|
|
     |
||
 |
     |
 |
|
A. Introduction In Chapter 3 we considered the rationale for the Surviving Spouse’s Pension and several other features of the CPP, with evidence from the literature review, international comparisons and the opinions of the expert panel and key informants. Here we add a perspective on adequacy or appropriateness of these features with the benefit of simulations of their effects and/or the opinion of survivors and the general public over 25 years of age on the two other components of survivor benefits—the Death Benefit and the Orphan’s Benefit. We then examine the evidence with respect to three other features of the CPP:
B. Adequacy of the Death Benefit In 1995, death benefit payments totalled $223.2 million. In January 1996, 8,239 death benefits were paid at an average of $2,521 per benefit. The maximum benefit in 1996 is $3,540. The death benefit is "a lump sum payment equal to six times the monthly retirement pension of the deceased contribution or roughly 10% of the YMPE, whichever is less."22 The death benefit is meant to act as a trigger for survivors to inform the government that CPP retirement beneficiaries are no longer living. The application for a survivor benefit also activates the application for the death benefit. This evaluation has not established whether all survivors who are entitled to a death benefit for a deceased spouse receive one. Determining the "take up rate" is complex because mortality data would have to be aggregated across provinces, and the number of eligible would need to be determined for the same period by identifying only those who were, in fact, contributors to the CPP. A pilot study in one province might be useful to establish whether there is a take-up issue which merits extending the study of the take-up of Death Benefits to the CPP coverage as a whole. The evaluation has examined perceptions of the adequacy of the Death Benefit. To obtain from current beneficiaries of a survivor pension perceptions of the adequacy of the death benefit received at the time of the death of a spouse, the survey of beneficiaries asked:
Exhibit V-1 shows that male and female survivors differ in their perception of the adequacy: 58% of males indicated that the Death Benefit (DB) was less than adequate. For female survivors, the perception that the DB was less than adequate is associated with age (post-retirement age survivors were more likely to find the DB adequate). Recent beneficiaries and those who had re-married were also more inclined than others to see the DB as inadequate. EXHIBIT V-1 Perceived Adequacy of Lump Sum Death Benefit, Male and Female Survivors
Source: Survey of Beneficiaries, CFO Panel. *Due to rounding. The "can’t recall adequacy" response was provided in the questionnaire in recognition of the fact that the way in which the Death Benefit is administered means that if the surviving spouse was not executor of the estate, he/she might not know the amount of the Death Benefit. Also, given the number of years since the death of a spouse for some of the respondents, difficulty in recalling the adequacy was likely to be significant, as indeed proved to be the case. Of the female survivors who could recall and who ventured an opinion, a majority found the DB adequate. These responses appear to be consistent with the view of key informants and experts that the DB makes a reasonable contribution following the death of a spouse and should not be dropped. C. The Orphan’s Benefit Opinions on the appropriateness of the Orphan’s Benefit (OB) were obtained in surveys from both current recipients23 and the general population over 25 years of age. Respondents proved to be divided on the "insensitivity" of the current name, but almost all those who think the name is insensitive want it changed. Since the vast majority of "orphans" will still have one parent alive and are not therefore truly orphans, "surviving child/children" might be more appropriate. In the beneficiaries sample, opinions on other aspects of OB were as follows:
With respect to the age limit for orphans in school and payment of the benefit to children even if they leave the care or custody of a parent or agency, the majority view of current beneficiaries strongly supports the status quo. On the age limit of the OB for those not in school, there is fairly strong support for extending the eligible years to at least 22 years of age. There is also substantial minority support (35%) for relating the OB to the income of those responsible for the support of orphans, although the majority position among those currently receiving OB was for the status quo. Within the general population 25 years of age and older, a majority also supported the status quo on the age limit for benefits and did not want to see changes relating to the Orphan’s Benefit either to the income of the parent/custodian or the contribution level of the deceased contributor. In the general population survey, a question was included that had not been part of the survey of beneficiaries. It explored whether the public supports the idea of paying a benefit only to the contributor’s dependent children—not the surviving spouse:
