 |
|
7. Evaluation Findings and the Consideration of Alternatives
A. The Main Findings of the Evaluation
The main findings of the evaluation support the continuation of the Surviving Spouse’s Pension and the ancillary CPP
benefits we have examined.
The review has established that the rationale persists for the Surviving Spouse’s Pension, the Death Benefit, Orphan’s Benefit, the general dropout provisions, the child rearing dropout provisions, and credit splitting.
With respect to survivor’s benefits, the evidence most strongly supported the rationale for post-retirement survivor benefits. Almost 90% of current beneficiaries are women and, of these, nearly three quarters are over the age of 65. Adequacy of the benefit was validated in a qualitative sense in relation to the original implicit replacement target. Analysis of current data on the significance of survivor benefits within total family income showed that for about a fifth of female survivors, the benefit represents a significant share (at least 20%) of total family income. Reliance on survivor benefits was found to have peaked in the late 1980s and to have declined somewhat since, although the proportion of family income replaced by SB and SB plus other CPP benefits has increased for those in the lowest income categories.
The general public thinks that pre-retirement benefits should not be restricted only to those with children or who are disabled. Although not fully enthusiastic about the current eligibility for pre-retirement survivor benefits, most informed sources accepted the income support implications of the flat-rate feature of pre-retirement benefits. Current beneficiaries tended to support the status quo with respect to whether benefits should vary with the age of the surviving spouse and whether benefits should be related to the survivor’s income. They also support the current arrangements with respect to Orphan’s Benefits.
Except for survivors, evidence supporting the retention of death benefits and orphan’s benefits was not so strongly presented; on the other hand no convincing arguments for dropping these features came from informed sources or the general public.
The case for the general dropout provisions of the CPP was supported, even found to be enhanced in view of current labour market instability. Also, and despite the increased participation of working mothers, no convincing argument was made for ending the child rearing dropout provision of the CPP. Removal of the dropout provision would, of course, substantially reduce expenditure under the CPP.
Evidence on the impacts of the program features we examined offered no major concerns for unintended consequences, although there were some:
- simulations suggested that the interaction of survivor benefits with receipt of social assistance could result in perverse consequences: in certain ranges of income, female beneficiaries of SB on social assistance could actually be worse off in terms of net disposable income than they would be without a Survivor’s Pension and Orphan’s Benefits.
- credit splitting has actually helped to reduce CPP program expenditures. The rationale for this ancillary feature of CPP was to create greater equity in the treatment of both partners to a marriage or common-law union. Cost reduction is an unanticipated result, as it was expected that this ancillary feature of the CPP would transfer credits from males to females, thereby increasing cost. But the combined effect with the child rearing dropout provisions has rendered some unintended savings to the Plan.
- the additional complexity arising from provisions added subsequent to the original implementation of the CPP, such as the child rearing dropout and flexible retirement ages, has inevitably given rise to anomalies. Such anomalies include unintended subsidies for early retirement, as well as uneven compensation for dropping out of labour force participation for child rearing purposes.
Although we found that employed women reduce their average weeks of work after they begin to receive survivor benefits, there was no clear case to support an argument that employed beneficiaries differ from those with no employment income with respect to the adequacy of benefits. In other words, we found no justification for varying the benefit structure for employed survivors to take into account differences in income.
Notwithstanding some unintended consequences, the three basic components of the CPP we have examined—SSP, DB and OB—should be retained. In the next section we examine possible enhancements or alternatives to the current system.
B. Consideration of Program Alternatives
1. Introduction
Many suggestions for changes, both major and minor, were elicited from key informants including major stakeholders, the expert panel, as well as CPP program officers. Input on alternatives was also provided by the surveys of survivors and the general public. Ideas were also provided by reviewing the study of how Canada compares with selected other countries.
This section begins by discussing the context which might create a climate for giving serious consideration to alternatives. It then goes on to discuss changes that have been suggested for each of the components.
2. Context for Change
A number of issues relating to the changing environment in regard to survivor benefits and other ancillary benefits were discussed in Chapter 3. These included such items as:
- changing family patterns.
- greater instability in the family unit.
- more non-traditional work patterns and greater instability of employment among both men and women.
- changes in the social security network.
The CPP has already changed in response to some of these issues.
Additional contemporary contextual issues include:
- charter issues—while age and family status distinctions have been upheld in many instances, there is a desire to eliminate these distinctions wherever possible.
