or cannot be part of what will go into economic growth and which will then be used to share, in some way or another, to those people who will need it, a larger portion of whom presumably will be elderly.
Susan McDaniel talked about this the most directly. I'd like to know what it means to be in the labour force. Is that concept going to have to change? Is it changing? How does it affect the other considerations we are talking about this morning?
Prof. McDaniel: You have hit on a very crucial point, particularly the measurement issue. I've been involved actively in advising StatsCanada in various ways on measurement of work and unpaid work and how all of this fits together.
The other thing that comes to mind is that in the research I did on the aging workforce I asked questions for the first time that didn't ask people to select, in a mutually exclusive way, which category they fit in: whether they were working at home, whether they were retired, looking for work, not in the labour force, unemployed, all of that. They could choose any number of categories, and an amazing number of them did. This is in a random sample of all of the province of Alberta. Amazing numbers of people chose five or six categories because they're all at once looking after a home, they're retired, they're also working part-time, and they're looking for another job or might be self-employed at the same time.
This provides an immediate, easy entrée statistically to the kinds of things you're getting at. I think this is crucial in terms of meaning systems, which is another thing we're getting at here. What does it mean to have x numbers over 65? What do these numbers mean? What does work mean?
If a person is perceiving themselves and the national accounts are perceiving the work they do as contributing to the economy, whether it's paid or not, that means they can conceptualize themselves and we can conceptualize them not as a burden on society but rather as somebody who's contributing. That's precisely what homemakers have been talking about for years, but it's also something pensioners talk about.
Many pensioners say, I want to get rid of this business of burden. What burden am I on society? It's not as if I contributed as a child and as a young person and now I'm no longer contributing. I'm still contributing. Give me some credit.
So I think the concept of burden and dependency also relate importantly to your question.
Prof. McKie: I also agree that this is important. The formal definition of labour force activity is set in stone and has been there for many years. Clearly everybody recognizes that there are all sorts of activity that fall outside of it.
If we were all willing to acknowledge that the whole of social life is much larger than economic activity and give the same emphasis to, say, national time use surveys, that situation could be rectified. But there is only one such vehicle in existence now, and it has just been reduced from once a year to once every two years in the budgetary restraint process. That's some indication of how important that wider view is in the scheme of things. It is much smaller and less consulted.
What you're really proposing, it seems to me, is to freely acknowledge that social life is much more important than measures of economic activity would tend to suggest or address directly. I would really like to argue in favour of these wider measures that would allow people outside of the formal labour force, for the purposes of self-esteem and identity, to be able to define whatever it is that they're doing as worth while and to derive personal satisfaction from doing it, whatever it is.
Maybe it's driving for Meals On Wheels or something like that. That's very important to this society. It will get more important as time goes by. Just the ability to find oneself in an official table can be a source of self-esteem.
Right now you're asking those people to do those functions - drive for the Cancer Society, deliver the meals - not only unpaid but unrecognized, and to some extent stigmatized as a person who is solely deriving benefits from the overall system, and that clearly is not the case.
So I really couldn't agree more that the accounting of social life has to transcend direct economic activity and measures thereof.
Prof. Myles: The point is an important one. You may be interested to know, as I understand, StatsCanada in fact has been working on several approaches to adding some estimates of unpaid work into the national accounts. So it's something that is serious and something people are paying attention to.
In an historical sense, however, I wonder as to the extent to which the services consumed by old people are much more likely to be in the market, I think, than services consumed by children; that is, if we went back to the 1950s and that baby boom, the caring activity of mothers that they were putting into those kids was totally unmeasured.
In an aging society, given the fact that so much more of the services they consume in terms of meal preparation, assistance and so forth is ``commodified'', is done through the market or through public services, I wonder if in fact the shift isn't in the other direction.
The Chairman: In other words, there's more that's measured than is unmeasured?
Prof. Myles: Well, the way you pose the question is that with the shift from a younger to an older population you're also going to get a shift in the demand for goods and services, because older people consume different kinds of goods and services than do kids.
My point would simply be that in an historical sense it's probably the case that the goods and services consumed by old people are more likely to show up in the national accounts as having been delivered through the market or through the public sector by employed people than the services consumed by children.
The Chairman: In a way, that strengthens the point I was making earlier, to the extent that if more of those goods show up in the market as they're being consumed, but don't show up in the market as they're being produced.... The point we were discussing earlier is not only a measurement question, it's a conceptual question in the sense that if it's in the underground economy - and seniors require income that is in the monetized economy - there has to be more than simply an accounting for those; there has to be a way of translating that production in a way that can account for the needs the population will have when it reaches that age. That's the point I was making.
So I don't have any answers to this, but I think the discussion we've had this morning, if I can summarize, shows just how interrelated all of these things are. When we talk about the aging structure of the population, and pensions, we are not even necessarily talking about seniors, we are talking about the rest of the society and the economy that comes behind.
This is probably a useful place to stop this morning, since we're reached noon, and we'll come back this afternoon and talk more directly about the pension system in Canada.
I'd like to thank our three opening panellists and the committee for their contribution this morning.
We will be back at 1:30 p.m. to continue this discussion. Merci.
The meeting is adjourned.
The Chairman: I'd like to call this afternoon session to order. Perhaps we can begin.
We are still waiting for the third of our presenters this afternoon, Mr. Ken Battle. We understand he's on his way. We will begin so as not to let it go too late, and he can pick up the discussion when he arrives.
We will start this afternoon like this morning with three presentations followed by questions and a round table at the end of the afternoon. Our first speaker will be André Lux whom we have already introduced this morning.
Dr. Lux: Mr. Chairman, ladies and gentlemen, I'm very pleased to be able to add my small contribution to this debate, even if I'm not an expert.
My expertise is to not have any, to float between sociology, economics and demography sometimes drawing on my studies in philosophy. So my remarks will be somewhat vague at times.
I will try to provide a link between this morning's atmosphere and the perhaps more technical remarks my two colleagues will make.
First, I would like to say something that is probably obvious to everyone here. That is that the aging process of our rich society and of Canada specifically is irreversible. We cannot change it in any depth.
I would not say that our population is condemned to growing old, because I agree to a large extent with my colleague to my right that aging is partly the fruit of the success of our civilization and that, in any case, because the world is finite, there is no room for 250 billion inhabitants on our planet. So at some point we have to stop growing. For reasons of mathematics, we are faced with the dilemma of growing or aging. As we cannot grow indefinitely, we must age, as a society, of course.
In terms of the extent of this aging, the only problem facing demographers is the accurate selection of their scenario. They could be criticized for not having done always so well in the past, but, as far as I am concerned, I find no fault with them for not having foreseen the baby boom. I do, however, find a bit more fault with them for not having seen the baby bust, because this second wave was much more foreseeable. It reduced our numbers in a long-term trend.
My figures concern Quebec primarily, but, give or take a few decimal points, they apply to Canada as well. While those 65 years and over represented 10% of the population at the start of 1990-91, they will represent between 22% and 30% of the population in the year 2040, according to demographic scenarios.
However, even if the birth rate were to rise to 2.1 children, with immigration at 10,000 a year and a slight increase in life expectancy, the figure will be 21%. This growth will be much more rapid in old age, which I will arbitrarily set at 80 years and above. The very old numbered 2% of the population at the start of the decade and will represent about 4% of the population in the year 2040.
I had fun - and you have to when you are a professor or a researcher - coming up with a very ordinary model to see what might happen to certain government expenditures between now and 2040.
I chose five demographic scenarios borrowed from the Bureau de la statistique du Québec and I combined them with three economic scenarios. In scenario A, the participation rate by age remained at the 1986 level. In Scenario B, the mobilization of our human resources was expressed by an increase in the labour force of 15% between now and 2011 and by 25% between now and 2040. We will see, as was already pointed out this morning, that mobilizing our resources is vital to at least slowing down the growth of government expenditure and of the burden on taxpayers. In Scenario C, productivity will increase progressively to the point where it doubles in 2040.
My intention is not to bombard you with figures. Furthermore, I'm not capable of doing it after a good lunch. Fortunately, there was no wine. We have to see what will happen to government expenditures and to the burden on tax papers if we can act on three or four strategic variables. Two of them are demographic: a higher birth rate and and increase in immigration. Two are economic: a greater level of participation and a growth in productivity. I have a whole slew of figures, but I haven't the time to recite them.
What would be striking if we could do it, but the government can hardly do it, would be to note that the theoretical effectiveness of the way these four variables are handled can vary.
I am not claiming this is Gospel. I have read other studies where three of these four variables came into play, and they were not categorized the same way as I have categorized them. It all depends much more on the hypothesis you choose than on the calculations you do.
At the start, and I must say it, I had no idea where I would end up. My study was therefore not guided by wishful thinking, at least I hope not, because, unlike what we might believe, ideology does come into play in the human sciences and in particular in demographics, even if we are not always aware that we are being affected by our own ideology. I am not using ideology in a negative sense. What would we do without it and without a system of values!
In order to give more time to discussion, I am simply going to give you the summary by saying that the variable that appeared the most effective or the least ineffective was the increase in the birth rate. In talking of the increased birth rate, I refer to the rate in Quebec in 1986 of 1.5 children per woman, increasing to 1.8 and up to 2.1, which is the net reproduction rate, and not any higher.
Next came an increased participation rate or the mobilization of the adult population. We all know that a significant number of adults, for various reasons, are not working, do not earn an income and are not productive. Reference has been made to the current trend of drawing on one's pension earlier and earlier. This trend is in response to short-term objectives at a time of employment and unemployment difficulty. The relatively easy solution is to push those who are less young out of the labour market with pre-pension or whatever type of system. Needless to say, in the medium and more importantly the long term, this solution is catastrophic.
I won't give you any detailed figures and calculations, but will summarize by saying that the older a population becomes the less it is entitled to rest. We must be all the more active and creative as our median age rises. It is perhaps a bit of a paradox: if someone is entitled to rest in old age, society must become increasingly active as it ages.
Immigration came third. Demographers are unanimous in saying that immigration has relatively little effect on the age structure. In other words, if we want to slow our society's rate of aging, we certainly cannot do it through immigration. Immigration has other benefits.
To the extent our birth rate is below the rate of reproduction, this deficit may be filled through expanded immigration. So in that sense, an immigration policy has one advantage. I'm not saying that it is the only one.
Finally, there is increased productivity, which is really, although I am somewhat reluctant to characterize it as such, the ultimate, weapon. It is very clear that, faced with an increased load, it will be easier, psychologically and subjectively, to accept losing a large part of our gross income in the form of contributions to all sorts of social security funds, if the piece of the pie we receive is larger, at least objectively, because subjectively, there is nothing more unpredictable than taxpayer's reaction to tax burdens.
Wouldn't we be pleased if we had to pay American-style taxes, and yet, taxpayers revolted in the United States before they did in Canada. Many Europeans would be happy to be in North America. They would make fewer social security contributions. So, it is all very relative.
I said that, in principle, changes in these variables could bring relief. In practice, at least if you are a government or the State, it is rather unlikely that you could develop a policy based on these variables, at least on the first three.
In the case of fertility, opinion is divided, but on the whole, government is considered to have only an indirect effect, that is it can create conditions that are less unfavourable to the arrival of children in households but it can, never, convince couples - and much less women - to have children if they don't want them.
Not so long ago, the Government of Quebec decided to make a $500 gift to new-borns or rather to the parents. Exactly nine months later, there was a peak in the number of births. The people said: ``What an effective approach.'' But the peak disappeared for the simple reason that couples, young couples without much faith in the government, said to themselves: ``If they're offering us a gift today, let's grab it. We wanted a child in a year and a half, but let's have one now because in a year and a half there may not be any more gift''. This is almost an anecdotal example, but it shows that government action cannot be direct.
We might give the example of Sweden, where, as you may know, the fertility level rose to 2.2 children per woman quite unexpectedly. It is a momentary figure, an annual figure, which must not be misinterpreted. Apparently, the Swedish Government has, in general terms, a policy that is more favourable to the arrival of children. The policy was not established for reasons of demography or social equality, but it probably did contribute to increasing fertility.
Let us talk about mobilizing the country's bone and sinew. By increasing the rate of participation it's more difficult; by extending the retirement age, the government cannot act directly. Why? Because the movement of this variable depends on a whole series of other variables and more particularly on the quality of a country's economic dynamism as a whole.
In this regard, I, personally, am a bit of a pessimist. Earlier we looked at graphs on aging and the slowdown of certain sectors of the economy. The young generations, the ones preparing for adulthood, are doing so very badly. In Quebec between 25% and 40% of young people are leaving school before the end of high school. What kind of work will they do later on? They will have to go back into the school system a few years behind. We cannot therefore hope a whole lot that these people will be readily employable in the XXI century.
In this regard, I would like to make a remark that may seem somewhat paradoxical. We do not look beyond the problem of old people and its financial implications and are wondering how the Canadian government should go about ensuring decent pensions for old people. A number of experts, and I am tempted to put the word experts in quotes in this case, tell us that the increase in costs due to aging will be partially offset by the reduction in costs due to the reduced number of young people. Education will cost less.
I challenge this statement entirely, for two reasons. The first is that, whatever happens, fixed costs do not decrease at the same rate as the number of students. They go down, of course, but in stages. Because of the economic challenge Canada is facing in the system of economic globalization and given the fact that we have fallen behind by living day to day, we are going to have to make an extraordinary effort in order to bring our younger generations up to date so they may meet the challenge.
