Down the road from me is the oldest remaining House of Industry in Canada. Built in 1877, it was a refuge for the poor, homeless, and destitute. It became the County Home for the Aged in 1947. An ongoing collection of photographs on the wall illustrates just how many of the residents prior to 1947 were elderly. Seeing their faces makes me grateful I have a roof over my head and some pensions to my name.
A Look back at pension history
In the first century, Emperor Augustus raised taxes to pay his long serving Legionnaires to buy their loyalty and to try to keep them from appropriating land in the countryside. Some European countries provided some spotty income for older citizens in the sixteenth century, and the United States provided veterans and widows with a stipend after the Civil War. In the 1870’s, American railroad companies offered pensions to employees to prevent labour unrest and strikes. But no universal pensions existed yet.
Then, in 1889, German Chancellor Otto Von Bismarck became the grandfather of pensions. He wanted to stop the socialist movement by declaring that each citizen aged 70 and over would receive a pension. The average life expectancy was 45 years old. In 1916, Germany lowered the age to 65 years old. The Americans modeled their 1935 Social Security program on the German plan. The average life expectancy then was 62 years old.
In Canada, McKenzie King’s Liberals introduced the Old Age Pensions Act in 1927 which was then updated to the Old Age Security Act in 1951. Lester B. Pearson’s government brought in the Canada Pension Plan paid for by employers and employees in 1966. The Guaranteed Income Supplement came in 1967 to raise poor seniors over the poverty line. In 1985, Brian Mulroney tried to de-index pensions to seniors and met with such a ground swell of protest that he backed down quickly. In 1989, the OAS clawback came into being for higher income recipients to return some or part of their pensions. In the 1990’s, the CPP was put on good financial footings stabilizing the public pension platform.
Employer Pensions are not for everyone
Only about 33 per cent of Canadian employees have an employer pension. In 1970, it was 40 per cent thanks for the most part to unions who wanted to gain security for their members. However, since the July 2004 decision in Monsanto vs. Ontario, employers have been backing away from defined benefit pensions. As David Dodge of the Bank of Canada then put it, “(this decision) tells employers to get out as fast as they can of defined benefit plans.” Since then the defined contribution plan has increased where the risk is taken on by the employee recipient.
Jim Leech, formerly of the Ontario Teachers’ Pension Plan, and Jacquie McNish, a writer for the Globe and Mail, have written a book called, THE THIRD RAIL: CONFRONTING PENSION FAILURES where they argue that defined benefit pensions are the best for cost effective and comprehensive retirement security. They say that workers, unions, politicians, and businesses need to work together to get people better prepared for retirement. The title mentions the third rail however where, on a subway, you get zapped if you touch it making all parties afraid to tackle the subject.
Modern Pension Reform
Ontario is taking on the issue and is now preparing a go-it-alone plan with a January 2017 launch. Since the federal Conservatives have refused to supplement or reform the CPP, Ontario is introducing a plan mandatory for those employers and employees who have no company plan. It is a 3.5 billion per year cost with a long term pay off for Ontario although P.E.I. and Manitoba are planning to join in. It is a brave initiative to solve a problem of supporting retirees, many of whom do not have enough savings for their futures.
If employer pensions continue to decline, our grandchildren will be paying very high taxes for social supports and government pensions. Now the OAS and GIS cost taxpayers about 36 billion yearly. That is expected to triple over the next 20 years. If employer pensions decline, it will be even more. This underlines the fragility of the system where RRSP’s and TFSA’s are underused and people are retiring with some form of debt.
Given the history of pensions, I am grateful for the gift of pensions that I receive now.