- need to make benefits more appropriate, recognizing the "inter-dependency" model of the family.
- perceived unfairness of a common-law spouse receiving the whole of the survivor benefit after a relatively short period of cohabitation.
To address these contextual issues we look at a number of reforms that did not proceed, as well as some current suggestions for change.
3. Post-Retirement Spousal Survivor Benefits
Few alternatives were offered to the current spousal benefit. The only suggestion put forward involves mandatory credit splitting for all couples, with survivor benefits payable on the death of one partner based on the net credits of that partner. One illustration of how this could work is shown below:
|
Percentage YMPE |
Percentage of maximum benefits (combined) |
|
Scenario
|
Higher earning spouse
(HES) |
Lower earning spouse
(LES) |
Current
Death of
HES |
Current Death of
LES |
Proposed
Death of
HES |
Proposed Death of
LES |
|
I |
100% |
0% |
60% |
100% |
80% |
80% |
|
II |
100% |
50% |
110% |
130% |
120% |
120% |
|
III |
100% |
100% |
160% |
160% |
160% |
160% |
Notes:
The table ignores the combined benefit rules, to illustrate the point.
The table shows the benefit to the survivor on the death of the other partner.
In Scenario I, the higher earning spouse (HES—usually the husband), receives a 100% pension, while the LES (usually the wife) has no CPP entitlement. The total pension paid to the couple while both are alive is 100% of the YMPE. On the LES’s death there is no change in the retirement pension, while on the HES’s death, the Surviving Spouse’s Pension would drop to 60% of the YMPE.
Scenario II illustrates a working couple where the total income is 150% of YMPE while both are alive, dropping to 130% on the LES’s death, but 110% on the HES’s death (ignoring the combined benefit rules).
The proposal is to split credits equally between spouses, so that in Scenario I both HES and LES would be entitled to 50% each of the YMPE, for the same total 100% as before, when both are alive. On either death, the benefit payable to the survivor is the 50% of the retirement pension continuing in the survivor’s own name plus 60% of the deceased partner’s retirement pension, for a total of 80% (50% + .6 x 50%).
Similarly in Scenario II the pension would be split 75%/75% (i.e., 100% plus 50% divided by 2).
On either death, the survivor would receive 75%, plus 60% of 75% or 120% of the YMPE.
In Scenario III, where both parties have equal entitlements, both the current and proposed approaches give the same result, again ignoring the combined benefit rules.
The following points can be made about this suggestion:
- essentially it turns the "joint and survivor" pension into a "first death joint and survivor" pension.
- it thus equalizes the survivor pension, whether it is the HES or LES who died first.
- since HESs tend to be male and LESs female, using a 60% factor (the current proportion of the contributor’s benefit that continues to the spouse on the contributor’s death) will probably increase costs somewhat, meaning that this factor should be reduced if it is to be made a cost-neutral proposal.
- by combining this pension with marriage breakdown credit splitting, this proposal may be able to deal with the perceived legal spouse/common-law spouse problems.
- the operation of the combined benefit rules would have to be reviewed to ensure equitable treatment.
- the closer men’s and women’s earnings record are to each others’ the more the proposed approach resembles the current approach (i.e. this solves the old problems, not the new ones).
- the anomalies regarding child rearing dropout and credit splitting discussed in Chapter 4 would have to be resolved to make this suggestion viable.
In regard to the combined benefit rules, these have been ignored to illustrate how this proposal might work. If the combined benefit rules were to be applied, all the percentages in the table above would have been capped at 100% and hence there would have been no difference in Scenario II or III between current and proposed post-retirement survivor benefits. (These simplified examples assume cohabitation throughout each contributor’s career. The results would be different if we were to model periods of cohabitation and non-cohabitation.)
The fact that there are more and more working couples means that a growing proportion of survivors will be affected by the combined benefit rules. Effectively, the result of the survivor benefit in these cases is to top up the existing retirement pension to 100% of the YMPE, irrespective of what the survivor benefit mechanism is (i.e., current mechanism or some variant of the credit splitting mechanism discussed above).
These issues appear to be of concern in the U.S. (called "dual entitlement limitation") as well,35 although no specific recommendations to remedy them have been put forward.
