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A. The Effect of Survivor Benefits on the Employment Status of Survivors 1. Introduction It has already been established that Surviving Spouse’s Pensions go mainly to women and, in particular, to women of post-retirement age. As discussed earlier, we expect that the proportion of women who are employed at the time of the death of a spouse, or who have longer periods of contribution to the CPP, will be higher in future than is the case today. More women are employed today, so that the probability of their being employed at the time of their spouse’s death—particularly for surviving spouses of pre-retirement age—will be greater than in the past. This factor relates to the issue of the proportion of surviving spouses that can be expected to have CPP entitlement as a result of their own contribution record, in addition to the benefits they may obtain through survivor benefits as the result of a death of a spouse. We note that, despite the increased participation of women in the labour force, and therefore the increased numbers of contributors to CPP, women continue to earn less than men. They are to a significant degree engaged in non-standard and temporary jobs that imply lower retirement incomes. 26 The adequacy of CPP retirement benefits was addressed in the Phase 1 Evaluation. The focus here is on survivors. In the next section, we present data on the employment status of survivors before and after the death of a spouse. The data come from HRDC’s administrative data 27and the 1996 Survey of Beneficiaries of a CPP Surviving Spouse’s Pension conducted for this evaluation. 2. Administrative Data Earlier analysis has shown a clear decline in labour force activity among beneficiaries. The focus of this section, therefore, is on a comparison of labour force indicators before and after the start of CPP survivor benefits. This form of comparison suffers a weakness in that the analyst can never be certain that observed changes are solely the result of the benefit. Obviously the loss of a spouse could have a much greater effect on the lives of the survivors than the receipt of several hundred dollars a month. Impacts on health, decisions about where to live, and a number of social and psychological effects are very likely much more significant. On the other hand, no comparison group is available to represent what might happen to the survivors if no survivor benefits were available. Therefore, the analysis derives as much information as possible from the comparison of conditions before and after the death of the CPP contributor. The data and discussion that follow are derived from analysis of information in the form of annual data for five years before the year in which the survivor benefits started and for five years after that year. Limitations on data availability occur at both ends of the time period covered. In the early years, adequate historical data are unavailable. At the most recent end of the period, insufficient time has elapsed to allow for five full years of experience to have accumulated. The key indicators reported here are averages (including zero values) of the following:
EXHIBIT VI-2 Average Annual Earnings (1996 $), by Gender, for Starts in 1988
Source:HRDC Longitudinal Labour Force Data Base and CPP Master Benefits File. 3. The Effect of SB on the Employment Status of Survivors—Survey Results The Survey of Beneficiaries found that 30% of the female survivors were employed prior to the death of the spouse. Most of these women were of pre-retirement age. Exhibit VI-3 shows the proportion of each age group of female survivors who were employed in the year prior to the death of the spouse. The experience of pre-retirement survivors is very different from post-retirement survivors, as reflected in the much higher proportions of women who were then working. Also noteworthy is the fact that, for those who were working, the majority were in full-time jobs.