This update requires a major educational reform, and I have a hard time seeing how it will not mean a relatively major increase in costs.
Here is another paradox. We recognize the desire of a society to care for its seniors by its ability to invest in its youth. That may seem a paradox in resolving the problems at the top of the pyramid: we are being asked or we should be asked to give relative priority to young people.
Some psychologists - and I am not saying they are right - say that, by two years of age or at least before school age, all of the abilities and the entire psychological make-up of children are established for good. Therefore, in the preschool years, we have an extraordinary opportunity to maximize the potential of the very young.
Now we have to admit it, this is the last of our government's concerns. We are paying a bus driver $60,000 in Laval, which is near Montreal, and more than $50,000 in Quebec City to do a job that requires two months of preparation and here I am being kind. However, the people who look after children of preschool age, who just happen to be women, primarily, earn little more than the bare minimum, the official minimum at least. They count among them, many people who have a vocation for the work - this is still possible - and many people who can do nothing better than look after children. We are not just talking about looking after children. We are talking about giving them their initial training to enable them to perform in primary school, secondary school and beyond, in a way that makes them more productive.
This brings me back to the fourth variable. I will not say much more here about it, except to say that the effects of aging in its broad sense on tax contributions will not be erased by increased productivity. It is not hard to show that, in terms of percentages, the burden will remain unchanged, unless we assume that, in the year 2040, pensioners will have income amounting to 50% not of the income in the year 2040 or 2030 but the income of 1991, which is obviously absurd.
Today's pensions are a percentage of today's real income and not of the real income of 1950. In many of the publications on the effects of aging, this factor seems to have been forgotten.
This leads me to comment a bit and distance myself somewhat from some of the statements made this morning. I am not saying I am right.
Ms McDaniel said that many studies had been done in an attempt to measure the affects of aging and that all these studies reached the same relatively optimistic conclusions. However, other studies reach relatively pessimistic conclusions.
I do not know what the IQs of the authors of these various studies are, but I assume they are at least 120 or 125 or perhaps higher. These people are all intelligent and honest, and I ask myself the question: Is this the Tower of Babel? How can intelligent people with every statistics at their disposal reach conclusions that, if not contradictory, are at least very different? I confess I have no answer, except for a few ideas I would like to throw out for your curiosity. I will have another look at the profile of the changes in the dependency ratio, which Susan showed us this morning.
We saw that the dependency ratio had dropped until about 1990. It is true that it went down, but it is not an accurate measurement. In fact, we are putting two sorts of dependents on an equal footing: the young and the old. As you saw for yourselves, on this chart, the young people's share is decreasing while that of the old people is increasing.
OECD studies have shown that at the end of the 1980s or the early 1990s a retired person aged 65 or more cost the State roughly 2.73 times more than a younger one. If we changed the curve by taking into account this adjustment factor, we would reach a quite different result.
These optimistic projections are based on optimistic assumptions. I will refer to the computations done by the Société des actuaires du Québec and published in 1989 on the changes that should be made to the contributions to the Régie des rentes du Québec which were originally set at 3.6%. They have shown that assuming a fertility rate of 1.8 children for each woman, which is already too optimistic in Quebec, and assuming that full employment would gradually be reached by 2013 - that's quite unlikely and some assumptions are beyond me - the contribution rate would need to be raised to 13.4% in 2035 in order to maintain a ratio of 1.2 between cash inflows and outflows. Now, 13.4%, compared to the present 3.6%, that's quite an increase. It's a threefold increase in the rate of contributions. As has been said this morning, it's still feasible but it's quite a hefty jump.
Some of these optimistic studies also assume that benefits in constant dollars would also remain a constant. This means that if there is economic progress, if we become more productive as adults and have to pay the same in real terms as today, the situation improves.
But who can believe that health costs in 2030 will remain the same as today in constant dollars? If Canadian society becomes wealthier, I can tell you that doctors will not be the last ones to come knocking at the door to get their share of the increased cake, nor will the pharmaceutical companies and, I hope, nurses. In other words, the health sector will cost more because society will be better able to pay if we become wealthier. It won't only be non-health workers who will become wealthier.
As was stated by Jacques Henripin, who is a professor of demography in Montreal, one possible deficiency of these optimistic studies - and he referred to that of Fellegi, which is probably the most thoughtful of all - is that they assume that an overall increase in productivity of our economy would be enough to make the load of pensions easier to shoulder. He says that a specific increase of productivity in the health sector alone would be enough to allow a decrease or a smaller increase of the burden. I don't know if he's quite right on that but at any rate...
If I had a suggestion to make to people who have money to fund symposia, they should invite all the authors of these studies to have a debate among themselves about their differences. Frankly, this is quite abnormal. I have difficulty understanding how such discrepancies are possible. It might be worthwhile, for policy reasons, to try to find a common ground and to find out where errors are being made. This would take some humility on the part of each of these experts. Some experts manage to be humble. It's not guaranteed to work, but that would be my suggestion.
To conclude, to talk about pensions, to talk about the aging society and to focus on the issue of pensions and health costs is the wrong way to tackle the problem if we forget about the context. One thing that struck me in all I have read - but I haven't read all the studies, fortunately - is that nobody ever mentioned the tragic situation of our public finances although pensions and health care have to be financed out of public funds. Now, all of a sudden, because of monetary pressures or whatever, the Canadian Government and the provincial governments have only one religion left and that is to reduce government expenditures as fast as they can.
Today there are demonstrations in Quebec, where people are finally getting stirred up because the government is closing down dozens of hospitals. I don't know if the Government of Quebec knows how to read statistics - I hope it does - but we know very well how many older people there will be 10 years from now. I can tell you that they will have to reopen the hospitals that will have been closed down in the meantime. Is closing down, reopening 10 years from now and getting everything back in working order the best way to manage? I doubt it very much.
I already told you what I think of the problems of youth, but I will state one last point. There is talk only about cuts. Where could we cut without hurting Canadians excessively? Nobody ever suggests increasing government resources. You'll say: ``It's impossible, we're already overtaxed''. Okay, I am overtaxed and you are probably also, but there's a lot of people who are not overtaxed.
There have been evaluations made of the proportion of the tax dollars that do not reach government coffers. If the federal and provincial governments streamlined their tax systems, they could put part of their public servants at work to go hunting for tax dollars that are being evaded.
On the other hand, there are tax benefits that are totally unjustified and that benefit only wealthy Canadians, obviously. I was told - I don't know if it is true - that in 1992, federal subsidies and tax shelters given to large corporations amounted to $40 billion. If it is true, it's about the same amount as the present deficit. Is it really justified?
We know the advantages given by the federal and provincial governments to the pharmaceutical industry. Recently there was some talk about the fact that pharmaceutical companies have not used these subsidies to really undertake research and development work here.
What can you expect - this may be harsh but I don't care - as long as a government, and especially the federal government will have as a Minister of Finance somebody coming out of the ranks of the wealthy and the big corporate sector, as is the rule in most of our democracies, at least in North America, it will be extremely difficult to get this government to seriously look at making the tax system more equitable.
And I'm deeply convinced, even without looking at all the figures, that unless we do precisely this, we will not have enough resources to maintain and finance decent services to the poorest of our citizens and to the average Canadian.
It was said this morning that the Canadian pension system is not very generous. Even to maintain it at its present level, with the increase in the overall number of retired people, we will need to get more money from somewhere. Right now we go out and take it from the poorest: we decrease unemployment insurance benefits because unemployed are not a very powerful lobby in Ottawa or in the provincial capitals.
There is a fundamental injustice in our system which is more and more managed by an oligarchy. One doesn't have to be communist or a member of a social-democratic or new-democratic party to notice such things. Thank you very much.
The Chairman: Thank you, Dr. Lux, for this presentation.
Before I begin with our next presenter, let me introduce Ken Battle of the Caledon Institute, who arrived while Professor Lux was speaking and who will wrap up our presentations this afternoon.
I'll give you an opportunity to listen to Professor Robert Brown next, before coming in with the final wrap-up of the afternoon.
Professor Brown, you may now begin.
Prof. Brown: Thank you very much, Mr. Chairman.
I brought some slides of my summer holidays of the last few years. Of course, as a professor, my summer holidays are spent doing research that you can't do between September and April. That's what we'll be talking about.
I have some overriding comments to start that don't necessarily come through in the slides.
First, I think we have to remember quite clearly that there is nothing particularly magical about age 65. People do not enter the workforce upon the completion of their education, work 40 hours a week until age 65, and then the next morning sit on a beach. We are in and out of the workforce. People retire at all kinds of ages, such as 53, 61 and 78. We should stop thinking there's a black and white world defined by age 65. It's just not true.
Second, the health of the social security system is in fact tied directly to the health of the economy. In a healthy economy, you can afford whatever it is you deem to be socially desirable. We need to have a healthy economy to have a healthy social security system. You must create wealth before you can transfer it. That is really the key to some of my comments today.
Third, before a population can feel secure and therefore have social security, they must believe in the benefits. If the population does not believe that they will get their benefits, you cannot call it security. I believe Canadians can get their benefits and will get their benefits. I hope that through the white paper and the work this committee does, we can convince Canadians that there is social security available to them.
Those are my overriding comments.
You have heard that population aging is driven by two forces. The first is life expectancies, which have improved remarkably this century. The 1991 figures are now out and they're up yet again, so we're all living longer.
Every time a cohort comes through with enhanced life expectancy, the real value of social security rises. We are all receiving our benefits for a longer period of time, and yet there's no announcement on January 1 that the Canada Pension Plan just got better because we're living longer. In fact, this plan has been growing and no one has ever announced that it has been growing. We need to take this into regard.
We've also been told today that the most important driving forces of population aging are the changes in the fertility and birth rates, these other parts of the demographic puzzle. Here I have juxtaposed Canada and the United States. From one of the comments this morning, if you had hired me in 1930 to predict the 1993 fertility rate, I probably would have done a time series and given you exactly the right answer. The only problem is I would have been completely wrong for the years intervening.
Note, however, that today's fertility rate is in fact consistent with a long-term trend, as has been pointed out. Very consistent with wealthy nations and healthy nations, the fertility rate goes down. Also notice, however, that our fertility wave is higher in its peak and lower in its trough than that of the United States. It's not just the Blue Jays where we're number one; apparently we're also more interesting demographically.
I'd like to turn to live births, because it's these real people we have to fund and it's these real people we're talking about. I want to make a couple of comments about this slide.
First, if you think the baby boom is 50 years old, then you are telling me that the baby boom was born in 1945. I would ask you to look at 1945 and go up and see the tiny little blip that took place there. I am not going to spend the rest of my research career analysing that insignificant little blip. In fact, the baby boom, as you can quite clearly see, did not end until 1966. The largest number of live births in Canada took place in 1959, so that if I have to use a single age to mentally focus on the baby boom, I use age 36. If I have to use a range, the range I use today is age 29 to 43.
The tail-end of the baby boom is now age 29. They're still struggling into the labour force. They are not in fact as a mass about to retire. This explains many of the things that are going on in the real world that, if you call them 50 years old, are inexplicable.
I was born in 1949. I claim that I am not part of the baby boom. And you can chew on that if you want, or disagree with me if you want. I'm just an actuary who says, well, there it is, go for it.
Here's what's happening because of those tidal wave changes in demographics. This is exactly what the Canadian population looked like at the time of the census in 1986. You can see quite clearly the baby boom generation followed by the baby bust generation. And you might even be able to predict what the population looked like five years later. Quantitative demographers do these things, and this is what comes out five years later, rather predictably. The baby boom wave is now five years older and it's moving its way through the age groups like a python swallowing a pig.
You know right now that we're at a very good moment demographically. We have a large labour force available to us, and a relatively speaking smaller number of young people, the baby bust generation, going through the period of time where they need to be educated. But in particular, the aged cohort we're now supporting with health and social security is the depression cohort, a very small cohort indeed. So demographically we are at the best of times in terms of these ratios that we keep referring to.
But what happens around the corner? This is what it is suggested Canada will look like in the year 2031. The baby boom has now retired. The baby bust is now your source of the labour force and the funding ratios have changed dramatically.
I would like to go back to something I said a minute ago. The baby boom ended in 1966. Let me point out to you that the Canada Pension Plan, the Quebec Pension Plan, the guaranteed income supplement, and the finalization of universal medical care really occurred in 1966. And it is with the Hollywood irony that, of course, can only be found in actuarial science that the day we brought into place these very magnificent social security transfer schemes was also the day when the demographics that made them easily affordable ceased to exist.
But is there a crisis? I don't believe so, although when you see my worst-case scenario you may want to ask whether you would call it a crisis. But let's continue on.
I told you before that Canada had a steeper peak to its wave and a lower trough to its wave than the United States. It turns out that in terms of all of the western industrialized world, Canada has the most remarkable shift in the number of people aged 65 and over. This might refer back to our 40% change this morning. If you go from 1985 to 2025, in fact it's a 135% change, next only to India, China and Hong Kong, but those three countries have not made significant promises to their populations, at least not as significant as ours. In terms of the western industrialized nations, we have the most fun.