4. Pre-Retirement Spousal Survivors Benefit
As has been pointed out before, relatively few dollars go into pre-retirement benefits as compared to post-retirement benefits. Improved mortality will further reduce the financial significance of this component. Nonetheless, this has been the component that has generated the most debate, and the greatest number of alternative proposals.
Alternatives to be discussed are:
- replacing pre-retirement benefits paid to age 65 by a larger transitional or temporary benefit.
- eliminating the flat-rate component.
- graduated eligibility.
- relating benefits to income or other characteristics of the survivor.
- eliminating age and family status distinction.
- basing survivor pensions on "family benefit".
- establishing a separate program, either fully funded and/or on an experience-rated basis.
- changing combined benefit rules.
- Transitional Benefits
The idea of transitional survivor benefits was suggested at the time of the consultation around the 1987 reforms. It recognizes that younger survivors cannot expect to obtain a lifetime income and should be prepared to "adjust" to the death of a partner. A larger payment for a short period (say 5 years) would allow survivors to upgrade skills, open their own business, etc.
If this option were adopted, a choice might be offered whereby an actuarially equivalent benefit payable to age 65 would also be available. Such an approach is also consistent with group life benefits, which are generally expressed as a lump sum equal to, say, 1 to 3 times the employee’s salary, rather than as an income benefit.
Opposition to this proposal at the time was based on both cost issues and negative reaction from labour, women’s groups and provinces. Insofar as cost issues were concerned, the proposal would have increased immediate cash outflow, even though savings were expected in the long run. This factor may be of lesser significance, if currently proposed changes go ahead. It is currently proposed to increase contributions in the short-term, in order to restrain long-term cost increases. If the transitional survivor benefit change were made it would be in concert with these proposals—cash would be available in the short term to meet additional up-front requirements, while providing some long-term relief.
Insofar as the other objection is concerned, opposition by labour, women’s groups and the provinces is unlikely to change. These groups feel that any choice between a larger transitional payment and a smaller payment to age 65 would be a false choice. Women would choose the higher amount, because of short-term need, even if they were unable to "adjust". Then, when the money ran out, they would have to find alternative sources, including possibly welfare (hence the provincial opposition).36
The transitional approach (with choice) was favoured by both interviewees and some members of the expert panel. The general public was offered a choice in the survey between "a monthly lifetime benefit or a rather larger lump sum survivor benefit." The public liked the choice but rejected the option of providing only a lump sum benefit. In a second question, the public was asked about a choice "between a higher monthly benefit for a limited number of years" (closer to the transitional benefit discussed above) and the current benefit. Their position was virtually the same. Younger respondents, in particular, favoured a choice.
- Eliminating the Flat Rate Component
Some who provided input to this evaluation felt that the flat rate component was inappropriate as part of a pension plan design. Also, eliminating this "insurance element" would remove arguments about eligibility for benefits—it would accrue gradually and therefore could be made available after a short period of contribution. On the other hand, it would give rise to small and meaningless benefits for deaths at young ages, where the benefit is particularly needful in the short run.
As noted previously, the flat rate component simulated a portion of the OAS (one-third of the $75 per month in effect in 1966). With the eventual elimination of the OAS and its replacement by a fully income-tested Seniors Benefit, the flat-rate component may be simulating a post-retirement benefit that is no longer available to a small fraction of Canadians.
On the other hand, given that some level of the Seniors Benefit will still be available to all but the most affluent retirees, eventual elimination of the OAS may not be a sufficient reason to change the flat-rate component.
On balance, the proposal to eliminate the flat rate had little support among interviewees and the expert panel.
- Graduated Eligibility
This proposal would see the benefit arranged as follows:
While this proposal was not put to interviewees or the expert panel, it would have responded to a number of concerns that have been raised, such as the eligibility of a common-law spouse when a legal spouse of long standing was previously present.
This proposal is worth pursuing.
- Relating Benefits to Income or Other Characteristics of the Surviving Spouse
The Terms of Reference directed us to ask whether the survivor benefit should be related to the employment income of the spouse, or other characteristics, such as years out of the workforce to raise children.
While there was some sympathy for
these suggestions among the general public, opinion from the key informants and expert panel was almost unanimously against such proposals. In their view, the CPP is a contributory program, and redistributional elements should be kept to the bare minimum.
Insofar as relating survivor benefits to child rearing, this is already accomplished to some extent by the child rearing dropout, and further measures in this direction are not needed.