The result was overwhelming support for the status quo: the support for no change was 84% in the combined samples, with no differences evident in the responses by age or gender. D. DropOut Provisions The calculation of benefits under the Canada Pension Plan is affected by how much and how long people contribute. More contributions generally result in a greater benefit. The CPP provides that a contributor’s low earning months can be dropped out so that reduced earnings may be removed from the calculation of benefits, and, therefore, will not result in lower future pension benefits. In addition, other dropout provisions can be applied under the following conditions:
Taken together these provisions have the effect of increasing benefits, and therefore Plan expenditures and required contributions. Does the general public think they are appropriate provisions? Respondents to the general population surveys were asked whether current criteria on dropout should be continued or:
Exhibit V-2 shows that many respondents had no opinion on the subject—indeed, failure to express a view was higher than on any other issue. However, there was substantial support, especially in the 25-44 age group, among those who expressed a view, for extending the dropout provisions. EXHIBIT V-2 Extending the Dropout CPP Provision—Views of a Survey of General Public, by Age
Source: General Population Survey, Q.4. Respondents were not given an opportunity to say whether they thought the dropout provisions should be eliminated altogether, so that it is possible that some who expressed no opinion may not have found their "answer category" available. We did, however, simulate the effect of eliminating both the general and child rearing dropout provisions. The elimination of these dropout provisions would be expected to reduce expenditures substantially, but it would make achievement of the objective of replacing 25% of income up to the YMPE through the CPP even harder. Exhibit V-3 shows the simulation results from the CPP Actuarial Model and indicates the extent of the reduction in expenditures. There is little difference between the two expenditure curves for new benefits compared to new and existing, but all earnings-related benefits are affected by the change. Therefore, the retirement benefit accounts for most of the change, especially in the later years shown and for the change applying to both new and existing beneficiaries. As will be seen later, the effect of this change would be much greater than that of removing credit-splitting. EXHIBIT V-3 Percentage Reduction in Expenditures Resulting from Removal of the Dropout Provision Source: Simulation using CPP Actuarial Model. A further item in the survey of the general public gave respondents a chance to express a view on the appropriateness of increasing or reducing the dropout benefit—even if it did not ask directly about elimination.
The results in Exhibit V-4 show essentially no clear consensus for change. However, taking the "no change" with the "increase" position there is substantial support among those with a stated opinion for at least retaining the general dropout provision. In this respect, the public and the experts are in accord. In our simulations we examined the effect of a set of options extending the dropout provision to cover 20 or 25 per cent of the contributory period, rather than the current 15 per cent. Exhibit V-5 shows the results for the increase to 25. Under both simulations, the effect on total CPP expenditure is an increase, as claimants will be able to base their benefits more on higher-earning years. The amount of increase is approximately twice as great for the increase to 25 per cent as it is for the increase to 20 per cent. EXHIBIT V-4 Changing the Number of Years of Dropout Allowed—Views of a Survey of the General Public, by Age
Source: General Population Survey, Q.5. EXHIBIT V-5 Percentage Increase in Expenditures Resulting from Extending the Basic Dropout to 25 Per Cent
Source: Simulation using CPP Actuarial Model. E. Credit Splitting 1. Opinions on the Appropriateness Under the current CPP provisions, married people who subsequently separate or divorce, as well as those who terminate a common law relationship that has lasted at least one year, can split any CPP pension credits they have accumulated during the period they have lived together. Credit splitting results in a permanent amendment to each spouse’s record of earnings and may affect the level of current or future CPP retirement, survivor, disability and death benefits. Respondents to the general population survey were posed two questions 24shown below:
With respect to credit splitting on divorce, more respondents favour negotiation, but the level of no opinion is quite high. Female respondents were somewhat more disposed than men to support the current mandatory position (in most provinces); no significant age differences were evident in the level of support for one side or the other on this issue. With respect to credit splitting on separation, there was a strong preference, especially among both younger male and female respondents, for having credit splitting remain negotiable; older males were also supportive of the idea. 2. Simulating Removal of the Credit-Splitting Provision Since credit splitting was, at least in part, implemented to balance CPP benefits between spouses that separate or divorce, one might expect that the removal of credit-splitting to reduce expenditures on benefits. In fact, the introduction of credit splitting actually reduced the costs of CPP in the long term. Results of simulations using the CPP Actuarial Model show that the removal of the credit-splitting provision would result in a net increase in CPP expenditures. Exhibit V-6 shows the simulated percentage increase in expenditures year by year from 1997.
