Income Protection for Retirees Canada

There are three levels in Canada's retirement income system. The first level is the Old Age Security program, the second is the Canada Pension Plan, and the third is private savings, which includes individual savings and private or employer-sponsored pension plans. The U.S. retirement income system also has three components: Social Security, employer-provided pensions, and individual savings. Canada's Old Age Security program and the U.S.'s Social Security program are intended to provide a foundation of old-age support supplemented by income from the other levels of the system. In neither country is any one component of the system intended to serve as the sole source of retirement support, unlike a number of European countries, which have very generous replacement rates (retirement benefits as a percentage of pre-retirement earnings) in their public social security programs.

One of the most significant differences between the Canadian and the U.S. social security programs is that Canada offers a universal pension and the United States does not. A key similarity between the two systems is the mandatory, earnings-related component that covers workers in the two countries and that requires contributions from both workers and their employers. These earnings-related programs both provide relatively modest replacement rates that are adjusted to keep pace with inflation. There is a greater use of general revenues to support older persons in Canada than in the United States.

Neither the Canadian publicly financed retirement income system nor the one in the United States provides all of the financial support middle-income retirees are likely to need in old age. Both countries attempt to have these benefits supplemented by employer-provided pensions and individuals savings. Both countries make supplemental benefits available to the needy elderly, although the programs that do this are very different from one another.

Despite differences in the public retirement income systems of Canada and the United States, both contribute roughly the same amount to total retirement income, though less of the total comes from the earnings-related pension in Canada than in the United States. About 50 percent of the aggregate income of persons age sixty-five and older in Canada in 1997 came from the OAS (29 percent) or the CPP/QPP (21 percent), while about 46 percent of the aggregate income of the sixty-five-plus population in the United States in 1998 came from publicly funded pensions, mainly from Social Security. Canada's Guaranteed Income Supplement goes to a much higher proportion of older persons than does the U.S.'s SSI, although GIS is not, according to Turner (2001), a poverty program like the U.S.'s Supplemental Security Income program.

Another significant difference between the Canada Pension Plan and the U.S. Social Security program is the diversified investment of reserves currently permitted in the CPP but not in the U.S. Social Security program. Credit splitting also distinguishes the publicly financed income retirement system in Canada from that in the United States.

Improvements in both systems over the years have resulted in sharp declines in the proportion of poor or low-income elderly. Though economic security continues to elude many retirees, especially women, the availability of indexed benefits guaranteed for life has gone a long way toward enhancing the economic security of older nonworkers in Canada and the United States. As a result, retirement in comfort and dignity is a reality for growing numbers of retirees in both countries.

Detailed information on income support for older nonworkers in Canada can be found at the web site of Human Resources Development Canada (www.hrdc-drhc.gc.ca). Information for U.S. programs can be found at www.ssa.gov.