We have been told that there is the understanding of a three-legged stool of retirement income security. There are government-sponsored systems, there are employer-sponsored systems, and there are self-funded systems. Of course, the employer pension plans and the individual savings have a taxpayer component because of the tax advantages that we offer to these systems. But I think it behoves us to start to change the philosophy around this three-legged stool and that we need to add, and start to think about, a fourth leg.
That fourth leg will be work earnings. Because of the fluidity of retirement, which does not occur necessarily at age 65, and because of the shifting demographics, we need to start to legitimately look at work earnings as part of a retirement income planning process. I would suggest that we add a fourth bullet to that slide.
In terms of the government-sponsored systems, we have a number of them: the Canada/Quebec Pension Plan, old age security, guaranteed income supplements, and the spousal pension allowance. We have provincial supplements such as the GAIN supplement in the province of Ontario.
There are two things you try to achieve in terms of retirement income security. One is a basic floor of protection so that no one slips into poverty, and two is a legitimate replacement ratio so that people can retire at a standard of living that does not cause a huge transition.
Most of the government-sponsored systems provide the social security net and floor. The one that is earnings-related and moves partially towards a replacement ratio is the Canada/Quebec Pension Plan.
We can see quite clearly here that the government-sponsored systems offer a much larger replacement ratio for poorer people than for wealthy people. Wealthy people have to turn to their employer or to their own resources to fill in the gap between what the government sponsors and what they need for 70% or 75% replacement.
For someone who consistently earns the average industrial wage, government-sponsored systems will provide about a 40% replacement ratio. There is no coincidence in my mind that it is virtually identical to what the OASDI system in the United States also does for someone who consistently earns the average industrial wage.
So what's the problem? What's the big deal? This is perhaps the beginning of the explanation of the problem. Canadians decided in 1966 - and I think if I had been there I probably would have signed the accord - that they wanted the Canada/Quebec Pension Plan to be basically pay-as-you-go. A pay-as-you-go plan means that the contributions that come in this morning go out this afternoon as benefits.
There is a small side fund to the Canada Pension Plan; it's about $43 billion, but in real terms that's only two and a half years of benefits. It's really a contingency or a rainy day fund, so that if something unforeseen happens, such as a jump in disability income claims, the fund doesn't go bankrupt in four or five months. You've got a fair period of time - in fact, in this case when disability income claims jumped, we found we had 20 years before we really were going to face a crisis, to solve that problem. So that's why we have this side fund, but it is basically pay-as-you-go.
When pay-as-you-go is combined with population aging, contribution rates have to go up. They're now at 5.4% - 2.7% from the employer and 2.7% from the employee. Of course if you're self-employed, as more and more people are, you pay the 5.4%, but the provinces have already agreed that it must go to 10.1% by the year 2016. In fact, we know that is no longer enough. Because of the increased disability income benefits, we can't get to 2016 with those contribution rates. Ultimately it will have to rise to 14.2%, and the question is, will the next generation of Canadians find that palatable? That's really the question, and we can debate that, and it's small compared to the rest of the world, but I would suggest that part of our problem is not so much the absolute rate but the speed with which it changes. That's part of the really big political problem.
Notice that once a year the newspapers do publish the increase in the Canada Pension Plan contribution rate and then there is a bunch of ugly articles about the CQPP for about a week. As I pointed out before, they never publish the fact that the plan gets bigger every year because we're all living longer.
These are the kinds of articles that you see then. This was in Maclean's magazine. Clearly, the first generation in the Canada Pension Plan got some windfall benefits. Someone born in 1920, who turned 65 in 1985, for every $1 of contribution got an actuarial value of benefits equal to $7. For someone born in 1960, their equation is about $2.60 worth of benefits in actuarial terms for every $1 of contribution, but for somebody born in 1980, it's a saw-off, and somebody born after 1980 can legitimately question whether it's a good deal for them. It may not be as good a deal for them as a private pension plan, given today's demographics and today's real interest rates in the private sector.
Now I don't think that 5.5% and 6% real interest rates will continue, and I'm not sure whether the demographics as they are today will continue, but if they do, then it could be said for people born after 1980 that their rate of return would be higher in the private sector. This will be part of the debate and part of the issue that is being brought to you.
This is a slide showing the public opinion of Canadians. Do you believe you will get your Canada Pension Plan benefits? In the very youngest group, 29% say yes; in the next age group, 30 to 39 years, 23% say yes. I understand from a colleague that this 23% believability rate is about the same as the percentage of those people who believe in UFOs. Obviously those beyond age 65 believe they will get their Canada Pension Plan benefits.
But we can't have this. You can't have social security if no one believes it's going to be there. That's not security. So if we believe it's going to be there - and I do; I believe it can be there - we need to get out and tell people that they can feel secure and convince them that they can feel secure.
Here's how they feel today. They're looking at the elderly, who got their $7 of benefits for every dollar of contribution; and they're looking at their future, having heaped upon them the cost of pension plans, old age security, prescription drugs, and universal health care; and then if they whine, we slap them. This thing about the ``me'' generation...if I had lived their life to this day I would whine a little bit too. They have walked across the beach after the tidal wave hit. And it's been just like a tidal wave. By the time they get there everything has been destroyed. We'll come back to that in a minute.
Here is the reality, then, of the impact that population aging will have on wealth transfer schemes. The dotted line that rises the least is the actual population. The dashed line that rises 70% by the right side of the graph represents health care costs driven only by population aging. There's no improvement of any benefit in there. This is a purely constant-dollar but population-aging-driven model, a 70% real increase in health care costs, and these are all real increases stated in constant dollars. Look at the transfer in terms of retirement income payments. We go from an index of 100 to an index of 300 in that period of time.
We have been told by our citizenry that they're not sure it's going to happen. Are we sitting on a bubble? Can we promise them these benefits? Will it be affordable? We have even gotten to the point where it's in the cartoons. You know it's serious when it gets into the humour. Sally Forth says, ``I've run the numbers, Ted. If we don't start to save more money we won't have enough to retire on.'' Ted says, ``Did you include your social security?'' And they both collapse in fits of laughter. Sally says, ``Oh boy, that's a good one!'' And her husband says, ``Well, I can't take the credit. Our parents are the ones who played the joke on us.''
Now, I don't happen to agree with this, but this is the philosophy that's out there. This is what you hear when you go to a social event.
Here's another one. Here's this chimera of pensions on the horizon and the buzzards looking at the poor working stiff saying, ``On the other hand, there's increasing statistical evidence that it's simply a mirage.''
Is it just a mirage at a horizon that we will never reach? I don't think so; I think we can have it. But this is the myth that has been created. This is the myth that will have to be destroyed, and there's nothing tougher than destroying a well-founded or well-believed myth. It's not well-founded but it's highly believed.
In terms of the private pension system, a lot of people will say the reason you got here, the reason you have these problems, is the pay-as-you-go funding. If only you had fully funded it, none of the problems would be here. Fully funded plans aren't impacted by demographics and shifting demographics.
I disagree. If pension funds continue to contribute at exactly the same rate as they are today, then they also would run out of money because of the aging of the workforce. They are properly funded; I'm not saying they're not. But as the workforce ages, defined benefit plan contribution rates are going to have to go up and the ability to pay for early retirement incentives will disappear. In fact, if no contribution rate changes were made, we would be in a net liquidation of pension fund assets by 2026.
Can an economy liquidate its total private plan assets in a very short period of time? What would be the economic ramifications? If everybody wants to stop working and expects to be passively sitting on a beach, who's going to produce the wealth? Where does the wealth come from that wants to be consumed? How do you change those ratios that quickly?
If you go to buy your annuity when everybody else is buying their annuity and if you go to sell your house when everybody else is selling their house, what real value will you get out of it? What is the rate of inflation going to be if we expect everybody to do what they're doing today? Those are rhetorical questions; you know the answers.
Let's go back to this ``me'' generation. I like to think of the baby boom as having two parts to the wave. I'm fortunate enough to have been a surfer. I caught the wave only because of when I was born, not because I was bright or entrepreneurial. I was born ahead of the wave.
When I went to school it was easy. There were lots of jobs. I bought a house when houses were cheap. I now have a lot of equity in that house. My colleagues have been promoted several times, completely beyond any capabilities they have, purely because of their age.
For everything we did, the baby boom came underneath and drove us forward. Do I have equity in a house because I'm entrepreneurial and wise? No. I have equity in a house because I was born in 1949. Boy, that was smart.
The second half of that group is made up of the people who hit the beach after the peak of the wave went through. They had difficulty going through school. They had difficulty getting into university. They had difficulty getting into the labour force. When they went to buy their houses, house prices were already elevated.
Do you remember mortgage rates in 1983? They were 22%. Why? Well, where was the baby boom in 1983? They were all buying houses. What a surprise! Now these people are being told they can't count on their social security. Well, it's just not fair.
We've been told that part of the solution is to remember that these two dependency ratios are mirror images of each other - that the youth dependency ratio is falling as the age dependency ratio rises. Wouldn't it be marvellous if the wealth transfer were 1:1, because then in fact this would be the solution. You could just add up these two and point to the graph and say there's no problem.
Of course the wealth transfer, as was previously pointed out, is not equal. It's something in the order of 2.7 times per unit elderly versus per unit youth. So if you work out the true wealth transfer with these statistics, it does rise. I call these expenditure dependency ratios; they could also be called wealth transfer indices.
I've set 1991 equal to 1. Notice we're in a marvellous period of time. From 1981 to 1991 was a period when early retirement made sense. In the next period of time, up to 2001, there's not much change. But when does that baby boom start to retire? After 2016. And then it goes kaboom.
The transition we are going to go through between 2015 and 2031 will probably be an inevitable surprise. It will be shocking to people, what is going to happen between 2015 and 2031. The question, therefore, is can we afford a transition that requires a 59% change in wealth transfers in the next 40 years? More remarkably, can we handle that shift between 2011 and 2031?
If the economy becomes 59% more productive, then we can hand all of that increased productivity over to the elderly and take care of it. How do you think the workers would respond to having become 59% more productive and then being asked to hand it all over?
Or we could share that golf bag of burdens and some of the risks by changing that wealth transfer ratio - the ratio of those who want to consume and be passive to those who want to produce goods and services.
This is not good public policy; it is inevitable. Our economy cannot go through this transition. It will respond, and the economic response, without something else happening, will be something like inflation. The retired will become poor through inflation. Do we want that? No, we don't.
What we need to find, then, is a way to not have that wealth transfer index rise 59%, but rather to keep it level. How do we keep it level? We keep it level by keeping more people productive. We stop this idea of everybody retiring at 65. We start to think about work earnings as part of the retirement income security solution.
What do we have to do to participation rates and to attitudes towards retirement to get that bottom line? We have to keep everybody in the workforce. That extreme right end requires everybody staying in the workforce about four years longer than they do today and a linear transition in between.
Because we still all think of age 65, I will state this in terms of age 65, but keep in mind I couldn't care less about 65. It's just plus four.
We can talk about age 65 until the year 2006, because we have this marvellous demographic window of opportunity. Then that line along the bottom goes up by two months every year: 65 and two months, 65 and four months, 66, 67, until it gets to 69, at the far right extreme 24 years later, in 2030, and then it doesn't have to move. That's it.
That's the worst-case scenario, and it can come back if we become marvellously productive. But I would like to point out that the models that require these productivity increases are assuming rates of productivity improvement that we have not realized over the last decade. What has been the rate of productivity improvement over the past decade? Virtually nil.
Can we go back to the 1950s and 1960s? Boy, if we could, we could do marvellous things. I just think we should plan for ``what if''. This is ``what if''. If it doesn't come true, you can back off, and wouldn't that be marvellous?
Is this then of crisis importance? Can I go to the Canadian public and say I'd like them to stay productive for four more years? Well, let's go back to the very first idea - this idea of life expectancy and the Canada Pension Plan getting bigger every year.
If we had defined the benefit period for the Canada Pension Plan in terms of life expectancy, these would have been the retirement ages. These are constant-dollar, actuarial ages in terms of life expectancy. Notice in 2031 it's nearly 71 years old for the same number of dollars as we designed back in 1966. And I'm not talking about a shift to 71; I'm talking about a worst-case scenario shift to 69.
I think we can get there. I think we can do it. I think we can share. I think we can believe. I think we can attain the true security that is required to have social security.
I thank you for your time. I hope I've helped. After Ken, I'll be available for questions.
The Chairman: Thank you very much. You certainly have. I hope we can have a copy of the slides.
Prof. Brown: Somebody who is more high-tech than I am is going to have to figure that out. I understand there is a way to do it, though.
The Chairman: I understand that's being worked on.
I now invite Ken Battle to take the floor and complete the day's presentations, and then we'll turn to questions and comments from the other members.
Mr. Ken Battle (Director, Caledon Institute of Social Policy): Thank you, Mr. Chairman.
My apologies to my fellow panellists and the members of the committee for having to miss this morning and a little bit of this afternoon. As you know, yesterday Caledon ran a session similar to yours on a retirement income system that a couple of participants were at, and I had to do some follow-up work on that.
I'm probably going from one end of the spectrum to the other. I'm going to look in a very detailed way at one big part of the retirement income system. I want to talk about the evolution of what I'm going to call elderly benefits.