EXHIBIT VI-3 Employment Experience of Female Survivors in the Year Prior to the Death of Their Spouses
Source: Survey of Beneficiaries, CFO Panel questions 11a, 12, 13 *Indicates less than 5 cases. What do the survey results indicate about the reaction of women to labour market attachment after the death of a spouse? The broad answer to the question is provided by the following profile: for most there is no effect. When all female survivors who were employed before the death of their spouse (n = 225) were asked "What effect, if any, did the death of your spouse or common-law partner have on your employment?", the answers were as follows:
To show the impact of the death of the spouse more clearly, we have combined immediate post-death employment with "employed in 1995" to summarize the pre-post employment status more sharply. Exhibit VI-4 shows that the vast majority of the women who worked before the death of their spouse (disproportionately spouses who are currently of pre-retirement age) also worked at some time after the death of the spouse. EXHIBIT VI-4 Employment Status Before/After Becoming a Beneficiary of a Spouse’s Pension
Source: Survey of Beneficiaries, CFO Panel questions 11a, b, 14, 15. 23 cases are missing values in the table as a result of a Don’t Know/No Answer response to any one of the questions. The vast majority of women who were not working before the spouse’s death were not working afterwards (88%). This was true for all age groups. The age distribution of the female sub-sample that was not working before but was working after (n = 64) was distributed as follows:
These survey data are a useful counter perspective to the administrative data shown earlier. For those who are working there is a reduction in work following the death of a spouse, but most women were not working before their spouse’s death. B. The Effect of Other Sources of Income on Net Survivor Benefits SIMTAB (Simulation/Tabulation) was designed to simulate economic transfer systems and the impacts of policy alternatives. It takes into account the combined effects of other income support programs and taxes on both the size of benefits and on total family income. It thus permits an assessment of the contribution of SB to disposable income and it allows a calculation of the aggregate effects associated with survivor benefits. We regard it as the only reliable source of information to respond to the evaluation question: "What proportion of survivor benefits are recovered through the tax system or through lower costs of complementary programs, such as GIS, SPA, or provincial welfare?" The model was run with the CPP/QPP survivor benefits included as a source of income, then run again with this benefit deleted.28 The net effects on various other programs were then calculated, including GIS/SPA, the Child Tax Credit, GST Credit, federal and provincial taxes, and provincial tax credits, but excluding social assistance, worker’s compensation, and other sources of income. Exhibit VI-5 indicates what the federal and provincial governments pay for CPP survivor benefits and would pay for other programs in their absence. EXHIBIT VI- 5 Effect of Removal of Survivor Benefits on Government Revenues
*Includes GST credit, child tax credit, and provincial tax credits. N/A: not available. Overall, governments now issue about $3.2 billion per year in CPP/QPP survivor benefits, according to the model. In the absence of CPP/QPP survivor benefits, however, government expenditures on GIS/SPA benefits could be expected to increase, income taxes would be reduced, but CPP/QPP benefits would not have to be paid. The net result predicted by the SIMTAB model is that government expenditures would be reduced by over $2 billion. While the savings would be realized from CPP/QPP funds, the additional expenditures associated with the removal of CPP benefits would be financed from the Consolidated Revenue Fund. As noted, social assistance is not accounted for in the above analysis. The results of the MAPSIT examples suggest that there could be substantial liability for welfare benefits if CPP survivor benefits were no longer available. Inclusion of the effects of social assistance in the above analysis would greatly enhance its value and is strongly recommended as a direction for further research. C. An Unexpected Interaction Between Ancillary Benefits: The Effect of the Variable Contributory Period and Dropout Given the complexity of the CPP, and the fact that changes have been made to various program components, it is not surprising that interactions arise between ancillary benefits. At its inception, the CPP had a "fixed" contributory period, of age 18, or January 1, 1966, whichever was later, to age 65. Other than for those already aged 18 in 1966 (or immigrants coming to Canada after 1965), the contributory period was a fixed 47 years, giving a fixed dropout period of 7 years, and hence a "net" contributory period of 40 years. The introduction of the child rearing dropout as well as a flexible retirement age (60 to 70) has made the contributory period, and hence this general dropout period, variable rather than fixed. This has an impact on the supposedly cost-neutral nature of the early retirement provision. It could also distort the decision regarding early commencement of the CPP retirement benefit for those who exit the workforce prior to age 65. Exhibit VI-6 illustrates some of these effects. The table under Case 1 illustrates the impact of the variable contributory period on early retirement pensions. For example, in column 4 (Benefit Commences at 65; Scenario I), a contributor working for 32 years would have contributed for 80% of the total potential number of years to age 65, after the 15% general dropout (7.0 years). This would give rise to a monthly pension of $582 per month, starting at age 65. EXHIBIT VI-6 Examples of Impact of Dropout Provisions Data:
Note: "Percentage of maximum pension" is the percentage of early retirement pension at age 60 compared to an unreduced pension, i.e., $727, based on the given work pattern.
