Programs and service delivery overview – Seniors and retirement

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1. Canada Pension Plan

Description

The Canada Pension Plan (CPP) is a statutory program that began operations in 1966. It is the second of the 3 pillars of Canada’s retirement income system. The first pillar is the Old Age Security (OAS) program and the third pillar is comprised of employer-sponsored pension plans, personal registered retirement savings plans, tax-free savings accounts, as well as other personal savings and investments.

The CPP is a social insurance plan funded by the contributions of employees, employers and the self-employed and the revenue earned on CPP investments. The Plan covers virtually all employed and self-employed persons working in Canada, excluding Quebec, which operates its own comprehensive plan, the Quebec Pension Plan. The CPP provides contributors and their families with partial income replacement upon retirement, disability or death of a wage earner and, together with OAS, serves to create a modest, stable base upon which to build income in retirement. While the CPP is primarily a retirement plan, it also provides supplementary disability and survivor benefits, which reflect the insurance nature of the Plan and are not a direct return on contributions.

The CPP consists of 2 components: the base, or original, component, which first began in 1966, and the enhanced component, which began in 2019. These 2 components work together to provide benefits to Canadians and are part of a single, unified Plan.

Workers aged 18 and over are required to make contributions on earnings between $3,500 and the year’s maximum pensionable earnings (YMPE), set at $61,600 in 2021, which is based on the average industrial wage. Within this range of earnings, the contribution rate is 10.9% (9.9% to the base, or original, CPP and 1.0% to the CPP enhancement) shared equally by employers and employees, who each pay 5.45%. The self-employed pay both portions. The enhancement’s contribution rate will gradually grow to 2% (for a total of 11.9%) by 2023. The enhancement will also increase the range of earnings protected by the Plan by creating a new band of covered earnings starting in 2024. Contributions on earnings above the YMPE up to the new limit (which will be 14% higher in 2025 and thereafter) will be 8.0%, shared between workers and their employers. According to the projections of the Chief Actuary of Canada, this new limit would be $76,400 in 2025 (compared to the standard YMPE of $67,100 in 2025).

The base, or original, CPP retirement pension was designed to replace 25% of a contributor’s average lifetime earnings (up to the annual limit) from age 18 until they begin collecting it. The standard age for the retirement pension is 65, but individuals can receive a permanently reduced pension as early as age 60, or increase the monthly amount by deferring their pension up to age 70. The CPP enhancement will top-up the benefits provided by the base component of the Plan. The enhancement is fully funded, meaning that benefits will grow slowly over time as individuals work and contribute. Each year will result in a partial benefit, with the full effects of enhancement available with 40 years of contributions representing an increase of the CPP’s earnings replacement from one quarter to one-third (33.33%). Together, the higher earnings threshold and replacement will increase the maximum CPP retirement pension by more than 50%. The enhancement will also increase the CPP’s survivor and disability pensions and the post-retirement benefit.

Within ESDC, Service Canada is the Government of Canada’s one-stop service delivery network. Canadians can use the online My Service Canada Account to apply for a CPP retirement pension. In 2019 to 2020, approximately 149,000 people, representing 47.5% of all applications, applied for their CPP retirement pension online. Since 2020, to ensure Canadian workers receive the full value of their pension, Service Canada began enrolling CPP contributors who are 70 years old. As of March 2021, approximately 46,000 seniors have been proactively enrolled.

Key program statistics

In fiscal year 2019 to 2020, 6.1 million CPP beneficiaries were paid, representing a total annual benefit value of $49.0 billion of which:

Policy lead: Co-lead by Income Security and Social Development Branch and Finance Canada

Stewardship of the CPP is shared between the federal and provincial governments. Major changes to the Plan require the formal approval of two-thirds of provinces containing two-thirds of the population.

Federal and provincial finance ministers review the Plan every 3 years via the Triennial Review. The review considers the Plan’s financial state and seeks to ensure that the Plan and its benefits remain relevant to meet the changing needs of Canadians. Finance Canada leads this process, supported by ESDC.

Service delivered by: Benefits and Integrated Services Branch

List of key stakeholders

ESDC is responsible for oversight, program policy and benefit delivery of the CPP. Other partners have responsibilities as follows:

2. Old Age Security

Description

The Old Age Security (OAS) program is the first of 3 pillars of Canada’s retirement income system. The second pillar is the Canada Pension Plan (CPP)/Québec Pension Plan, while the third pillar is comprised of employer-sponsored pension plans, personal registered retirement savings plans, tax-free savings accounts, as well as other personal savings and investments.

The OAS program is a statutory program, which began operations in 1952 following the passage of the Old Age Security Act (OAS Act). It is a non-contributory, residence-based program financed through general tax revenues. Its objective is to provide a minimum level of income to seniors and contribute to their income replacement in retirement.

