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A. The Scope of This Report

This study is part of a larger effort which encompasses the review of the retirement benefits and disability benefits under the Canada Pension Plan (CPP) being conducted by Human Resources Development Canada (HRDC). It is expected to contribute to the reshaping of all the elements of the CPP to meet the needs of the Canadian population into the future in an efficient and cost effective manner.

Prior to the introduction of the CPP in 1966, the government’s direct role in providing retirement income to retired workers was limited to the flat rate Old Age Security program. There were no specific provisions for payments to survivors of workers, although surviving spouses over the age of 65 would have received an OAS benefit in their own name. Provision for survivors was available either through private pension plans, or through insurance policies purchased in the private insurance market.

The Canada Pension Plan was designed to make income available to retired and disabled workers, surviving spouses of deceased contributors and orphans. Virtually all workers in Canada, whether employees or self-employed, were required to contribute to the system. Quebec has its own scheme in lieu of CPP. CPP benefits are earnings-related and indexed annually to offset the effect of inflation.

The subjects for study in this report fall into two broad categories:

• Survivor Benefits (SB), which includes the Surviving Spouse’s Pension (SSP), the Death Benefit (DB) and Orphan’s Benefit (OB).

• selected features of the CPP which have a relevance to the entire CPP; namely, general and child rearing dropout provisions, credit splitting, assignment of pensions, the employers’ contribution as a payroll tax, the interaction of survivor benefits with retirement benefits and with the variable contribution period to the CPP, some of which relate to survivor benefits.

This phase of the CPP evaluation is aimed at establishing whether there is a continuing rationale for the provision of survivor benefits and of other features of the CPP, to explore the success of this component in achieving its objectives, to examine how survivor benefits fit into the whole retirement and income security system and, finally, to examine possible alternatives.

B. The Sources of Evaluation Findings

This evaluation combines information derived from many sources. A literature review was conducted to provide the context for the evaluation by surveying issues surrounding survivor benefits and the ancillary features of the CPP. Among other topics we reviewed the relevance of survivor benefits in the current labour market and different commentator’s views on the continuing need for a range of program features. This was followed by a special literature review of the labour market and competitiveness impacts of the employer/employee payroll tax that finances the CPP. In addition, we conducted an international comparison of six countries, selected to offer a broad spectrum of generosity in the treatment of survivor benefits and other relevant features of the CPP.

Interviews with federal program officials, provincial officials, and a range of stakeholder groups were conducted with respect to the full range of evaluation issues. Opinions were analyzed to identify those issue areas where there appeared to be significant consensus among knowledgeable informants and those areas where there was either uncertainty on the subject matter or differences in viewpoint.

Quantitative analysis conducted for this evaluation offered other findings:

• simulations using the Modular Analysis Package for Systems of Income Transfer (MAPSIT) explored the effect of differing scenarios of survivor benefits on a household’s disposable income.

• SIMTAB (Simulation/Tabulation), a micro-simulation package maintained by HRDC, examined various policy alternatives and their effect on the proportion of survivor benefits recovered through the tax system or through lower costs of complementary programs such as GIS and provincial tax credits.

• The Office of the Superintendent of Financial Institutions used its CPP Actuarial Model to simulate a number of policy alternatives relating to the Surviving Spouse’s Pension and selected CPP features such as the general dropout provision and credit splitting. Making comparisons with existing benefits, we used these models to assess the impacts and effects if certain features were changed.

• HRDC’s administrative data were analyzed to profile beneficiaries, to determine the extent and nature of labour force attachment before and after receiving the survivor benefit, and the contribution of benefits to personal income.

• Statistics Canada’s T1 Family Files, information from annual T1 income tax forms, were used to assess the family income situation of survivors, and to indicate the proportion of family income represented by benefits, as well as the extent of income replacement by SB.

• A survey of beneficiaries of a CPP Surviving Spouse’s Pension was undertaken:

  to determine what proportion of total household income is represented by the Surviving Spouse’s Pension (and Orphan’s Benefit, as well, where applicable).

  to describe the characteristics of beneficiaries in terms of attributes not available through CPP administrative data—for example, marital status, whether they own their home free of mortgage, and whether they received a life insurance benefit on the death of a spouse.

  to obtain the opinions of current beneficiaries with respect to a number of policy alternatives relating mainly to eligibility for the Surviving Spouse’s Pension.

• A survey of two samples of the general public was conducted—one of Canadians aged 25 to 44 and the other of Canadians 45 and older (excluding respondents to the survivor survey). The objective of this survey was to:

supplement information on the extent of RRSP purchases and life insurance among the general public.

determine their views on a number of policy alternatives relating to both survivor benefits and other features of the CPP such as credit splitting, and to relate these views to gender, age and marital status.

A panel of experts reviewed our principal findings and discussed with us their own views relating particularly to the continued relevance of survivor benefits and the pros and cons of certain alternative approaches to both survivor benefits and other components of the CPP.

This report integrates the qualitative and quantitative findings and indicates when findings are supported by multiple lines of evidence and where, also, there is either less conclusiveness in public and expert opinion or less certainty with respect to the appropriate interpretation of available data.

C. The Structure of This Report

The next chapter describes the historical development of CPP survivor benefits and selected CPP features of interest. Then the current program coverage and continuing rationale are examined. Chapter 4 examines the extent to which objectives have been achieved and addresses the key issue of the significance of survivor benefits in relation to all other sources of income, including personal income and, where applicable, that of other members of the household.

Impacts and effects of the survivor benefits and other features of the CPP are examined in Chapter 5, including an analysis of the economic effects of CPP contributions on employers and employees. The last chapter considers possible alternatives to the current policy, distinguishing clearly between aspects that affect Canadians of "pre-retirement" age and those in "post-retirement." It ends with a summary of changes worth pursuing and those not worth pursuing.