EXHIBIT VI-6 Examples of Impact of Dropout Provisions (cont’d)
Years out of workforce prior to age 60
Note: "Percentage of pension without child rearing" is the percentage of pension in the table compared to the pension payable had the contributor worked 10 years instead of leaving the workforce for child rearing purposes, i.e. row (5) or (6) in Case II ÷ (5) or (6) in Case I. 1Child rearing dropout. This table illustrates the same early retirement anomalies that were noted for Case I, shown here on row (7). Row (8) in the table above illustrates the phenomenon in relation to child rearing. Figures in this row are obtained by dividing the monthly pension in rows (5) or (6) by the corresponding figures in the same rows in the table under Case I. If the contributor were to commence to receive the pension at age 60, there should be a 30% reduction applied, to give an expected pension of $407 per month. However, because of the variable contributory period, the 32 years contribution represent 90% of the total potential years to age 60 (not age 65) after the 15% general dropout (6.3 years). Applying the 30% reduction gives a pension of $458, as shown in the table. If the variable contributory period were changed to a fixed contributory period, the three entries in the bottom line of the table should all be 70%, not 79%, 76% and 70%, respectively. These percentages are obtained by dividing the monthly pension in row(5) by the corresponding figure in row (6) for each of scenarios I, II and III respectively in Exhibit VI-1. The table under Case II illustrates the impact of the child rearing dropout. Clearly, the application of the child rearing dropout gives a higher pension than if there had been no such dropout. However, if the objective were to provide roughly the same pension as if the contributor had been in the workforce during the child rearing dropout years, this objective of full compensation is not being met in some cases. For example, in Case II, Column 4 (Benefit Commences at 65, Scenario I), without the child rearing dropout provision, the contributor would have received $400 per month. However, had the contributor actually worked the 10 years instead of We draw the following conclusions from analysis of these cases:
The first issue (early retirement anomaly) would appear to be an unintended side effect of the flexible contributory period. A fixed contributory period (for example, to age 65) would eliminate this problem. The second issue (child rearing dropout anomaly) is caused by dropping an equal number of years from both the numerator (the years of earnings) and the denominator (the contributory period). This does not give the same result as crediting a contributor with years of service while absent from the workforce for child rearing purposes. The latter approach would more accurately calculate the pension as if the contributor had not left the workforce, but would add to the cost. D. Economic Effects of CPP Contributions on Employers/ Employees
1. Introduction The CPP is funded on a cost-shared basis through the compulsory contributions of employers and employees, with self-employed persons paying the combined employer-employee rate. From 1966 to 1986 the employer contribution was stable at 1.8% of the Year’s Maximum Pensionable Earnings (YMPE), and rose to 2.8% in 1996. The CPP employer payroll tax currently accounts for roughly 20% of all employer payroll taxes in Canada. This proportion varies from province to province and even within provinces depending on the specific features of other payroll taxes such as the employer health tax, which can vary depending on firm size. Overall, employer payroll taxes have increased during the decade of the 1990's as a fraction of total employer payrolls. Currently employer payroll taxes account for approximately 13% of payroll costs. The CPP employer tax has increased at approximately the same rate as all other payroll taxes combined, maintaining its roughly constant share.