- Eliminating Age and Family Status Distinctions
There is no doubt that attitudes towards age and family status distinctions have changed radically since the inception of the program. In the 1960s, the policy makers’ role was seen as one of identifying "target groups" that were most worthy of assistance. Thus widows, but not widowers (except in exceptional circumstances) were included; benefits were suspended on remarriage, presumably on the basis that they were no longer needed.
Today, the Charter of Rights, as well as a search for "real" interdependency rather than stereotypical portraits, is what informs policy. A 1985 report of a Parliamentary Committee on Equality Rights37 recommended elimination of all distinctions. This is an extreme position in the current context, as courts have recognized bona fide age and other distinctions in pension and benefit programs. In fact, it is hard to see what would be gained by removing the focus of these programs, other than a minor reduction in administrative costs 38and a feeling that public policy had complied with an abstract principle of "equality".
Interviewees felt that the next related issue would be that of same sex spouses. In what may be a pre-emptive response to a legal challenge, some have suggested eliminating the concept of surviving spouse altogether, replacing it with a "designated beneficiary", perhaps with some preferred hierarchy if a spouse and/or children are present. This approach is less contentious if the survivor benefit is a fixed amount (e.g. a lump sum equal to say 5 times the deceased contributor’s pension), as it avoids "anti-selection", i.e. designating a very young person to increase the total benefit.
In general, most sources were uncomfortable with these ideas, as they tended to lose sight of the original purpose of the survivor benefit and were simply reflective of ideas that are currently popular. The majority felt that we should maintain the same basic structure of survivor benefits, without rejecting well thought out alternatives that meet the specific goals of the program.
In regard to the "dependency" versus "interdependency" model, few concrete suggestions were forthcoming, other than the fact that the presence of young children was an indication of enhanced need—a feature that is not contradicted by the current design.
- Basing Survivor Pensions on a "Family Benefit" Design
Some felt that the current age and family status criteria were in fact a proxy for a family need rather than an individual need. One solution to recognizing this model would be to base the survivor benefit on a greatly enhanced children’s benefit (probably related to the deceased contributor’s earnings records and enhanced flat rate component), with little or no benefit going to the spouse. This proposal would have the added advantage of automatically limiting the duration of the benefit, to the date at which the last child ceased to be eligible.
While this proposal does have merit, and is in line with reforms made to the child benefit program over the last few years, it may not necessarily accord entirely with reality. There is no doubt that there would still be a problem in regard to women who have had little or no attachment to the workforce, even if there are no children present in the household. It is likely that this problem would be more acute for older women whose husbands were close to retirement on their death. These women, as we have noted, constitute the vast majority of pre-retirement beneficiaries.
- Establishment of a Separate Program
There was no support for a separate survivor income program. In fact, there was no support for provision of these benefits from non-federal (i.e. other than the CPP) sources.
The arguments against such proposals included:
- survivor benefits are part and parcel of the retirement program—there would be resistance to zero payments on death from the CPP, even if an equivalent payment were to be available from another program.
- administrative costs would inevitably increase—there is no reason to separate the processing of death claims from retirement claims (compare and contrast this to disability, where very different administrative procedures are required).
- no reason to "pre-fund" these benefits—comparable benefits in the private sector (e.g. group life insurance) are generally funded on a more or less pay-as-you-go basis.
- no reason to implement any kind of "experience rated" program—variation of mortality rates by different industries is slight, and there would be no deterrent effect on mortality rates caused by the possibility of higher premiums (again, compare and contrast this with disability benefits). There is no reason to grade by age—an efficient and widely accessible individual insurance market is available on this basis.
- Eliminating the Combined Benefit Rules
The combined benefit rules limit the pension available from a retirement benefit payable in the spouse’s own name in combination with a survivor benefit, to approximately the maximum retirement pension (25% of the average YMPE). No such rules are in effect in employer-sponsored pension plans. These rules are expected to have an increasing impact on survivor benefits as a larger number of women who have had a significant attachment to the workforce retire.
In fact, there was not much discussion of the combined benefit rules among either the key informants or the expert panel, and no real desire to change them.
Eliminating these rules would provide higher benefits in the post-retirement period for two-earner couples after the death of one of them. This would increase the costs to the CPP and might be perceived as favouring higher earning families.