Let me clarify what I mean by elderly benefits. I'm talking about the old age security program, popularly known as the old age pension, which we've had in place since 1951-52; the guaranteed income supplement for low-income seniors, which we've had since 1966; and the spousal allowance for low-income widowed persons and wives of low-income old age pensioners, although I won't focus on that today.
Two other benefits that aren't usually thought of as part of the elderly benefits system, but that I think are very important, are the two tax-delivered benefits: the age credit and the pension income credit. These are benefits that most seniors take advantage of in terms of tax savings.
As you know, for a number of years a number of us have been arguing, and I think it's become reasonably accepted, that tax savings are the same as program benefits. They cost the government money one way or the other and they give Canadians who qualify for them benefits one way or the other.
So when I talk about the system of elderly benefits, I'm going to add together all of these programs and look at them usually together, sometimes apart.
The 1995 federal budget, as I'm sure parliamentarians and my fellow panellists know - but I don't think Canadians realize what's coming - announced some very major changes in the system of elderly benefits. It hinted at them very strongly, more strongly than I would have expected. It's consistent with the trend of changes that has been going on in the elderly benefits system over the last ten years. I'll quickly review that and then I'll come to the budget.
I want to end by showing you some of the reasoning behind the ideas that are in the budget, and by putting up a straw man, if you will - a kind of model - of what this new system might look like, so that John and the other panellists can shoot it down. It's very difficult in this kind of thing to talk in the abstract; you really don't know what you're talking about. I'll come back to that later.
First I want to very quickly go over some material to show you trends in spending on the major elderly benefits programs since their inception. Part of the reason for looking at the reform of elderly benefits is that some people - and I'm one of them - believe the rising cost pressures on the elderly benefits system are a serious issue. We are going to have to come to terms with it now in order to preserve a solid system of elderly benefits, which is particularly important for low- and middle-income Canadians, in the future.
The first slide shows old age security expenditures since the program paid its first full-year benefits back in the early 1950s. These figures are all in inflation-adjusted dollars so that they're in real figures, and as you would expect, they've gone up. There's no big surprise in the figures.
The most recent figure, the estimate from 1994-95, was a tad under $16 billion. These are gross benefits. They don't take into account the income taxes people pay or the effect of the claw-back, and I'll refer to that later too.
So you can see that certainly since 1973 - the reason for that little blip is that's when the program was fully indexed - there's been a very steady rise in spending. The reason for that is not a mystery either. It has to do with the fact that there are more and more people getting the benefits because of the aging of the population and the fact, of course, that those benefits are still fully indexed to the cost of living. The number of old age security recipients is about 3.5 million now.
The second major program in the federal system of elderly benefits is the guaranteed income supplement, which goes to lower-income seniors. That's the very important program in terms of anti-poverty impact we've had in place since the mid-1960s. I'll show you that in a minute. Again, expenditures have gone up. They appear to level off a bit in the mid-1980s and they're on the upswing again. The reason for that levelling off is the fact that the way the guaranteed income supplement is designed is that some people get a full benefit, people with incomes above a certain amount get a partial benefit, and then it finally disappears.
What's been happening is that the percentage of GIS recipients overall who get partial benefits is now the majority and has been increasing, and that's a reflection of improvement in the incomes overall of elderly Canadians. But we can still see that this program is about $4.5 billion this year.
The number of guaranteed income supplement recipients has been increasing, although not as rapidly as all elderly. It's hard to predict how that's going to go. It may level off, but depending on the long-term future on what happens to people in the labour market who are of low and middle age, those numbers could go up a lot. It's one of my concerns.
If you add them all up together and include the spousal allowance program, a relatively small program for the near elderly poor, you can see again a similar trend. Expenditures have been going up and they're a bit over $20 billion this year.
If we express the expenditures as the percentage of the gross domestic product, GDP, the normal economic denominator, we can also see increases. It's about 2.8% of GDP now, and that's because, of course, expenditures have gone up more than economic growth, and there is no reason to expect that to change.
On poverty rates over time, I think this is one of the success stories of Canadian social policy. Back in 1969, which was the first year for which we have data from StatsCan on low incomes, you can see that families headed by elderly Canadians, as shown in the black bars, had a very high poverty rate. It was 41% back then, compared to 21% for all Canadian families. Over time the poverty rate - this is the percentage of elderly families who were below the low-income line - has gone down and, indeed, in the late 1980s switched places. Now elderly families have a lower risk of poverty than non-elderly families and all families together. So there has been pretty fair progress made against poverty among elderly families.
The picture for single people who are elderly is not as rosy. There have been improvements over time, as you can see. The lighter-shaded bars are actually showing the elderly. The gap between them and all single elderly or unattached individuals, as they are called at StatsCan, has declined over time. There has been some improvement, but we still have a pretty high poverty rate for single people who are elderly. It's 51% at last count, and for single women, who make up the majority of unattached elderly, it's about 60%.
So we still have a long way to go in terms of closing the poverty gap with public programs for seniors. To show you that, this slide is comparing the black bars as the total income available to low-income seniors. On the left I show single people, on the right a couple. This is the income they would be guaranteed from the old age pension and the guaranteed income supplement.
Six of the provinces and the two territories also provide varying kinds and amounts of supplements to their low-income seniors and so I haven't included those, although in some provinces the gap isn't as wide at it appears here. But this shows you the gap in terms of the federal guarantee level. You can see that in 1994 - I show it last year because we have full data - the OAS/GIS for the single senior was just a bit over $10,000. The low-income cut-off, popularly known as the poverty line, for a large city was $16,511, so you can see there's quite a gap for meaning there. It's smaller for pensioner couples.
Some people argue about whether poverty lines are an appropriate measure or not, but it gives us some idea of the size of the gap over time.
This is showing income distribution of families with elderly heads at last count in 1993. What I show here is the number of families headed by people aged 65 and over in different income levels along the bottom. As you would expect - it's not a big surprise either - the majority of elderly families are toward the lower end of the income spectrum, and more so even for single seniors, who are very much bunched on the low income end. So we don't have a lot of elderly Canadians at the high end of the income spectrum, although the numbers have been increasing somewhat over time.
I want to talk very briefly about some of the major changes going on in the system because, as some of you know, the old age pension system we have now is a far cry from the one the majority of Canadians still think we have. There's quite a gap between public perception and the reality.
I'm going to go back ten years to the 1985 budget, which was Michael Wilson's maiden budget, you may recall. He was with this political party that faded away, although it may reappear in Ontario.
He made some changes that really had a profound impact over time on the nature of the pension system. You'll remember that was the time when the government tried to partially de-index the old age pension, ran into some real hot water and had to back down. This was the famous Solange Denis-Charlie Brown affair, really the first bloody nose that the Mulroney government got, and they had to back down on that. The seniors groups were well organized and there was a lot of sympathy for seniors. The government wasn't able to chip away at the old age pension through fiddling with the indexation of the benefits. So it has remained fully indexed.
However, the government made some other changes, which were less visible and less prominent to people, that really had some impact over time.
One change that came into effect the following year was that the income tax system, which affects elderly benefits, was partially de-indexed. What this meant was that seniors paid an increasing amount of income tax on their old age pension.
In 1988 another major change in the income tax system came about when personal exemptions and most of the deductions were converted to non-refundable credits. You may remember this. What was important there is that the age exemption and the pension income deduction, two of the elderly benefits I was talking about, were changed considerably in their value. What it meant was that higher- and middle-income seniors did not get as large a tax saving from those two programs as they had prior to the income tax changes. It really was a move in favour of fairness to the tax system.
The next major change to the elderly benefit system was of course the infamous claw-back on old age security that was announced in 1989. It took three years to phase in fully. What this meant was that seniors with incomes over a certain level had to pay an increasing proportion of their old age pension back to the government through the income tax system. What has happened is, of course, that as of 1991 when the claw-back was fully implemented, high-income seniors no longer keep any old age pension. So as of 1991, the universal system stopped.
This is another change that I think is still not widely recognized, that we no longer have universality in old age pensions, for people who consider that an important issue. It wasn't simply the claw-back in old age pensions that made the difference; it was the fact that this was designed deliberately and carefully to fall over time in real dollars, so that more and more seniors at lower and lower income levels would get less and less old age pension.
To show you how that happened, how it is happening, this slide is showing the claw-back over time. The black bar shows the income threshold, where the claw-back kicks in. It started off at $50,000 net individual income, which is very high for seniors, of course. It affected, I think, 4% of seniors back then. The grey bar is showing the income level above which you would have to repay all of your old age pension when the full claw-back came into effect.
What has happened, of course, is that because the claw-back is partially indexed, it doesn't keep pace with inflation, so that actually, in real dollars and inflation-adjusted dollars, it is declining over time.
Our projection here was that by the year 2020, the threshold for the claw-back would be down around $40,000 in today's dollars, and seniors with incomes above around $50,000 would no longer get any old age pension. So the system has a built-in cut, if you will, that is still in effect.
What is the impact of all these changes, which are fairly complex? I've tried to show those here by pretending that we have the old system in place this year. I went back to 1985 and updated the old 1985 system for today and compared it to where we really are. The dark bar, which goes down on the graph down here, is the current system of elderly benefits for a single person, and the thinner bar, where it splits off, is what the old system would look like if we still had it.
Again, by elderly benefits, I'm adding together here seniors' old age pension, subtracting the amount of income tax and claw-back that they pay on the old age pension. So it's the actual amount of benefits they end up with, which, after all, is what matters: guaranteed income supplement, if any - that program is not income taxed - the tax savings from the age credit, and the tax savings from the pension income credit.
I'm sorry, one other change I forgot to mention that came in on last year's budget is that the age credit was income-tested, so that higher-income seniors no longer get the age credit as of this year. So I factored that in.
If you look at the dark bar, the current system, what happens is that the total benefits decline over the income spectrum. Down around $80,000, in this example of a single person, the reason you see that small amount that's still there...that's the pension income credit. Most seniors at that high income are qualified for the $1,000 pension income amount and they get a couple of hundred dollars there in tax savings. In that sense, the pension income credit has kind of kept universality in the system, if you want to look at it that way, but there's no longer any universal old age pension.
The thinner line, which goes across the top there, shows what the old system was like. Basically, above $20,000 for a single person the benefit levelled off, and you can see that a very high-income senior ten years ago would have received a public benefit from old age security and a tax savings of over $4,000. So this area in here between the two lines is lost.
So we've already made pretty dramatic changes, at least at the upper end, on how we dole out public benefits from the first tier of Canada's pension system.
What does the system look like today? I want to show you the proportion of benefits. It's a little bit like Rob's earlier slide, but simply from the elderly benefit system to a single person again, a single senior, at increasing income levels.
The incomes along the bottom - I'll just explain - are incomes excluding the benefits themselves. In other words, they are the incomes a senior would get from Canada or Quebec Pension Plan, from private pension plans, investments, savings, earnings, any other private source other than government benefits.
You can see at the very bottom end, of course, we're assuming that this person has no other income other than what they get from the elderly benefit system, so the largest chunk of their benefit comes in the form of the guaranteed income supplement. When you add that and the old age pension together, they are guaranteed about $10,000 or a little bit over.
Of course, that amount decreases as we go up the income scale. They lose the guaranteed income supplement pretty soon - it's over $10,000 - and eventually they also lose the age credit, and they're left, at $80,000 and over, with only the pension income credit savings.
I've been focusing on single seniors, but of course a lot of seniors live in couples, a minority but still a large minority, and it's important to also look at the situation of seniors who are married.
What this slide shows is that we're dividing the elderly couples into two kinds. By one income, I simply mean an elderly couple in which both members are 65 and older, where one of the spouses has no income other than his or her old age security and guaranteed income supplement, and the other spouse solely brings in the rest of the income. So it's a couple where one spouse has the majority of the income.
The two-income couple is simply an elderly couple in which the spouses share the amount of non-old age pension income. Really, they're the two possible extremes, and of course most elderly couples would be somewhere in between. But it's very important to look at the situation of two-income couples because they are an increasing proportion of the elderly population.
This may not look like much, but it is. The black bar, the very dark bar, is looking at the total benefits for the one-income couples, and the very thin line is showing the net benefits to the two-income couples. As you can see, they're not the same. They move up and down a bit over the broad income range, and here we're looking between $30,000 and $100,000. We can see that the two-income couples generally have somewhat larger benefits than the one-income couple.
The question is, why is that? It would take me another half hour to explain that, and I'd have you all asleep.
Basically, the reason is that we're talking about four people in a whole bunch of different income ranges. The amount of benefits that each of those people gets from the old age pension, the guaranteed income supplement, the age credit and the pension income credit varies according to their income level and according to their share of the family income. You can just imagine the number of complexities there.
So the amount of benefits available to each member of the elderly couple goes up and down. It varies over the income spectrum. When you add them all together, you get changes in the relative benefits available to families of different income levels.
I have a slide that will make it a little bit easier for you to understand.
Here, I've taken the elderly benefits available to the two-income couple and subtracted from that the elderly benefits to the one-income couple. You can see that the amounts above the line show the parts of the income spectrum where the two-income couple gets larger public benefits from the first layer of the pension system, then up here at the top end, finally the one-income couple does better than the two-income couple.
This may appear somewhat technical or arcane to you, but it's not to me. What this means is that the system of elderly benefits we have now treats families unfairly, depending on the composition of the income of those families. The amount of benefits we're paying out to elderly couples does not make sense. That's one of the problems we're trying to grapple with in terms of reform.