2. The Incidence of the Employer Payroll Tax The economic impacts of the CPP employer payroll tax depend on the extent to which the employer, as the initial payer of this tax, bears its full burden. The labour market literature refers to this issue as the incidence of the payroll tax. A recent U.S. 29study indicates that, through lower wages, workers bear more than one-half of the burden of mandated insurance financed through the payroll tax. This means that employer labour costs rise by less than half of the tax paid so that the negative impacts on employment and competitiveness are reduced. This finding is confirmed in recent Canadian studies.30 3. Payroll Tax Impacts We find that the labour market literature does not provide unambiguous conclusions about the overall economic impacts of the employer CPP payroll tax. A recent major OECD study identifies a number of factors that contribute to the gap between employer costs per unit of labour and the consumption financed by this employer payment. 31 The study refers to this gap as the tax wedge. Some of the components of the gap reflect employer payroll taxes such as the CPP. However, the entire wedge is made up of the sum of the social insurance contributions of employers and employees, personal income taxes, and consumption taxes such as the GST and provincial sales taxes. Taken together, all of these elements of what the OECD study refers to as the employment tax wedge have impacts on labour supply and labour demand decisions in labour markets. Analysis of comparative data for a wide range of OECD countries from 1978 to 1992, showed that although the overall average of the tax wedge has not changed significantly from 1978 to 1991/1992, there have been changes for a number of individual countries. In fact, as the last column in Exhibit VI-7 shows, the rate of increase over this entire interval has been larger for Canada than for any of the other countries included in the comparison. Payroll taxes that are borne by the employer have the potential to reduce employment, increase unit labour costs and reduce the competitive cost position of firms in countries where such taxes are important. What matters is the extent to which the tax burden is shifted to workers. If the employer CPP payroll tax is not shifted fully to workers, the portion borne by employers will reduce employment. However, the extent of the employment reduction by firms depends on the elasticity of the demand for labour.
EXHIBIT VI-7 Overall Marginal Tax Wedges 1in Selected OECD Countries, 1978-92(Percentage Tax Rate as Described in Footnote 1)
1The overall tax wedge includes employees’ and employers’ social security contributions, personal income taxes and consumption taxes. Social security contributions and income taxes are calculated by applying tax rules to the level of earnings of an Average Production Worker (APW), as calculated in OECD, The Tax and Benefit Position of Production Workers. Consumption tax rates are calculated from aggregate tax and national income data. Non-wage labour costs other than social security contributions are not included in the calculations. Social security contributions include only those paid to the public sector, contributions to the private sector are ignored despite their importance in some countries. Social security contributions in some countries are closely linked to expected benefits; therefore, treating them in the aggregate as if they were simply taxes is a simplification. Payroll taxes which are not earmarked for social security are not taken into account in these calculations. No account is taken of "non-standard" reliefs, such as those for mortgage payments (see the Tax and Benefit Position of Production Workers for a detailed discussion of limitations). Furthermore, the tax wedges in this table only concern one point on the earnings distribution (the APW case), and someone on this income level may have consumption patterns which lead to different consumption tax payments from those derived from aggregate data. Source: OECD, The OECD Jobs Study: Taxation, Employment and Unemployment, 1995.