While there was generally a desire on the part of respondents to minimize the social objectives of the program, it was also recognized that such objectives could not be ignored altogether. Therefore, elimination of these rules would not seem to be desirable at this time.
- International Study
Few ideas were provided by reviewing pre- and post-retirement pensions in comparator countries. CPP survivor benefits are roughly in line with benefits in these countries. Differences include payment to widows only and cessation on remarriage, both of which would be considered retrograde in today’s environment in Canada.
5. Orphan's Benefits
As mentioned previously, orphan’s benefits elicited less interest, including fewer suggestions for changes, than spousal survivor benefits. Some discussion of alternatives to the current benefit has already appeared above, in relation to changing the current structure to a "family benefit". Nonetheless, some alternatives are discussed below. These are:
- changing the name of this benefit.
- establishing a uniform age of cessation.
- issues related to custodial versus natural parents.
- Changing the Name
Many respondents to the surveys of the general public as well as of current beneficiaries of an orphan’s benefit felt that the reference to "orphan" was insensitive. In most cases the beneficiary will not be an orphan as popularly understood (both parents dead). We suggest that the name be changed to "surviving child(ren)".
- Age of Cessation
Currently, benefits are payable to age 18 or to age 25 if the beneficiary is in full-time education. Some have suggested a uniform age of cessation irrespective of attendance at school or university. The advantages would be ease of administration. However, on balance, opinion seemed to favour the current structure.
- Issues Related to Custodial Versus Natural Parents
The issue arises when a child is adopted and the natural parent is living. The rules were changed to recognize eligibility for an Orphan’s Benefit in the case of the death of a natural parent as well as the adopting parent.
This somewhat curious provision affects and interests very few people. However, consensus seemed to favour retention of the current arrangements.
6. Death Benefits
As with the orphan’s benefit, there was limited discussion of this benefit. The alternatives appear to be:
- eliminate it.
- increase it significantly.
- change the eligibility provisions (e.g. make payments to widows only).
The considerations with respect to these options are as follows:
- Eliminate the Death Benefit
Few respondents recommended the elimination of the death benefit, even though there was consensus that it may have outlived its usefulness. However, savings from eliminating this benefit would be insignificant, and it was felt to be useful in some cases.
- Increase the Death Benefit
The international study showed that some countries, principally those with highly developed welfare states, had a death benefit far greater than the CPP’s. However, there was no constituency for a significant increase, partly in the light of the well developed and widely available insurance products on the competitive market. The only possibility of expansion would be in concert with a reduction in survivor income benefits, as discussed above.
- Change Eligibility
Again, there was no constituency for any change in eligibility, e.g. widows only, pre-retirement death only, etc. Any such changes would be viewed as retrograde.
7. Credit Splitting and Assignment
The current arrangements for credit splitting on marriage breakdown were strongly supported by both key informants and the expert panel. Three areas could be looked at:
- mandatory versus voluntary splitting.
- better communication of the policy.
- assignment.
- Mandatory Versus Voluntary Splitting
A mandatory approach was strongly supported by the expert panel but not the general public. In fact, most experts recommended that the ability to trade away the CPP benefits on settlement of a marriage breakdown be eliminated. Mandatory splitting would probably require the agreement of the two provinces that currently permit this, namely British Columbia and Saskatchewan.
- Communications
Many respondents recommended that credit splitting be made "mandatory", apparently unaware that by and large it already was. Since these views were expressed by supposedly knowledgeable respondents, it would appear that enhanced communication on this issue would be a worthwhile endeavour.
- Assignment
Voluntary assignment can occur when both cohabiting parties are in receipt of a CPP pension even in the absence of a marriage breakdown. On the death of the first member of the couple, the assignment ceases and regular survivor benefits are paid.
The expert panel was not very supportive of this arrangement, seeing it mostly as a tax splitting device available to retirees. On the other hand, there was some support for replacing this arrangement by a full credit splitting type of arrangement, as described in the beginning of this chapter.
8. General Dropout
Initially, after the transitional phase-in period, the general dropout was designed to be fixed, namely 15% of the years between age 18 and age 65. This arrangement gave a 7 year dropout, for a net contributory period of 40 years. This analysis ignores the dropout for months while on disability pension.
Changes to the CPP, namely the child rearing dropout, credit splitting and flexible retirement ages have complicated the originally simple design. Some of these complexities and interactions have been discussed in Chapter 5.