Finally, I'll get to where things may be heading - and I caution ``may be'' - and I'll end with some suggestions about the politics of pension reform in this part of pension reform.
The 1995 budget foreshadowed very strongly the direction the federal government is interested in going in terms of redesign of elderly benefits. I should mention, although I focused on the unfairness of the current system, that foremost in Mr. Martin's mind is money, to be very profound. There's no question, I think, that the Department of Finance would like to redesign elderly benefits to get some immediate savings. I don't think they're talking about a long phase-in for a new system, and of course, if one were fair - speaking of fairness - one would phase in a change in the pension system over a fair amount of time. Otherwise, when you make the kinds of changes that both governments - the Tories and now the Liberals - have been making over the last ten years, when you impose them that year or the next year, you're changing the rules of the game for seniors who aren't in a position to adjust to the changes in the rules.
I think it's important, and I'm sure it's been brought up by other members of the panel, that when we look at pension reform, to the extent possible, we want to look at changes to the system that would be phased in over as long a period of time as possible in order to soften the impact on current seniors.
I think there are two motives going on in terms of the finance minister. He is concerned about the equity aspect, but he's also looking for savings from the pension system.
My concern about the pension system isn't to get savings right away. My concern is the cost increases in the future. My concern is that they may become so overwhelming that they will threaten the viability of the OAS/GIS system, which is so important for low- and middle-income seniors.
What kind of reform are we talking about? Basically, we're talking about rationalizing the existing benefits in the sense of taking the money that is now spent on the various programs I've been talking about, putting it into a single pot, and having a new and simpler program. It would be an income-tested program along the lines of the current guaranteed income supplement or - a better example than that, I think - along the lines of the child tax benefit, although a much larger benefit.
There is ample precedent for the design of a new benefit. Basically, what the budget talked about is - and I'll remind you of the principles of reform of elderly benefits that were stated there - one, that there should be no fiddling with indexation of benefits; two, there should be no erosion of benefits for low-income seniors, they are to be fully protected; three, the old-age pension part of the system will be changed to a family-income-tested system. The claw-back, which is now in effect on old-age pensions, is based on individual income of the senior recipient, not spousal income. So we are looking at change from looking at the income of the individual to looking at the income of the couple, which is the way we run the child benefit system and the guaranteed income supplement.
The fourth principle is greater progressivity of benefits by income level, which simply means the highest around at the bottom and the least amount at the top end of the income spectrum.
So those are the principles of pension reform.
What I want to end with, if you'll bear with me, is to give you an illustration of what a new program might look like, and I say ``might look like''. This is work we're working on. This proposal has not been fine-tuned. It has not been costed. I'm simply trying to give you an illustration of what it would look like. This is not a concrete proposal. It's simply an example of the kind of thing we might do. And the cost, of course, becomes very important.
I've taken elderly benefits for couples as my example because I wanted to show the current system and what a proposal might look like. Again, the heavy bar shows the one-income couple under the current system. The thin line is the one-income couple under the current system. Then the dotted line is an option. The dotted line is an option using the principles of the budget. So you can see what happens.
I tried to match the current distribution of benefits at the bottom end. The line isn't exactly on, but that's neither here nor there. It's got to do with trying to get the benefits to come down exactly together.
The point is that under this proposal, once income goes above $40,000, which for an elderly couple is about $3,000 above the average, the average income for a couple with two seniors, both spouses 65 and over, is about $36,600 this year. So above $40,000 in my proposal, my illustrative proposal, the benefits start to get less than they get now. They finally disappear here pretty high up, over $135,000. In reality, I would want to fiddle with the design of it so they would probably disappear sooner than that.
The point isn't to get obsessed about exactly where the line goes, it's to give you an idea of what a new system might look like.
Under this kind of a proposal, of course, if you look at the distance between the dotted line and then the other two lines, those are people who would get less benefit. They're people at the higher-income end of the spectrum, and the larger their income the larger their loss.
I've tried to design it, and I think any proper design would try to minimize losses, of course, at the middle-income level. We don't want to give middle-income seniors less income replacement from the old age security system than they have now. That would be retrograde, in my view. But at the high-income end, I think there is room for some savings. Keep in mind, when we look at the kinds of cuts here - losses, if you will - at the very high-income end, you look at a $135,000 elderly couple as a pretty rarefied group. We're looking at losses of $3,000 or $4,000 or $5,000, which as a percentage of their income would be 2% or 3%.
I mention this because it's extremely important, when we're designing a new system and when we're evaluating a new system, to look at how it affects people at different income levels, because we want to make sure that we're not going to erode the income replacement, anti-poverty objective of the current system, which has helped improve the incomes of the elderly and reduce their instance of poverty over time. So I'm not out to try to take away the old age pension from middle-income or modest-income seniors. I don't think any government that tried to do that would be in its right mind.
I'll make one more point. I'm sorry I've gone on so long, but it's a very important one. I want to harp once again on one of my things, a windmill I've tilted at for most of my career with little success, which is why partial indexation is such a bad thing.
Let's suppose we brought in our new system - and here I switch to a single senior - and let's suppose that the new system, although it's different from the current one, still does not index the threshold for the benefit. The threshold is just the jargon for the income level above which the benefit starts to be reduced.
Mark my words, when and if you see a proposal - and if we have a white paper, a green paper, or whatever - look carefully to see whether the threshold is fully indexed or partially indexed. The budget said the benefits under a new scheme would be fully indexed - which is, of course, crucial as well - but it did not say that the threshold of a new system would be fully indexed, and that makes a big difference. It may not look like much, but I think it makes a big difference in real terms and in philosophical terms.
What I've done is taken an example of a new system - again, the exact amounts are not the point; it's to give you an idea. It roughly mirrors the current system at the bottom end, and then it declines at the very high end. The heavy bar is showing 1995. If we put that kind of proposal into effect this year - and the thin line is showing what that system would look like in the year 2015 if the threshold were only partially indexed to the amount of inflation over 3%. The actual amount would depend on inflation, of course, but it's guaranteed to be either 3% or the amount of inflation.
What happens, of course, is that as the years go by, it's not simply people at the top end who would no longer get the benefit. All the way along, there would be a reduction in benefits as well, down to modest-income territory - down to near the $20,000 mark. So we would be eroding very important benefits to modest-income seniors, and I don't want to do that. That would be a terrible thing. Don't forget, though, that the current system is doing it as well. It's doing it through the claw-back.
One of the reasons I've been proposing this kind of system - because I have for the last couple of years, and I think this is the only time in my career the Department of Finance has ever listened to me - is that I am very concerned that if we don't at least put reform of this part of the pension system on the table and debate it publicly, the Department of Finance will simply do what it wants without telling people, through what I call social policy by stealth. It can very easily achieve the same results without putting a model out for people to shoot at, to debate, and to understand. Simply by accelerating the claw-back, it could family-income-test the claw-back. You would never know what's going on, because it would be buried in that hideously complicated income tax system we have, and it could achieve exactly the same kinds of results over time and nobody would be any the wiser for it. We would be eroding an important part of the pension system, and people wouldn't know it was going on.
What I want to end with is that no matter where you stand on these kinds of proposals, I know a lot of people find it kind of distasteful talking about an end to the universal old age pensions that Stanley Knowles, David Croll, and great people like that fought for. We can argue about that. The political reality today is that we no longer have the kind of system we used to. We have in place a system that's gradually eroding benefits, starting at the top end, but it's moving down the income spectrum, and I'm very concerned about that trend.
So I'm hoping the discussion paper the government puts out - I know it will have options along the lines I've showed you - will give options we can look at, take apart, analyse, and debate. It's going to be tough, though, explaining this stuff to normal Canadians and to seniors groups, because it's not so much what a new proposal would do; it's the fact that the current system is so complicated and quite bizarre in some ways.
Now, whether or not this kind of proposal would fly is another question. I've talked here in rational terms by showing you numbers and that kind of thing, and as we know, the politics of social policy isn't based on people like me doing models and talking about numbers. As John, Rob and others know, it's based on perception, on what people think they want out of the pension system, and on what they think they have.
One of the key arguments that could kill this kind of proposal will come from women's groups, and it's going to be the family income testing of the benefit. I see nodding heads, and I think you know what I'm talking about. This kind of proposal does mean there is a philosophical shift, which is not an unimportant one in the nature of the pension system.
Under a family-income-tested benefit like I was illustrating here, there will be elderly couples in which there are very unequal amounts of income - the one-income couple - and in which one spouse has most of the income and the other spouse has a much lower income, but because the total income of the family is above that threshold, depending on how high they go, the lower-income spouse won't get anything. Her benefit - I'm saying ``her'' because it still is in most cases - will not be based on her own income, employment experience, employment history, or career path. It'll be based on her income and that of her spouse. We will have the wealthy banker's wife image that Linda McQuaig popularized, whereby there will be families in which women will be denied benefits they now get.
Politically, that could prove to be a really tough sell. In all of this stuff with pension reform, there are tough trade-offs. There's no nice solution to all the problems.
Perhaps I'll stop there and we can entertain questions.
The Chairman: Thank you very much, Mr. Battle, for that overview. The charts, I think, as well as the analysis, are quite illuminating to the committee members.
What I'd like to do now is invite our members to ask some questions. I'd like to advise the panellists that I'm going to give you an opportunity to offer commentary, either in response to questions or before we wrap this panel up this afternoon. So your work is not over yet, even though you've made your presentation.
We'll try to finish this at or before 4:30 p.m., because it's been a long day and this is very deep material for a lot of us. Probably our absorptive capacity is being attained, if it has not been exceeded already.
Dr. Lux: Could I ask for a four-minute break for very natural reasons?
The Chairman: I think we can do that. Good advice. We'll do better than that; we'll give you a five-minute break. Let's resume in five minutes.
The Chairman: We will now resume our session. We will wait for Mr. McKie to return to his chair. While we're doing that, perhaps we can start with questions, beginning with Mr. Crête of the Bloc Quebecois, if he has a question.
Mr. Crête: It's been a lot of information for one day. We will need to digest all this.
My question is directed to anyone in the panel who cares to answer. Do you think it is realistic to have a benefit system that is identical throughout the country? My experience is that of a constituency which is highly rural. I met two weeks ago a group of senior citizens and I asked them which changes they envisioned? They had to concerns: persons living alone, who are more exposed, and the difference between a couple or a person who lives in Montreal or in Toronto in a three and a half bedroom apartment, on the third floor, and a person or a couple who lives in a rural area. As we say, poverty is not always the same. It's only one factor.
There are other factors we must take into account. As we plan a reform, shouldn't we look into having a very different system in different regions?
The Chairman: Who would like to respond to that question? Mr. McKie.
Prof. McKie: I think it's quite sensible to recognize the fact that the cost of living varies quite considerably across the country. As a matter of elementary fairness, I think you have to recognize the higher schedule of costs in some urban areas. I think that's eminently sensible and defensible. Politically, however, it may be something that is not possible to handle. I don't know.
Prof. Myles: I think if we were talking about all the things and all the resources that go to seniors in Canada, one would legitimately have the kind of concern you've raised. One might also have that concern if the Canadian federal system were an extremely luxurious system, that is, that it tried to meet all or most of the income requirements of Canadian seniors. Clearly that's not the case. We're not talking about that kind of system.
The Canadian federal system is built on the assumption that individuals are going to fill in gaps, that provinces are going to fill in gaps, and even local communities fill in different kinds of gaps. Given the kind of basic system that we have in place at the federal level, I personally would not get too excited about the regional variations. Others might feel differently.
Prof. Brown: I think it's legitimate to talk about the sorts of regional differences in a welfare-type support system, where you can then turn the control over to local agencies. I would not see that riding through to the Canada and Quebec pension plans, however, which are seen as contributory plans, where the participants believe they are buying their benefits and have paid for them in full.
Without being the least bit facetious, though, I would suggest that you have a marvellous marketing opportunity for a retirement community. Elliot Lake in Ontario has done that and been quite successful at it. You've got a growth industry there.
Mr. Crête: I didn't get the end of the answer. Could you repeat it?
Prof. Brown: You're going to advertise that you have a marvellous retirement community back home and everybody should move from Montreal. Elliot Lake did it and did it quite successfully.
Mr. Crête: It's in fact a reality in my province, because we have a region with five times the rate we find in the eastern part of Quebec, but there are other factors to take into account.
Whichever the reform or the revised system you are going to put on the table, people will have to understand the consequences of this system. I'm very sensitive to the argument made by Mr. Battle and others who say that if we want to spare us an outcry, we will need to take the time to explain everything to people and establish very clear basic principles, principles we can find in part in what you're giving us.
We talked earlier about women. What could we do to deal with the equity issue, which could be related to the fact we are going to take into account the income of the couple, while ensuring we are not going 50 years back in the way we treat women? We had the same problem in terms of unemployment insurance and the recommendation did not pass the test. Could you suggest other solutions or ajustments to make this more acceptable and to be able to respect individuals?
Mr. Battle: It's interesting that you mention unemployment insurance. Following on what Rob was saying, we still make a distinction, and I guess I still do, between social security benefits and income security benefits that are paid through general revenues, and social insurance paid through payroll taxes, which, as Rob said, people still regard as theirs because there's a visible link between the contributions and the receipt of benefits.