There is also an employee impact from the component of the CPP tax paid by workers. Although it is difficult to know how the full package of CPP benefits is valued by workers because of the extent of worker diversity, it is clear that on average, workers in early cohorts of the CPP should value these benefits more highly than later cohorts. In fact, the calculated generational rates of return appear so high for earlier cohorts that it is likely that the benefits were valued at the contribution amounts or more. As a result, there should have been no employment impacts of the system in the early years of the Canada Pension Plan. As CPP premiums increase, and if there is uncertainty The impacts of the CPP in terms of both the worker and the firm tax components also have a generational dimension. Consider a typical worker at the time that the CPP was introduced who was 55 years of age and ten years away from anticipated retirement. If that worker retired and received CPP benefits for the average lifespan of a 55 year old person, then that person's payouts from the CPP would substantially exceed contributions. As the Phase I CPP evaluation points out, this is an inevitable result of introducing a pay-as-you-go pension system. This means that generational rates of return from CPP will differ quite substantially. The effect is exacerbated by the demographic changes of the post-war baby boom. How important are CPP employer payroll taxes in the overall competitiveness picture? There are no published overall assessments in quantitative terms of the economic impacts of the Canadian CPP employer payroll tax. This is because such an estimate requires data on a series of intervening variables, including the incidence of the tax, the employer response to the net tax in terms of labour demand elasticities and the labour supply response. In comparing tax initiatives that affect the labour market, a complete perspective requires information on payroll taxes, but also on other taxes affecting the labour market. Currently, even among employer payroll taxes, CPP does not dominate in terms of cost impacts, since the CPP employer payroll tax has accounted and still accounts for one-fifth of all employer payroll taxes. Moreover, it seems likely that approximately half of the employer tax burden ultimately falls on employees. However, the employer cost impact for CPP has increased in the last decade. Looking only at the employers’ CPP contribution, the Canadian CPP employer payroll tax is smaller than for our major trading partners (see Exhibit VI-8). On the other hand, the contribution of employers will rise significantly over the next six years. According to draft legislation to amend the Canada Pension Plan tabled on February 14, 1997, contribution rates will rise over the next six years to 9.9% of contributory earnings and then remain steady. These contributions are split equally between employer and employees, so employer contributions will be slightly below 5% of contributory earnings. The self-employed pay the full amount.
EXHIBIT VI-8 Employer Social Insurance Payroll Taxes—Selected Countries
*Varies with wage level. Note: Maximum insurable earnings levels also vary from country to country. Some countries have matching employer and employee taxes as in Canada and the United States, with the self-employed paying both shares. Some countries supplement employer and employee financing with contributions from general revenue. Source: U.S. Department of Health and Human Services, Social Security Administration, Social Security Programs Throughout The World. E. Comparison of Costs of CPP Survivor Benefit with Private Insurance
1. Introduction The purpose of this section is to compare private sector sources of survivor income benefits, to review differences in funding approach that may have an impact on the long and short term actuarial costs of alternative private sector provision. In addition, we estimate the differential administrative costs of provision of the benefits from the CPP as compared to private sector sources. 2. Sources of Survivor Income Benefits in the Private Sector Members of private pension plans will be entitled to pre- and post-retirement survivor benefits on their death. Coverage of the workforce is far from universal: although almost 100% of employees in the public sector are covered by private pension plans, only about 35% of employees in the private sector are so covered.32 Since pension reform in 1987, private plans have had to offer a 60% joint and survivor pension on retirement (this percentage varies slightly from province to province). In addition, the plans have to provide pre-retirement death benefits, generally in the form of a lump sum payment equal to the "commuted value"33of the member’s pension, in other words, the amount that would have been payable had the member terminated membership while still alive. In addition to pension plans, many employers offer group life benefits. Based on input from the Canadian Life and Health Insurance Association (CLHIA) and other surveys, it is estimated that over 90% of the workforce have employer-provided life benefits. In some cases, this benefit takes the form of a "survivor income benefit", i.e. a monthly payment to the survivor, but the vast majority of these plans provide a lump sum equal to one to three times the employee’s salary at the date of death. In many cases the basic benefit is paid for largely or entirely by the employer, with additional optional group life available, paid for by the employee. Generally speaking, such coverage would be for pre-retirement death, although some plans provide for residual amount after retirement, e.g. in the public service a lump sum $5,000 paid-up benefit from age 65. Generally speaking, evidence of good health would not be required in order to be covered by group life insurance. Depending on the size of the group, evidence of good health might be required in some circumstances, e.g.:
Finally, Canadians have access to a well-developed life insurance industry. Policies of various types are easily available to most Canadians, at market prices. Policies are by and large expressed as a lump sum insured, although income benefits are available. A declaration of good health is generally required to be accepted for insurance and above a certain threshold medical evidence of health will be sought by the company. 3. Funding of Sources of Survivor Benefit
4. Integration of CPP with Other Forms of Benefit There is little evidence that group life policies take into account either the (relatively small) death benefit or pre-retirement survivor benefits under the CPP. Similarly, evidence is not clear as to whether individuals take into account the expected value of CPP benefits when planning on the amount of individual insurance they buy in the insurance market. On balance it seems that any such reduction would be minimal. However, most private pension plans do integrate benefits with the CPP benefits. Generally speaking such integration is in relation to retirement benefits only. Thus, for example, a typical pension plan may provide a benefit on retirement of 2% final average salary times years of service, integrated with the CPP benefit from age 65, by offsetting the retirement benefit by 0.7% times average YMPE34 times years of service. The survivor benefit would be 60% of the retirement benefit, in other words, it would reduce by 60% of the CPP offset at the member’s age 65 (even if the member were dead at that point in time). This does not accord with the CPP survivor benefit, which is payable immediately on the contributor’s death, and changes from a pre-retirement to post-retirement benefit on the survivor’s age 65, irrespective of the age at which the contributor would have turned 65. These anomalies are illustrated in Exhibit VI-9. This table illustrates that in this example the member would have been entitled to $16,000 pa from retirement to age 65, at which age the member’s pension would have dropped to $11,100 on account of CPP integration. In total, the private plan pension and the CPP is shown to be level, i.e. the total does not change materially at the member’s age 65. The survivor benefit from the private plan is computed as a percentage of the member’s benefit, namely $9,600 pa when the member would have been below age 65 and $6,660 pa after this age (i.e. 60% of the pension that would have been payable to the member had the member still been alive). The CPP benefit on the other hand changes at the spouse’s age 65 from a pre-retirement pension survivor’s pension (37½% of the earnings related pension plus a flat rate) to a post-retirement survivor pension (60% of the member’s earnings related pension). In this example the survivor pension reduces from $3,360 pa to $2,940 pa. In other cases it could increase. Therefore, the total survivor pension from the private pension plan could change at both the member’s putative age 65 and the spouse’s age 65. A different total is payable when both are (or could have been if still alive) below age 65, one below and one above and both over age 65. These changes are not related in any way to the survivor’s income needs, but are consequent upon somewhat different benefit design philosophies in the two plans. EXHIBIT VI-9 Examples of Integration of CPP Spousal Survivor Benefits in Private Pension Plans
5. Comparison of Actuarial Costs For the reasons explained above, it is very difficult to compare the actuarial costs of various providers of survivor benefits, versus the CPP. It is likely that given its broader coverage, the CPP would experience a higher average mortality than other plans, giving rise to a slightly higher cost. However, this cost encompasses among other things the fact that some of those covered by the CPP would be uninsurable or insurable only with extra premium. For example, it covers contributors with a weak attachment to the workforce who would not be covered elsewhere. It is difficult to separate out the cost for survivor benefits in private pension plans. In any case, the design of such benefits is far from uniform. Notwithstanding a certain degree of uniformity brought about by pension legislation, a number of models exist, for example a CPP-like benefit under the federal public service plan, to a strictly cash approach in money purchase (defined contribution) plans. In addition, for post-retirement survivor benefits, some plans provide these as "add-on" benefits, at no extra cost to members with spouse at the date of retirement, while other plans actuarially reduce the pension to account for the joint and survivor feature. In these latter plans, the survivor benefit is at the plan member’s expense, not the plan as a whole. Finally, the pre-funding of these benefits makes a direct comparison difficult. Again, the variety of group life and individual insurance designs, and the variability of different groups (white collar, pink collar, blue collar etc.), make direct comparisons very difficult. The overall conclusion is that the "wholesale" cost of the benefit (i.e. the proportion of contributors dying each year) probably does not vary greatly as between the CPP and other sources of survivor benefits. It is therefore unlikely that significant savings could be realized by any form of "privatization" of the survivor benefit, due to lower actuarial costs in the private sector. 