The OAS program is administered by ESDC. Service Canada delivers the program to clients via a network of regional processing centres and call centres located across the country.

The benefits payable under the OAS program include the OAS pension, which is provided to all individuals aged 65 and older who meet the legal status and residence requirements, the Guaranteed Income Supplement (GIS) for low-income seniors, and the Allowances for low-income Canadians aged 60 to 64 who are the spouses or common-law partners of GIS recipients, or who are widows or widowers.

The OAS pension is paid in recognition of a senior’s contribution to Canadian society and the economy. Seniors who have resided in Canada for at least 40 years after age 18 are entitled to receive a full OAS pension of $618.45 per month ($7,421.40 per year), based on April to June 2021 rates. A partial pension is paid to individuals who have resided in Canada for at least 10 years after age 18. The partial pension is paid at the rate of 1/40th of the full amount for each year of residence in Canada after age 18.

The GIS provides additional income to seniors who have little or no income other than the OAS pension. The benefit amount is based on the applicant’s annual income or, in the case of a couple, their combined annual income. Seniors with no income other than the OAS pension receive the maximum GIS. The GIS provides up to $923.71 per month ($11,084.52 per year) for single seniors and up to $556.04 per month ($6,672.48 per year) for each member of a couple, based on April to June 2021 rates. These amounts include the GIS top-up, which provides the lowest-income seniors with additional benefits of up to $1,717 per year for single seniors and $486 per year for each member of a couple. The basic GIS is reduced by $1 for every $2 of net income as defined in the Income Tax Act. The GIS is phased out at an annual income of $18,744 for single seniors and at a joint income level of $24,768 for senior couples.

The Allowance and the Allowance for the Survivor are income-tested monthly benefits that ensure that 60 to 64 year old spouses of GIS recipients, and low-income widows and widowers, have a minimum income guarantee until they become eligible for the OAS pension and the GIS at age 65. The maximum benefit amount is $1,174.49 per month ($14,093.88 per year) for the Allowance and $1,400.05 ($16,800.60 per year) for the Allowance for the Survivor, based on April to June 2021 rates.

To ensure that they retain their value over time, OAS benefits are reviewed 4 times per year (in January, April, July and October) in accordance with changes in the Consumer Price Index (CPI). The CPI measures the price of a typical “basket” of goods and services, such as food, shelter, gas and clothing, commonly purchased by Canadian households. The quarterly indexation provides benefit increases to recipients when prices go up. In addition, the OAS Act contains a guarantee ensuring that benefits can never go down, even in the event of a decline in the CPI.

While the OAS pension is taxable, the GIS and the Allowances are not subject to personal income tax. Higher-income OAS pensioners are subject to the OAS Recovery Tax. The Recovery Tax, which is part of the Income Tax Act, requires higher-income pensioners to repay their OAS pension at a rate of 15% of their income above a certain threshold. The threshold amount is $79,054 for income year 2020. The OAS pension is completely recovered at an individual income of $128,149.

Key program statistics

In 2019 to 2020, $56.3 billion in OAS benefits were provided to 6.5 million beneficiaries, which included $42.7 billion in OAS pension benefits to 6.4 million recipients.

The Chief Actuary estimates that the number of OAS pensioners is projected to increase from 6.6 million in 2020 to 10.1 million by 2035, with total program expenditures projected to increase from $60.8 billion in 2020 to $123.4 billion in 2035.

Policy lead: Income Security and Social Development Branch

Service delivered by: Benefit Delivery Services Branch and Transformation and Integrated Service Management Branch

3. Guaranteed Income Supplement

Description

The Guaranteed Income Supplement (GIS) is a component of the Old Age Security (OAS) program, which is legislated under the Old Age Security Act. The GIS is an income-tested benefit paid to OAS pensioners who receive little or no income other than the OAS pension. It is intended to provide a basic level of income protection to help seniors provide for their immediate needs.

The benefit amount is based on the applicant’s annual income or, in the case of a couple, their combined annual income. Seniors with no income other than the OAS pension receive the maximum GIS. The GIS provides up to $923.71 per month ($11,084.52 per year) for single seniors and up to $556.04 per month ($6,672.48 per year) for each member of a couple, based on April to June 2021 rates. These amounts include the GIS top-up, which provides the lowest-income seniors with additional benefits of up to $1,717 per year for single seniors and $486 per year for each member of a couple.

The GIS is reduced by $1 for every $2 of net income as stipulated in the Income Tax Act. The GIS is phased out at an annual income level of $18,744 for single seniors and at a combined income level of $24,768 for senior couples. Calculating the GIS based on income allows the benefit to be targeted to those seniors most in need.