We actually do have a claw-back on unemployment insurance in the system now, although it's based on individual income. Almost nobody knows it's in there.
On the family income business, I don't really see any way around it. It's interesting that there are different senses of fairness. Certainly one could design any kind of system to replace the one we have now that would be based on individual income. The problem is that I don't see any way around having inequities, as between one-income and two-income couples, that we now have with the claw-back on old age pensions.
An elderly couple with an income of $60,000, in which the two spouses each have $30,000, pays no claw-back. Another elderly couple, where one spouse has a higher income but the total income of the family is exactly the same as the other one, gets dinged by the claw-back. That's because the claw-back is imposed on individual income, not on family income. There's no way around those kinds of inequities.
At the end of the day, I guess, it's a trade-off between whether you think those inequities are worse than the inequities of taking a pension away from an individual person. It's one of those very difficult issues.
With child benefits, we've made a decision. The decision was made back in 1976, with the introduction of the refundable child tax credit. Now with the new child tax benefit, it's family income.
Some people will argue that a pension is different from a child benefit philosophically and that a pension belongs to an individual. These are the sorts of things that will be debated. The long and the short of it is that there's no way out of these problems if you don't do family income testing.
The Chairman: Thank you. I'd like to now turn to the Reform Party if there are questions.Mrs. Ablonczy, would you like to continue?
Mrs. Ablonczy: Thank you, Mr. Chairman.
I would like to apologize to you, Mr. Battle, for having missed some of your presentation. I appreciate the tables that we have here.
I'd like to ask a question first of all, particularly of Mr. Brown, on the future of the CPP right now. I think there's some concern about the increasing amounts that are being paid out of the CPP to people with disabilities. I think it's about $2.2 billion a year, and I notice that the latest forecasts have risen from $5 billion by 2030 to over $10 billion. It's really quite a large forecast. I wonder whether you have any comments on managing that particular aspect of the demand on our Canada Pension Plan.
Prof. Brown: Have we got an hour? Actually, I would refer you to a recent paper from the Canadian Institute of Actuaries that looked at that in a fair bit of detail. You can get that in less than a day. Our office is here in Ottawa.
Most people look at the Canada and Quebec pension plans as retirement income plans. In fact, only 65% of the total dollars go to retirement income. The other 35% go to fringe benefits, on which most Canadians put very little value.
The fastest growing part of those fringe benefits is disability income benefits. They've gone from orders of the magnitude of 15% of the total pie to 18% and 19%, and it hasn't stopped yet.
The number of applications and files has really jumped in the last four years. It has not jumped in the Quebec Pension Plan. The reason is apparently the adjudication of disability.
The Quebec Pension Plan is sticking with physical injuries expected to terminate in death. This is a very hard and, if you will, relatively cold position.
The Canada Pension Plan system now has a three-tiered appeal system. In that appeal system, without the writing having changed, the application has changed the definition of disability. The new claims are mostly of the soft tissue nature, that is, sore backs. Also added to this are disabilities related to stress, chronic fatigue syndrome, those sorts of causes that are not physical and apparent in nature.
Also, because of the increased applications, it's rather perverse but the ability to work hard on rehabilitation and adjudication has not followed through because everybody in that department is busy with the increased number of applications. So there are in fact situations now where people are actively at work collecting Canada Pension Plan disability income benefits, clearly not the way the system was meant to run.
The final comment I would make is that the Quebec Pension Plan disability income benefits are second payer to the Quebec workers' comp, whereas the Canada Pension Plan benefits are first payer to everybody - companies, insurance companies, workers' comp. So everybody is trying to get their beneficiary onto CPP because whatever dollars they can get from CPP get sliced out of their costs.
There's therefore a whole lot of people working together to get people onto Canada Pension Plan disability income benefits. In fact, it's being used by some companies as a bridge benefit so that you can take a worker not old enough for early retirement and bridge them through to age 60.
Mrs. Ablonczy: I actually wasn't aware of some of that information so I really appreciate those comments.
I wonder whether any of you have had any occasion to study some of the measures taken in the U.K. or Chile, where they moved from plans much like our CPP to more individually managed and funded mandatory plans. Could you comment, if you have knowledge of such plans, on whether any of those kinds of measures might be feasible in relation to changes we have to make to CPP here?
Prof. Brown: In Britain the option was given to citizens to opt out of SERPS. I wish I could remember exactly what that stood for - the State Earnings-Related Pension Scheme. There were huge taxpayer subsidies to get people out of the state-run system into a privately funded system.
In Chile they set up the equivalent of mandatory RRSPs and there were also very large taxpayer subsidies. I'm not convinced in my mind that the totality of the security is now any better than it was before. You've privatized the system. You've taken the cost away from the government-sponsored system, but the cost was self-supporting.
I'm not sure the retired people are any more secure. What I'm really disappointed in is that both governments and people who comment on these systems, such as the World Bank study, don't point out the huge taxpayer subsidies.
If you wanted to privatize the Canada Pension Plan right now, you would have to find a way of overcoming the $490 billion actuarial liability that is unfunded. You can't just privatize the Canada Pension Plan tomorrow morning. It's not possible.
I've already seen articles in the British newspapers where individuals are saying they were talked into leaving SERPS to go to a private plan alternative and now they realize that where they used to be immediately vested and fully portable, they have a vesting period and don't have full portability between plans. They're not happy, but now they're out of it.
I would really think long and hard about those kinds of alternatives. The key question is whether at the end of the day you really provided any more true security.
Prof. Myles: Rob raised the most important point, that is, the security issue. Just one added fill-up to this is cost. I don't know the true cost of the administrative overhead of the Chilean system because there is variation in the system, but I've seen estimates where the low figure is about 13% of the plan's funds for administration and as high as 30%. They are very high-cost programs to administer relative to a program like CPP.
The Chairman: Can you say why the administration costs are so much higher?
Prof. Myles: It's the basic law of all insurance programs that the administrative costs of running a program are inversely related to the size of the program; that is, the big programs are low cost if you've lots of people in them.
I once served on the pension committee at Carleton University for the Carleton pension plan. Carleton professors, like everybody else, had a CPP plan plus their own private plan. There was one clerk somewhere in the university who sent a cheque to the government for the CPP and that took care of it.
For the university pension plan there was a committee of workers and people from the administration who met two or three times a year. There were two officials who were charged with looking after it. We paid at least four firms: one to invest it, another to check up on people who were doing the investing, and so on and so forth. So the administrative costs of a small plan relative to the volume of money are simply going to be higher.
There's also private sector competition for the funds, so you're paying marketing and advertising people to convince you that you should send your funds to their plan. That's a significant advantage of a mandatory publicly funded system. We don't have any commission rates for our salespeople who place dollars in the Canada Pension Plan, and we don't do much advertising on February 28 that it's time to get your CPP contribution in.
The Chairman: Sorry to have interrupted you. You may continue.
Mrs. Ablonczy: Thank you, Mr. Chairman.
Unfortunately I have a meeting I must go to, but my colleague can carry on for me.
My last question is kind of a bottom-line question. Given that we have committed ourselves to deliver certain benefits to our citizens, given that the only way to actually deliver on that promise is to raise contribution rates significantly, and given that that significant rise in contribution rates could be met with considerable resentment by the people who have to pay them, what in your view, any and all of you, is our best course of action in order to deal with this situation in the most realistic and most practical way?
Prof. Brown: Again, Mr. Chairman, I would refer you to a study by the Canadian Institute that showed how what was then projected to be an ultimate rate of 13.4% could be lowered to 9.9% through a combination of benefit modifications, including raising the age of entitlement and decreasing some of the fringe benefits that people don't seem to realize are consuming 35% of the cashflow, and two technical actuarial changes in the way the benefits and contributions are calculated.
I don't think we set out to have 9.9% as a magical goal, but it's a little bit like the price of a car. If it's $19,999, somehow that sounds better than $20,000. We felt that having achieved 9.9% wasn't too bad, that maybe 9.9% was something people could accept, where 13.4% wasn't. Of course, now it's 14.2%, but there are ways without doing away with the system that you can bring those contributions rates down significantly.
Mr. Breitkreuz (Yellowhead): I have one question that may have been addressed already. You talked about having savings of $2,000 or $3,000 for couples with an income over $100,000.
If you were looking at the big picture, how significant is that saving in millions and billions of dollars? Is it really going to make a difference to have that small 2% or 3% cut-back on just those high-income people? Have you all given some consideration as to what the big-picture numbers are here? If we make some reduction in the benefits, how substantial would that reduction be?
Mr. Battle: As I mentioned when I started talking about the option, it is not a costed option. Of course the design of the option makes huge differences to the ultimate costs, both gross and net costs. The short answer is no, I can't give an answer now, because it was not a specific proposal, but it's exactly those sorts of things that we're looking at in fine-tuning a proposal.
You're right; at the very top end there are very few people, so you're not talking about a lot. But in middle-income territory, there's a lot of elderly - a lot more than at the top - and we would have to look at the relative savings from that. It gets complicated.
When we look at the picture for government, the federal and provincial governments would lose tax revenues they now get from the taxation of old age security. But they would also not have to pay the age credit and the pension income credit, because that proposal would fold them in. In fact I netted them out, and the federal government would be out by about half a billion dollars if you folded them in, and the provinces about 55% of that. So there would be an extra cost in that sense.
You're right; you have to factor in all these things. That's not a specific proposal, so we have to look at those sorts of distributional issues.
I'll just repeat what I said earlier. Although it may not seem that big a deal to remove benefits from high-income people, in cost terms it is a big deal, as expenditures keep going up. That is because the amount of money going out - not in percentage terms, but in absolute terms - will of course be increasing. We're looking not at cutting money out of it now, but at stemming future increases from the program.
Mr. Breitkreuz: You said that buried in a hideously complex income tax system are a lot of these problems. Does that imply that some of our problems could be solved if we could simplify our income tax system and make it more transparent?
Mr. Battle: Yes, I would agree with you on that. It's been a goal of social policy reformers since I've been in the business to try to have a system that's not only simpler but that makes more sense. I was showing you the differences. It used to be a lot worse, frankly, until the previous government did its income tax reforms. It actually did improve the tax transfer system to some extent.
That's only talking about the federal government. When you factor in provincial things.... I didn't show you this, but of course some provinces deliver benefits to their tax system. That gets factored into the distribution as well, and you can get very bizarre results.
So the answer is yes, the goal of having a simpler tax transfer system, in the jargon, is I think a worthwhile one. It's still there. It's not just a matter for government people; it's a matter for Canadians too. There is no way now that a family knows how much child tax benefit it's getting. There's no way that a senior really knows how much old age pension he or she is getting unless they actually have a tax model.
I don't think that's a good way to run a democracy. You can argue about what kinds of programs or benefits or tax system we should have, but I believe in a transparent social and government policy. People should be able to understand it.
Mr. Breitkreuz: Does anybody else have any comments on that income tax thing, or on the big picture question I had?
Prof. Brown: I'll add that some of the highest tax rates are not where you would expect them to be. Ken will agree that at the lower levels, if you have a provincial supplement, you have tax rates of close to 100% on people who are losing their GIS and gains in the province of Ontario.
In fact, as Ken pointed out, some of the realities of the tax system run completely counter to logic. That's why you have some of these very steep ski hills and then bumps. A lot of it really does not make very much sense.
Then, of course, it doesn't provide the correct incentives. If you know you're going to have every dollar taxed back at 100%, how much individual responsibility does that provide an incentive for?
Mr. O'Reilly (Victoria - Haliburton): I don't know how often it happens that I end up in a room with someone who's a professor. Professor Brown was born in Lindsay, and so was I. We attended the same school, although when he was graduating, I think I was at Expo. His parents are still constituents of mine, and my son goes to Waterloo University, so I have to be careful, because we're covered on both ends here. I never was lucky at lotteries, but maybe I should start.
I was talking a week ago today to the Superannuated Teachers of Ontario. I did a little study on the three plans - government, private and individual - to assure them that they had until about 2015 to have the plan changed; otherwise it would end and be actuarially unsound.
I consider the baby boom to have started in 1940 and to have ended in 1966. The net effect of all that will be felt by about 2015 or 2016. Some of the numbers thrown around were a little different both from yours and from those of Mr. Battle. I want to know first of all if those numbers are correct.
Second, as you know, this government is going into a period of pension plan review. As we start - and I guess this is the start of it - you indicate, Professor Brown, that your paper is a first draft. I want to know when your final draft will come out, if there is one, and whether you'll be back before the committee at that time, as we enter into this debate.
I'm particularly interested in what these gentlemen, particularly Professor Lux, think the priorities for this committee should be in order to start the revision of the plan to make it actuarially sound and not just something that will be a band-aid for the next government to worry about.
The other question is maybe more of a comment on the tax system. It would appear that now, if you don't have any money, the tax system takes a whip to you, almost. If you miss a payment, it's like being kicked when you're down. If you don't have any money and you miss a payment, they charge you double. It's not a carrot; it's a big stick approach. As people in sociology departments, what other way do you feel we could go to make it more effective and easier for the people to live with?
There's a lot of questions in there.
Prof. Brown: I'll answer two, and then I'll turn things over.
Different people define the baby boom in different ways. I'm not a sociologist. I worry more about the number of units that need pensions. I think it's legitimate to say that if I were interested in the sociological reasons for the baby boom, I would be looking at when the fertility rate changed - when it went up, when it stabilized and when it went down. Those events were all earlier than the number of units that demand pensions and health care.