6. Administrative Costs Again, a direct comparison of administrative costs of the various programs is fraught with difficulties. In the case of CPP, for example, it would not be possible to separate out the marginal cost of providing survivor benefits. The best we can do is indicate the cost per dollar of total expenditure. The same would be true for private pension plans, with the added complication that the total administrative cost of private pension plans is very difficult to estimate, as much of the direct and indirect cost is borne by the plan sponsor and is not readily available, even as a cost per dollar of benefit. Also private plans vary greatly in size. For the larger ones, costs per dollar of benefit are probably comparable to CPP costs (1-2% of contributions), whereas the smaller ones have more significant costs per dollar of benefit. For group and individual life insurance we have estimated, based on internal Mercer sources, the overall administrative cost as a percentage of the total premium paid for life benefits. The estimated cost for large employer plans would range from 2% to 4% of total premium (excluding applicable premium taxes). This is slightly higher than the estimated 1.3% of total expenditures required to administer all aspects of the CPP program. However, the cost for smaller employer groups is much higher, at 10% of total premium or more, depending on the employer size. The cost to administer individual life is much higher again, with administrative costs ranging from 30% to 40% of the total premium. The conclusion is that the CPP cost per dollar of total expenditure is low in aggregate. There is no reason to believe that survivor benefits create costs out of line with the average. Private pension plans, at least the larger ones, are also low cost providers, as are group life plans. However, the individual life insurance industry tends to have relatively high administrative costs, compared to the other sources of survivor benefit discussed here. 7. Conclusions It is very difficult to compare CPP actuarial costs and administrative costs for survivor benefits with comparable benefits provided by private pension plans, group life plans and individual life insurance. It is likely that the actuarial cost of the CPP is slightly higher than that for the other plans, due to the higher mortality likely experienced by the broader group covered by the CPP. However, this cost could not be reduced by privatization—this would merely deprive those who might find it difficult to replace such coverage of a benefit. Insofar as administrative cost is concerned, the CPP has comparable costs to those found for large pension plans and group life plans, all of which have low costs, although it is difficult to be sure that all costs are being measured properly. CPP costs are significantly below those for individual insurance. We also looked at what evidence there was for integration of other sources with the CPP. Not much work has been done in this regard, but it would appear that there is little or no integration with group or individual life insurance sources. There is integration with private pension plans, but it tends to be somewhat indirect, as indicated above. F. Summary The impact of survivor benefits on the labour market behaviour of female survivors following the death of a spouse was limited. Most of the current beneficiaries were not in the labour force at the time of the death of a spouse and for most the situation did not change afterwards. Trend analysis shows that the number of weeks worked by women revealed a downward trend both before and after the start of benefits. This is reflected in annual average earnings. In future, it is not likely that significantly more widows will be employed at the time of the death of their spouse/partner. In part this is because the longevity of males is greater now than in the past and also because of a trend to earlier retirement. This means that it is likely that neither partner will be working at the time of the death of a spouse, and there is little reason to think that many will seek/find employment afterwards. Changes in women’s labour market participation have had an impact on how successful the child rearing dropout has been in compensating women for dropping out of the labour force for the care and nurturing of young children. Women who benefit the most are those who leave the workforce during child rearing years and have a strong attachment during years when they are not caring for young children. This was probably the model most prevalent in the 1970s, when this provision was first introduced. Women who leave the workforce for only a short period on the birth of a child and continue to have a strong attachment to the workforce during child rearing years benefit relatively little from this provision. In fact, they pay CPP contributions for periods of service that they would have been credited with anyway, because of the child rearing dropout. The model of the mother who returns quite soon to the workforce after the birth of a child is much more prevalent now than it was previously. The CPP employer payroll tax has been increasing in recent years, but it is relatively smaller than for our major trading partners. Currently, the CPP does not dominate the cost impacts on employers, since it accounts for only one-fifth of all employer payroll taxes, but it is scheduled to rise significantly in the next fifteen years. Other impacts noted were the following:
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