EXHIBIT V-6 Percentage Increase in Expenditures Resulting from Removal of Credit Splitting Source:Simulation using CPP Actuarial Model. The exhibit shows a relatively complex pattern of increases arising from the simulation. In fact, if the change applies to new beneficiaries only, the result would seem to be a slight reduction in expenditures over the medium term, with the increases not occurring until over twenty years hence. If applied to existing beneficiaries as well, however, this change would result to an initial increase in expenditures of 0.57% of total CPP expenditures, with this proportion declining to just under 0.4% within about 15 years. 3. An Explanation for the Finding Credit splitting should by and large be transferring credits from men to women and from those with a consistent earnings record to those with a more erratic earnings record. Both of these effects should increase costs. Women also live longer than men, so equal benefits transferred to women should be more costly. Secondly, some lower earnings obtained through the credit split should be eliminated by general dropout for those with a consistent earnings record. In fact, these effects are outweighed by the effective reduction in the cost resulting from the child rearing dropout. This is best illustrated by an example,25 illustrated graphically in Exhibit V-7.
EXHIBIT V-7 Illustration of the Effects of the Interaction of Child Rearing Dropout Provision and Credit Splitting
This example explains the simulation results: the wife does not need the credits transferred during child rearing years as these can be dropped out anyway. The husband has his earnings reduced by his wife’s years of low earnings during which she left the workforce to raise children, but he has no access to the child rearing dropout. The wife also has 14 years of earnings at 50% of the YMPE, which in this example is of no use to her, as they would reduce the average. If her average earnings outside the child rearing period were low, these credits could be useful. It should be noted that this is a worse case scenario, namely full attachment to the workforce outside the child rearing period, and no attachment during. Less extreme patterns would reduce the anomalies illustrated here. F. Summary Our assessment, in this chapter, of the achievement of objectives for features of the CPP other than the Surviving Spouse’s Benefit has relied mainly on evidence of the perceived appropriateness of the measures. By and large, experts and our key informants favoured retaining the death benefit, orphans benefits, the general and child rearing dropout provisions and credit splitting. We have not been able to assess whether every survivor entitled to the death benefit received the lump-sum payment (that averages around $2,500). We found that among females who could recall the adequacy, the majority found the benefit adequate. Males were less inclined to this view. Regarding the Orphan’s Benefit the public supported the status quo, but there was fairly strong support for extending OB to at least 22 years of age, even if the child was not in school. With respect to the dropout provision, the public was less inclined to comment on the achievement of objectives. They favoured extending it to cover other forms of family-related care-giving beyond the current rules, but there was no agreement on lengthening or shortening the number of years of general dropout permitted. The experts and the public differ on the mandatory aspect of credit splitting: the public is more disposed to making it or leaving it negotiable in the case of divorce and separation; the experts favour mandatory provisions. The simulation results showed that the removal of credit splitting would actually increase CPP costs, a consequence that would appear to be at odds with an objective of the program. (Credit splitting was intended to be cost neutral, or even to incur a small cost.)
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
= 100% of maximum pension
= 92.7% of maximum pension1
= 82.5% of maximum pension
= 96.3% of maximum pension1![[To Top]](/web/20060126234331im_/http://www11.hrdc-drhc.gc.ca/edd-img/top.gif){kind=small}
![[Previous Page]](/web/20060126234331im_/http://www11.hrdc-drhc.gc.ca/edd-img/back.gif){kind=small}
![[Table of Contents]](/web/20060126234331im_/http://www11.hrdc-drhc.gc.ca/edd-img/content.gif)
![[Next Page]](/web/20060126234331im_/http://www11.hrdc-drhc.gc.ca/edd-img/next.gif){kind=small}