Alternatives discussed below are:
- fixed contributory period.
- greater dropout (or shorter contributory period).
- dynamic dropout period.
- dropout linked to specific causes.
- Fixed Contributory Period
A fixed period of 40 years would be consistent with the original plan design, and would eliminate the complexities caused by flexible retirement ages.
It should be noted that the expert panel was not overly concerned by these apparent anomalies and supported the status quo. The international study, on the other hand, tends to indicate that a fixed contributory period is more common than the current CPP methodology.
- Greater Dropout
It was noted that 40 year’s contribution for a full pension is onerous. However, this duration would be comparable to the period required to qualify for a full pension in the private sector. In the public sector 35 years would probably be more typical.
As noted before, very few retirees qualify for a full pension. On this basis, a shorter period, say 35 years, might be more appropriate. This alternative would correspond to a dropout of about 25% of the years between 18 and 65.
While generally desirable, this proposal would undoubtedly increase costs as shown earlier on page 66. It might have to be accompanied by a reduction in the level of the retirement benefit in order to maintain cost neutrality. This would have the effect of increasing pensions for those with more erratic earnings at the expense of those with steadier earnings records.
- Dynamic Dropout Period
The suggestion which we have termed the "dynamic dropout period" is to link the dropout period to expected conditions in the labour market for each given cohort entering it. Thus the early and mid 60s may have given rise to a shorter dropout period, given the easier entry into and higher probability of remaining in the labour force for those entrants.
Entrants in the 1990s may be entitled to a larger dropout, given the greater difficulty in entering the labour market, and the likelihood of more tenuous attachment to it.
Intriguing as this idea is, it suffers from a number of flaws:
- it would seem to be impossible to predict labour market conditions over the required 35 to 40 year time period.
- estimates of the appropriate dynamic dropout period would be strongly influenced by current day conditions, as opposed to predictions for the future.
- the focus would probably be on youth unemployment, rather than, for example, on downsizing impacts for those in their 50s, whereas both should have similar weights for a given cohort.
- it would very likely prove to be much easier to increase the dropout than to decrease it, in expectation of better days to come.
For these reasons, we do not think the idea deserves further consideration.
- Dropout Linked to Specific Cases
The original dropout was designed to accommodate periods of absence from the workforce as a result of continuing education, unemployment, etc. However, the dropout was not linked to specific causes for absence from the workforce. (The child rearing dropout was added subsequently—and will be discussed in greater detail below.)
The expert panel was not supportive of a specific linkage (other than child rearing), basically in view of the additional complexity this would entail. The general disposition was to support an increased general dropout to accommodate the more erratic employment pattern in the current labour market.
9. Child Rearing Dropout
The concept of child rearing dropout was strongly supported by most respondents, although a few felt that it was a "social measure" that had no place in a contributory pension plan.
Alternatives discussed are:
- eliminate this provision.
- extend it to other forms of family care duty.
- change to a "drop-in" or credit provision (explained below).
- Eliminate
There was no support for eliminating the child rearing dropout provision, even though it is recognized that its application is uneven, given the variation in work force patterns of participation among women.
- Extend to Other Family Related Duties
There was support for the suggestion of extending the dropout to cover other family-related duties, among the general public. A similar provision appears to be in effect in the U.K. Such family members could include elderly parents or disabled children above the age of 7.
This suggestion is likely to increase costs somewhat, but does respond to the changing roles of women in the current economic environment.
- Drop-In Provision
The "dropout" could be changed to a "drop-in". For example, contributions would be credited with the average earnings during non-child rearing years for each year out of the workforce to care for children under age 7. In some cases, this would give the same results as currently, but in other cases it would differ. It would solve some of the problems identified in Chapter 5, especially in relation to the interaction between the child rearing dropout and credit splitting.
While there was some opposition to the "drop-in" expressed by the expert panel, this appeared to be caused by the possible complexity of establishing the appropriate mechanism.
C. Summary: A Weighing of the Alternatives
Based on input from interviewees, the expert panel, the surveys, the internal study and our analysis, the following alternatives are listed based on whether or not they seem to be worth pursuing in greater detail. For each "change worth pursuing" we indicate briefly the rationale for each change.