All sources of income are taken into account in assessing eligibility for the GIS, with a few exceptions, such as the OAS pension and some income from employment and self-employment through the GIS earnings exemption. In July 2020, the earnings exemption was enhanced to extend eligibility to self-employment income and provide a full exemption on up to $5,000 of annual earnings, as well as a 50% exemption on the next $10,000 of earnings, for a maximum exemption of $10,000.

Key program statistics

In 2019 to 2020, 2.1 million seniors received the GIS, at an estimated cost of $13.0 billion.

Policy lead: Income Security and Social Development Branch

Service delivered by: Benefits and Integrated Services Branch and Transformation Management Branch

4. New Horizons for Seniors Program

Description

The New Horizons for Seniors Program (NHSP) is a federal grants and contributions program that focuses on enhancing the quality of life and the social participation of seniors within their communities. It funds projects that engage seniors and enable them to make valuable contributions in their communities by sharing their knowledge, skills and experience. The Program has 5 main objectives which include: promoting volunteerism among seniors and other generations; engaging seniors in the community through the mentoring of others; expanding awareness of elder abuse, including financial abuse; supporting the social participation and inclusion of seniors; and providing capital assistance for new and existing community projects and/or programs for seniors.

The NHSP is structured with 2 complementary streams, community-based and pan-Canadian. The community-based stream supports a high volume of small projects (up to $25,000 grants for a period of 1 year) in communities across the country. This stream funds projects that are led or inspired by seniors and that focus on at least 1 of the Program’s 5 objectives. The pan-Canadian stream funds a small number of collective impact projects in communities across the country with a funding period of up to 5 years and maximum funding of $5 million. The pan-Canadian stream projects focus on complex issues facing seniors, using innovative interventions in communities and regions across Canada.

The NHSP is delivered in Quebec under a formal Canada-Quebec Protocol of Agreement. Its joint project selection process ensures that the NHSP funds activities that align with priorities that both governments share and that complement Government of Quebec initiatives.

The NHSP is administered under the Department of Employment and Social Development Act.

Key program statistics

Since its introduction in 2004, by March 31, 2021, the NHSP will have funded more than 30,500 projects, including COVID-19 related projects, in hundreds of communities across Canada. The total Government of Canada investment will be more than $660 million.

The NHSP has implemented 4 temporary measures to respond to COVID-19 and its impact on seniors.

The NHSP is a grants and contributions program (Vote 5) that has an ongoing funding budget of $70 million per year.

Policy lead: Income Security and Social Development Branch

Service delivered by: Program Operations Branch

List of key stakeholders

Key stakeholder groups include:

5. International Social Security Agreements

Description

International Social Security Agreements (SSA) are bilateral treaties under international law. The Old Age Security Act and the Canada Pension Plan (CPP) authorize the Minister to conclude SSA's on behalf of Canada. SSA's coordinate the operation of Canada’s public pension programs – its residence-based Old Age Security (OAS) program and its contributory CPP – with certain comparable social security programs of another country that provide pensions for retirement, old age, disability, and survivorship.

Since 1977, Canada has concluded SSA's with 60 countries, 59 of which are in force. Canada is very active in pursuing SSA's with other countries in order to protect the income security and pension eligibility of individuals that have lived and/or worked in Canada and another country and promote the competitiveness of Canadian companies operating abroad.

Most of Canada’s SSA's help individuals that have lived or worked in Canada and another country to qualify for benefits based on their affiliation to each country’s pension system. By adding together their periods of social security coverage under the public pension programs of Canada and the SSA partner country, individuals may meet the minimum eligibility requirements for benefits for 1 or both countries. SSAs also strive to reduce or eliminate restrictions based on nationality or on payment of benefits abroad that may prevent individuals from receiving benefits.

Most of Canada’s SSA's also permit the continuity of social security coverage when a person is sent to work temporarily in another country, and prevent situations where that person and their employer may have to contribute to the social security programs of both countries for the same work.

ESDC is responsible for the oversight, program policy, and negotiation of Canada’s SSA's, as well as oversees the entry into force processes of all SSA's, in collaboration with Global Affairs Canada. The Canada Revenue Agency (CRA) and Service Canada are responsible for the implementation and service delivery of Canada’s SSA's.

As a result of SSA's, approximately $585 million in foreign benefits are paid into Canada on an annual basis to more than 200,000 individuals. In 2020, Canada paid approximately $192 million in OAS and CPP benefits to over 100,000 persons living outside of Canada.

Policy Lead: Income Security and Social Development Branch

Service delivered by: CRA and the International Operations division, Integrated Services Branch, Service Canada

List of key stakeholders

Global Affairs Canada works with ESDC throughout the SSA negotiation, approval, and entry into force process.

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