Because I'm worried about consumption units, I define the baby boom as those years from 1952 to 1966. When did the fertility rate change? It was back in the 1930s. When did it change again? It changed again in 1959. A sociologist might be more interested in that when trying to explain or predict the future. You can take my definition or you can take someone else's.
The numbers are all right.
Some hon. members: Oh, oh.
As to your third one, I'm not convinced the Canada Pension Plan is actuarially unsound. I think I said this before, but I'll say it again. If I had been there in 1966, I would have signed on to what they put in place, pretty much.
We don't need to throw it away. We need to fine-tune it. We need to change it. It's thirty years old. How could you have that big a system and not need some fine-tuning after thirty years? I think the number one thing you people can do is convince Canadians they can feel secure about these benefits.
As to the tax payments, you asked a sociologist to answer. I just said I'm clearly not a sociologist, so I will back away.
Prof. Myles: Maybe I could respond, since sociology has been invoked here. I'm a sociologist and I have the same definition of the baby boom as the actuaries do.
I'd just like to add to Robert Brown's comment about this talk of the system being actuarially unsound. It is not actuarially unsound. The people who design the system....
The fact that contribution rates are going to have to rise has been known. This is not news. Maybe the levels or whether it's going to go to 12%, 13% or 14% is news, but the fact that it would have to rise is not news. It was well understood. If we still had the economic growth rates of the 1950s and 1960s of 3% or 3.5% a year, we would not even be having a discussion. We would not see any problem.
One of the tasks you should set for yourselves is a public education task. If you gutted and got rid of the CPP tomorrow, you would not save the working-age population of the future one penny, because you would have to replace it with something else. We're still going to support our elderly population in the year 2030 or 2015. The question is how.
Either our contribution rates will start rising to do that or the amount of wealth the elderly take in the form of stock dividends and interest payments is going to rise. Or else we're going to have to go back to the way it was in the 1920s before pensions; Mom and Dad will come to you and you will write them a cheque. One way or the other, the working-age population will be supporting the elderly population in the year 2015.
We're talking about what mechanism, not whether. That's what you have to explain to people. Do they want to do it through the CPP? Do they want to do it with RRSPs? Or do they want to move back to a system where one of the kids stays home until they're thirty or forty years old, supporting Mom and Dad, and when Mom and Dad die, they can go off and get married and have their own family?
Of course, they don't die now until you're 60 or 65. It's a completely different generation.
Prof. McKie: To add a little bit of detail to that, I think the ``let the kids do it'' model is out because of small families now over many generations. I don't see the prospect of larger families in the future. As a practical matter, I don't think that would work.
Maybe the RRSP thing won't work because personal incomes have been under tremendous pressure over the last fifteen years. I don't know enough about the RRSP system to say whether in fact that is feasible for a large proportion of people.
So I'm left with the public scheme, which took a certain amount of courage to start and maybe takes a certain amount of courage to continue with. I do think it's important to continue to make that promise to older Canadians and to live up to the promise. We have some credibility on the line here, and to simply whip the rug out from under it at this stage seems not to be a very good idea.
Prof. McDaniel: Before Craig spoke I was going to add something to what John said, and now I'm forced to be in a situation of disagreeing with him.
I was going to suggest that I think the concept of talking about what the future might hold may not allow us to look at what we're doing at the present. The concept right now that I see in the beginnings of my own and other people's research - and we have very inadequate data on this - is that families are already supporting older people. They are already supporting people who are unemployed, who, because they are not retired, are not eligible for a pension, and older people are supporting their adult children; the dependency goes in that direction too.
So the families are already doing things. The notion that that's in the future... it might well be; we don't know. But we've got it upon us now, though we don't know the extent of it because we have inadequate data.
Dr. Lux: I'd like to comment on what was said about the fact that the concept of universality no longer applies to the Canada Pension Plan. There is no doubt that the universality of this plan does not exist anymore and it was pointed out that the system isn't fair because two incomes of identical value, one from a single source and the other from two, are not treated the same way.
There are other factors which contribute to the unfairness of the system. The regional differences in the cost of living were mentioned, but there is another factor. It can be demonstrated that the rate of the contribution's increase will depend, among other things, on the fertility rate. The higher the fertility rate, the slower the rate of increase.
In this context, the question is as follows. People who have two, three or even four children - who are a minority - contribute to slowing down this rate and therefore help the community at large. People who don't have any children or will have only one, whatever the reason, do not contribute to slowing down this rate and to making this burden relatively lighter.
However, this is not taken into account in the way pensions are allocated. Let's take two couples who have approximately the same combined income of $60,000. The large family will be entitled to a few income supplements, but these cover only a small portion of the real cost of raising the children. During their adult life, this couple will therefore have a standard of living significantly lower than the couple that has no children or only one. This couple will have only one income because a mother of four children cannot really pursue a career. They'll be hit by the unfairness of the system because their standard of living will be lower throughout their adult life and then, they'll be subjected to the claw-back.
Moreover, their adult children will have to contribute to the pensions and to the health care of older people who are not able or did not want to have children to take over. This Committee should look into this. It's a phenomenon that the French demographer Alfred Sauvy described when he came here, to Ottawa, quite a few years ago. He's now dead.
So, in terms of social fairness, I think there is a problem which does not concern one generation only: it's also an intergenerational problem.
Mr. McCormick: My question is for Dr. Lux and/or others. You and your colleagues have such diverse opinions for us to consider. I wonder with your experience whether you have any guidelines you can share with us as we tally up these arguments.
Dr. Lux: I'm not sure I understood your question.
Mr. McCormick: We have to look at each person's different proposal. I wonder what suggestion you have as to how we can balance our decisions on such diverse opinions.
Dr. Lux: I don't know whether you have enough money to convene a short conference between those authors. That would be one way of dealing with it. The other is by spending some time in looking at the hypotheses behind these various studies. By so doing, you will already see that part of the differences and the outcomes are explained.
I think, more generally speaking, the optimistic people have forgotten some hypotheses or have made too optimistic hypotheses. For instance, there is the hypothesis of full employment. We are far from it. There is also the idea that by becoming richer, the percentage of contribution will be reduced. I do not agree with that.
The pensions for which you have to contribute will be pensioned at the level of the real income for that date and not at today's real income. You might be twice as rich in the year 2040, but if the level of pension is 50% of the real average income, it will also be twice as high as today. Your contribution will remain the same in percentage.
Mr. McCormick: Thank you very much.
Dr. Lux: I don't have all the answers, of course.
Mr. McCormick: No, but you've given me a lot to consider and reflect upon. Certainly we'll have to study a lot, and I want to.
I have a question for Professor Brown, who stated that we basically need to convince Canadians that there will be assets available for them. I am wondering who is going to convince the bureaucrats of this government of our country here in Canada of that, and perhaps some of the politicians, and some arms of the government. I wonder what comments you might have on that.
Prof. Brown: I sat on city council for six years and when I asked questions like that, people would respond, ``That's why you get paid the big bucks''.
Mr. McCormick: [Inaudible - Editor] ...any other comment to that.
Prof. Brown: As a councillor I was getting $11,000 a year.
Those are in fact the very difficult problems you will have to deal with. To try to mould a consensus in the last three or four answers... you can go away today having heard the differences in what we said, but in fact it's also possible to go away today having heard the commonality in what we have said. I think one level of commonality today with this group is that there can be that social security system and there should be that social security system.
I guess there's a lot of cynicism right now, unfairly of course, towards politicians. Maybe it requires some non-political private citizens to take this message. When we reformed pensions in the mid-1980s, we had a huge and lengthy debate with a lot of people involved and we took a lot of time. I think there was consensus reached, although the final legislation maybe didn't reflect the consensus. That was unfortunate.
I think by the time all the papers were made public, Canadian citizens understood the problems a lot better and had been educated to a great extent. Maybe it is worthwhile to take the time and money to hear the people over a lengthy period of time. This is extremely important. This is not something that should be dealt with between now and Thursday morning.
Mr. McCormick: I think it's certainly that important because many of our people, our neighbours throughout the whole country, don't have confidence today in the future.
I'm sure you're one of those people who have committed that you would help spread this word among Canadians, and that's why you're here today. I'm sure we'll call on you and hear you again.
Thank you very much.
Ms Minna (Beaches - Woodbine): I just want to say to Professor Brown that I agree with what you're saying. It has to be spread, and there has to be discussion.
I think politicians need to have the community out there involved with the discussion as well, that is, leaders in the communities such as yourself, because of the fact that politicians don't all speak with one voice. The government may be saying one thing and our esteemed opposition may say another, which may confuse the issue. There needs to be dialogue from both sides.
I want to speak a little bit on the chart you showed us when you went from 1966 to 2031, the delaying of receiving pensions from 65 arriving at somewhere around 70. Was that just CPP you were talking about and not old age security or anything else? I just want to clear that up.
Prof. Brown: The chart I had was total publicly sponsored wealth transfer. In that equation there are health care, the total social security system, and unemployment insurance. It's actually meant to encompass public wealth transfer in the broadest sense of the word.
Ms Minna: In calculating that, did you take into account the population changes, in terms of the workplace, which Professor McDaniel was referring to earlier? This was looking at the fact that part-time work is increasing and the ability of people to contribute to one portion of that wealth transfer, which would be the CPP, would be diminished. There is also the fact that any private pensions that are subsidized by governments, whether they are RRSPs or RPPs, would be diminished because company pensions are diminishing. Some people will in fact be almost in a transition, a semi-retirement state, long before they get to 65 or 70.
That's a very complex thing to handle because people will not be self-sufficient long before they get to 65 or 70, or whatever age we end up with at some point. I just want to get those variables. I don't know how you can control them all, but they are very important variables to deal with.
Prof. Brown: To the extent possible, we included extrapolations of the trends as they existed at the time of the study.
The study is actually starting to get a little bit long in the tooth. The work I have been doing is dated. I did some of my work in the early 1980s and some in the late 1980s. In terms of papers, I am on about my 33rd iteration, as reality imposes itself.
You have to understand that I am doing ratio changes. That's not an easy concept right off the top. If a lot of people are unemployed now and the same percentage is unemployed later, it doesn't change any of my ratios. If a lot of people are in part-time work now and a lot of people in part-time work later, it doesn't change any of my ratios. In some sense, the nice thing about ratios is that as long as, in a multiplicative sense, the upstairs changes the same way as the downstairs, then it cancels.
I actually forced the model to not be complicated by all this noise after 2006, because I believe quite strongly that you would then be correct in criticizing all those assumptions more than the results. I first determined where the big change took place. It's a very, what we call, robust model. It doesn't matter what assumptions you make. The date where you have to start to think about doing something seems to consistently come back as 2006.
Once I got to 2006, I said we should do the best we could in extrapolating trends until then, but after that we would force the model to assume that on this ratio basis it doesn't have an impact.
You can obviously criticize the model for that, but no matter what I would have assumed, you could have equally criticized the model for my assumptions.
Ms Minna: Professor McDaniel, I understand the CPP was designed for increases to occur. I understand your wealth transfer and how you pulled together the information.
I'm trying to get us, as a government and as Canadians, from here to there with all the people in between. We have a fairly large group of chronically unemployed people at the moment, whom I don't expect will ever really get back to work full time.
Those people who worked in light manufacturing who have lost jobs, where the companies have gone belly up, are now 50 and they're not eligible. They're going to live for the next 10 to 15 years, or 10 years anyway, with part-time work, some assistance from government, but not have much of a pension apart from maybe the OAS at the end.
With the difficulties we're going through with the change-over of industry, I'm just trying to see whether in the short term in dealing with our chronically unemployed we could look at a short-term early retirement and then flip over.
I'm not sure I'm voicing it right. I'm trying to look at ways to fold into a system that may not be a pension but may be an income security system that would assist people and take them off welfare in this period of time where we do have a large number of people who are just not going to work. They will at least not be working in what we consider valuable jobs with good money and pensions and all that stuff, and will be unable to contribute meaningfully in any way.
Has anybody looked at any of that?
Prof. McDaniel: There are several aspects that are quite important about what you're saying. One of the joys of this kind of work is that the information exchange goes both ways, and I'm learning a lot from what you're saying.
I think the concept of income security, as opposed to social security, pension security, job security, or family security, is quite a profound one and one that requires a shift. That's the kind of comment I was thinking of when Rob was speaking earlier about the declining sense of security that Canadians feel.
The National Forum on Family Security talked about that as well as a central issue; that in fact when people are concerned about pensions, deficits, crime, or whatever, they're really concerned about their own security in the widest sense. That's what you're beginning to get at.
The problem with the question is that our data at present are insufficient. The discussion that has been going on here is a discussion about this model or that model, which are very good models, I'm sure, but the way we've conceptualized the problem has not allowed us to build into our data that kind of security.
For example, it does not include contributions that people make to each other in kind. This is very important for people in poverty.
People at lunch were talking about Newfoundland, for example, having the highest degree of giving of charity. That's an in-kind giving that's totally unmeasured, and yet it suggests a kind of communality and sense of spirit of the place that we simply don't count in any other way. We don't have data to work on this.