1. Changes Worth Pursuing
|
Change |
Rationale |
- Surviving Spouse’s Benefit:
|
|
|
Post-retirement: |
|
|
Replace the current system with a credit splitting mechanism for all, with survivor benefits payable on the death of the one partner based on the net retirement benefit credits of that partner. It would be necessary to reduce the current 60% factor (i.e., the proportion of the contributor’s benefit that continues to the spouse on the contributor’s death) to ensure cost neutrality. |
This proposal, which would affect both the treatment of retirement benefits and survivor benefits, would change the current voluntary assignment approach on retirement to a compulsory one. At the same time it would change the "dependency" model of survivor benefits to an interdependency model, recognizing the joint contribution of both members of the couple. |
|
Pre-retirement: |
|
|
Replace the benefit to age 65 with a lump sum transitional benefit, possibly with an option to receive an actuarially equivalent pension to age 65. |
Recognizes the need for pre-retirement survivors to adjust to the new situation created by the death of a spouse. |
|
Establish graduated eligibility, based on years of cohabitation (in the absence of children). |
Recognizes gradual growth in interdependence of family members, and reduction of mutual reliance in the event of marriage breakdown. |
|
Replace the surviving spouse and orphan’s benefits by a "family benefit" more heavily weighted towards children. |
Recognizes that the current structure may be a proxy for family benefit, to some extent. This proposal would change the benefit to recognize this fact more directly. |
|
|
|
|
Change the name to something less "insensitive."
|
Modernize name, to avoid negative connotation of "orphan." |
|
|
|
|
Eliminate voluntary aspects.
|
Given unequal information and bargaining power of spouses, the spouse with lower earnings should not have the possibility to trade away the benefit. |
|
Change assignment provisions as discussed above under post-retirement benefits. |
Same rationale as under post-retirement benefits. |
|
|
|
|
Change to a fixed contributory period.
|
Eliminates some of the anomalies associated with early retirement reductions, credit splitting and CRDO. Also will fit in better with partial retirement provisions, if these are introduced in the CPP. |
|
Increase the dropout, combined with a reduced level of benefit to maintain cost neutrality. |
Recognizes more erratic work patterns and later entry/earlier exits from the workforce. Will distribute retirement income from those with less variable to those with more variable life time work patterns. |
|
|
|
|
Extend the provision to other family related duties.
|
Recognizes the reality that care givers have increasing responsibilities towards ageing parents and other relatives as well as towards children. |
|
Change to a mechanism (to be determined) that fully compensates for years out of the workforce for child rearing. |
More equitable treatment of women who leave the workforce for child rearing. Also elimination of anomalies associated with credit splitting. |
2. Changes Not Worth Pursuing
- Pre-retirement survivor benefits:
- Eliminating the flat-rate component.
- Relating benefits to a spouse’s income or other characteristics (e.g. years out of the workforce to care for children).
- Eliminating age and family status distinction, without a more in-depth review, as discussed above.
- Establishing a separate program.
- Eliminating the combined benefit rules.
- Establishing a uniform age of cessation.
- Changes relating to custodial versus natural parents.
- Any change that would eliminate the benefit.
- Extending voluntary provisions.
- Instituting dynamic dropout based on future expected labour market conditions.
- Linking dropout to specific causes, e.g. further education, unemployment.
- Eliminating the child rearing dropout.
The alternatives identified as worth pursuing create benefits from "modernizing" provisions of the CPP to respond to the changed context. They appear not to create countervailing negative effects, especially increased cost and administrative
complexity.
Footnotes
| 35 |
Social Security: Issues Involving Benefit Equity for Working Women, United States General Accounting Office, April 1996.
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The CPP Actuarial Model was used to assess the effect of limiting benefits to ten years for surviving spouses aged less than 55. If Surviving Spouse's Pensions were to be limited in time, rather than payable for the life of the surviving spouse, one would expect CPP expenditures to reduce in size. Those over age 55 would continue to receive the benefit for life, as they now do. The result was very much the expected: increasingly significant reduction in costs over time.
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Report of the Parliamentary Committee on Equality Rights, Equality for All. J. Patrick Boyer, MP Chairman, October 1985, the Queen's Printer for Canada.
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For this evaluation, we used the CPP Actuarial Model to assess the cost implications of removing the age-related reduction for surviving spouses aged 35 to 44. Its removal would raise the costs of the CPP by a relatively small amount.
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