This is quite a profound point, even though it sounds like a little quibble. As a first step, I would encourage Statistics Canada, in its efforts, to incorporate a lot of these changes into the national accounts and into the measurement of unpaid work and contributions in-kind, which go a long way to supporting the economy and, in addition to that, work on developing new conceptual frameworks.
If you can't fine-tune with the little dials, which is going to be increasingly difficult, as this group has said, throw the dials out, look at the sky, and think of a new way of seeing the machine. This is precisely what they did in 1966 to dream this up in the first place.
They may not have been geniuses, but they had IQs of 120 at least. They did pretty well in some ways, and surely with all that we've learned since, 30 years later we can do better.
I'm not convinced that something that's 30 years old needs a tune-up. I don't know how many of you have passed 30, but when I was 30 I didn't need a tune-up, so I'm not sure that's what we need. It might mean we need to throw the whole machine out and think again about how to do it again.
I think some of your comments about security would be very important in the conceptualization of the problem.
The Chairman: Mr. McKie, did you want to add a comment?
Prof. McKie: I had a follow-on comment on that.
About the people who are 50 and who've run out of opportunities, I'd like to find a way of reintegrating them. I don't have that, but it seems to me to be a profound waste of people and human spirit to just say good-bye.
There are things that need to be done in this society that cannot be done within the context of paid wage labour, and it may be simply a question of finding a way to match up the requirements with those people. I don't know. But I do know that if you do not do it, the consequence for morale and self-esteem amongst that group of people is very large, and I think we, collectively, have a responsibility to deal with that since much of that transitional problem is, in a sense, of our own making by going into telecommunications and away from industrial manufacture, as a group of people.
This didn't happen by accident, and not necessarily by government design either, but we have some collective responsibility to people who find their traditional employment vanished and who are not equipped, for one reason or another, to retrain, or whatever, for some new purpose. I think there is a responsibility there. It may not be an economic responsibility, however. Maybe security has a wider dimension past the immediate economic measures. Maybe security has to do with a wider range of human services and context-building than can simply be addressed by economic measures.
I would encourage the group to think about security in slightly wider terms than in simple cash income terms.
That's what I wanted to say, in rather a long period of time, but thank you.
Prof. Myles: I would like to encourage you to think about it in cash income terms. As with many other problems, I think what governments get left doing at the end of the day is mopping up market failure. When we talk about what's happened to the wages of our young adults and we talk about long-term unemployment among older workers from economic restructuring, what we're talking about is a form of market failure. The market is adjusting, but it has failed these people.
I think you have three options. One is to do nothing; you leave these people alone. The Swedes have been about the only western economy to have completely avoided this problem and it's largely by making it almost impossible to get rid of workers and to restructure workers into unemployment. The Germans and the Dutch in the past, really since the early 1970s, took a path - I shouldn't call it deliberate, but it was systematic at least - using their disability insurance system to deal with that bridge period. It was UI, to some extent, but especially disability.
The kind of thing Rob is concerned about, I think, with the growth and disability claims, at least in part, I suspect, is a response factor from these older workers. You have some choices but they're not nice.
The Chairman: We'll let Andy Scott ask a very short question, and then I think we're going to wrap up.
Mr. Scott: Thanks, Mr. Chairman. I was not going to ask a question, but when you spoke of market failures, I had to come back.
You're not going to be able to answer my question, but I'd like you to think about this. Perhaps in asking it, someone might think of something.
What was the old age security system designed for, in terms of its suitability, now? In other words, if it was designed to allow people at a certain point in their life to not have to work any more, and they saved up for this, or the state has helped them save up or something, that's one thing. If it's designed as a way of making sure that some people who during the course of their lives have been able to acquire sufficient wealth that they wouldn't need anything - and this is to compensate for that.... What I'm trying to find out is why there is a program that would distinguish people who are over 65 from people who are 30 and in the same situation. Why aren't we doing this with UI?
You talk about rethinking this whole mechanism. In my mind, coming from Atlantic Canada, I like to think it's the failure of the system, not the economic unit, and if UI is designed to deal with that failure of the system, then why is it that if it's a failure of the system and you're 70, it's different from a failure of the system and you're 30? Why do we have to have separate programs?
If it's a generational problem we're afraid of, that would resolve the generational problem, because then it isn't a question of somehow looking after people in a different time of their life; it's just simply an economic reality that the market doesn't work for everybody.
I know we're not going to get an answer to this. Perhaps there is a study or someone has written about this or something that could be helpful to me. Maybe that's the short answer.
Prof. McDaniel: There is a bit of a paradox in this question, which is that the retirement system, pensioning people off, in other words, was an attempt to avoid the indignity of separating them out on the basis of whether they were needed in the workplace. So it was a kind of way for employers to avoid saying you're not a good one, and you're a good one and we want you to continue. The paradox is that this is precisely what's going on with all the downsizing; we're sorting people by age. We say we don't believe in agism any more, we're all so modern, or whatever - we think - we're not going to discriminate on the basis of age, yet that's precisely what we do. We say you're too old to work, it costs too much, out. So we've moved precisely away from the principle of retirement.
This is John Myles' stuff. He's written about this and I'm talking about his territory, but we've moved precisely away from the principle of retirement at the very time when we might need it most, to ease people out of the workforce. So there are arguments, although they're not as loudly heard, that we ought to move the retirement age down for that reason, rather than move it up.
Prof. Brown: I want to respond because I have a great deal of sympathy for the philosophy behind your question. But at the end of the day, I would provide one caution. If you try to solve all of the problems with one system, you'll end up with a system that doesn't work. Personally, I think one of the problems with unemployment insurance is that it is not designed as insurance for unemployment. It's designed for 17 laudable goals, but it did not end up being insurance, in the true sense of the word, for unemployment, in the true sense of the word.
We talked earlier today about the fact that the Canada Pension Plan is only 65% retirement income security. So you have to be cognizant of the full realm of risks and sources of insecurity, but if you try to design one plan to solve all those problems, I don't think you're going to like the end result.
Mr. Scott: Thank you.
The Chairman: Before we close, I would like to give the panel one last brief opportunity, if they choose, in a sense, to provide some summary comments for the committee today. To stimulate your final comments, I'd like to quote a few paragraphs from the recent budget that talks about protecting Canada's elderly. As we mentioned earlier today, in a sense what's stimulating this whole inquiry that we're having is the expressed intention of the government to examine the pension system and ascertain whether reforms must be made to it.
Let me quote a few paragraphs from the budget and ask those of you who would like to answer the question whether the government, in framing this inquiry into the pension system, has it right, and if you have advice to give - it would have to be short - to the government in designing this study of the pension system, how might they change it from what is proposed in these few paragraphs? Is that understandable, as a short assignment?
Let me read from the budget:
Prof. McKie: In the climate of the last few years, wishy-washy commitments to preserving a system and then taking it away by little dribs and rhetorical drabs at the end just raises the level of insecurity of the people who are dependent on this system. I think it's important to make a believable commitment to people who are dependent on the system that they will not find themselves in destitution in the future.
As strange as it may seem, there were destitute people in this country in the 1930s. This system and UI were designed to address those grievances. Those lingering feelings of insecurity, it seems to me, have been heightened by the statement you just read, although maybe the intention was the opposite. I think there has to be a clear commitment that people are not going to be destitute in this country as long as this government is in power, at least.
Prof. McDaniel: That's a pretty powerful act to follow.
Certainly, the concept that this would raise insecurities is clear; it would do that.
The issue is that people now are in retirement and are dependent on their plans for the foreseeable future. In some provinces, their insecurity with respect to health care is skyrocketing. They recognize some of the problems of the generations beneath them.
I know I sound like a broken record here, but I was on the Canada Committee for the International Year of the Family, so it's gotten into my head; I can't get it out. It seems that there is something that needs to be said about security, not only for seniors, that is solid and is something that people can believe in. Also, it's a matter of how that relates to their children and grandchildren so that they can have hope for the future.
These people are not isolated people with only their own interests; they're very concerned about trading off what they could get from what younger people might have access to. The concept that really rattles me with respect to the rhetoric in the States is the image of greedy geezers. That is this concept of these people just saying that they want all they can get to deprive future generations of their just resources.
I think that's nuts. I think that a lot of seniors say they might be willing to trade off a small amount of this or that, particularly if they have some other benefits here and there - other people have alluded to what these might be - if they are assured that their children and grandchildren will have some security in the future. I think that connection is not made in that statement.
I'll be quite brief here. The second point I want to make is that, in this statement, there's really no image or no understanding of the diversity of seniors' experiences, hopes and aspirations or the notion that we might need greater flexibility in pension approaches without scaring the daylights out of people who are right on the edge of survival at the moment. We can have flexibility to accommodate the diversity, which includes things like portability, vesting, and that kind of thing, which was just mentioned in passing here. Those are crucial issues to the maintenance of the current pension system.
Dr. Lux: I am not sure we need a complete overhaul of the Canadian Pension Plan. I, for one, agree with the elimination of universality. The late Irving did not need the OAS; still, our tax dollar paid for it.
Without universality, however, pension eligibility will have to be scrutinized. Several issues dealing with unfairness have been raised. In my view, this is where the focus should be.
But, people must be able to believe the government when it says that the future is safe and that pension benefits will always be provided. In an economic crisis, it is far from sure that people will be convinced and this is why, in my view, the Committee should extend its scope of inquiry and contact other decision makers, who have at least part of the solution to the problems of enhancing resources.
Earlier, I mentioned the tax system. I would like to mention one other thing. We have all heard the senior economist from the Royal Bank state that the monetary policy of the Bank of Canada was largely responsible for the economic crisis. A great many economists share this view. Is it not time for the Committee to pressure Cabinet to shift the policy of the Bank of Canada given that its obsession with inflation is preventing us from pulling ourselves out of a state of depression that is depriving the Canadian economy of an increase in resources that would increase the population, reduce unemployment and would ensure improved tax and other resources that would ensure the viability of social security and pensions especially?
The Chairman: Thank you, Dr. Lux.
Prof. Brown: You asked earlier about the purpose of the old age security system when it first came in. I was sitting here saying that it was to get Mackenzie King elected. That's sounds pretty cynical, but in fact it was one of the reasons.
When we had the wealth and the growth in wealth to create good public policy and good social security systems, it was also nice politically as well as politically expedient. Right at the moment, we don't seem to be in that period of luxury. We're now talking about modifying, if not cutting back, but I would exhort you to do what is right after it's been carefully thought through, as opposed to what might seem to be politically expedient in the short term.
Prof. Myles: I just want to make two short comments. You asked us what we thought of that quote. I think the way it's phrased, the quote is misleading about what the question is. It implies that there is a question about whether the system is sustainable.
What was pointed out earlier was this. If you talk to the most knowledgeable people, the question is not whether it is sustainable, but which of these five or six different ways we should choose to ensure its sustainability.
Bob, for example, emphasized the retirement age as a solution. Other people are going to emphasize other strategies. I think the most important part is getting the question right, which means looking at which of these five or six different ways, or what mix of them, we should use, and laying out a menu of choices that are understandable to the population. Then one should say that the costs and benefits of these different choices are here.
The final thing - I've said it before and I'm going to keep saying it as much as I can - is that pension reform is not about old people; pension reform is about young people. It's about the pensions of the population under the age of 43 who are alive now. It is not about what they are going to contribute to the elderly. That's pretty well fixed. That's not going to change a lot. The critical long-term question is: how are they going to finance their pension and at what age do they want to retire?
Mr. Battle: I agree with everybody else. Just to reiterate a couple of things, the Canada Pension Plan is one of the best social programs I've ever seen. It's the best pension plan there is. It is far superior to RRSPs and occupational pension plans.
The old age security system, despite the irrationalities and difficulties I was talking about, is basically a sound system that can be made fairer and better. We have the ingredients to continue to provide a sound pension system, despite the growing pressures that are on it.
I don't think the Canada Pension Plan is going to be jettisoned. I don't think any government in its right mind would, for a minute, seriously think about that. But it does need some changes. I agree with what Rob said. I also think the system of old age security, which I've been talking about, needs some serious changes.
My last word would be to encourage the committee, as part of the education process, to get into the nuts and bolts of these changes, because they're happening down the street at the Department of Finance. The redesign of elderly benefits is well under way along the lines that I showed you. The Canada/Quebec pension plans, the Canada Pension Plan options, and the various levers there are to work on, are being looked at. Retirement age is the chief lever that's being looked at.
I would simply encourage the committee members, and the people around the table in the work that we try to do, to talk about thresholds, reduction rates, and contribution rates. It's all this nuts and bolts jargon of the pension trade. If we don't at least try to talk about those issues and get them on the table, the people in the white building downtown will happily sail along making those changes. We'll all simply be talking in wind the way we usually are.
The Chairman: I would like to thank you all for your very insightful comments throughout the day. I think we learned a lot. Probably we'll have to reflect on some of the comments when we read the transcripts, but I do appreciate all of you giving your day to the committee to discuss these very important issues.
Before I let you go, let me say that the proceedings of this meeting today will be televised on the CPAC parliamentary channel beginning at 8:30 a.m. Ottawa time on Sunday. If you would like to see yourselves, that is one way you can do so.
In addition, video cassettes are available for the witnesses simply by calling the clerk. If you would like to go over your presentation for whatever purpose, the clerk will provide you with a video cassette. That's the least we can do.
The meeting is adjourned.