CANADIAN GOVERNMENT ANNUITIES

A STUDY OF THEIR RELATION TO THE PROBLEM OF POVERTY

IN OLD AGE

'NTIL about a half-century ago the universal solution of

UNT

the problem of poverty in old age-if solution it can be called-was the poorhouse in some of its more or less humane forms. But in the last half-century' there have been set in operation a wide variety of plans designed to relieve the aged poor without attaching to them the stigma of pauperism. Underlying all these plans is the principle that the state has a duty to protect the soldiers of industry against misery in old age. They range from old-age pensions, as in New Zealand and the United Kingdom, to simple annuities at rock-bottom rates with what is practically a state guarantee, as in Massachusetts. Canada has now had in existence for something over six years a system of annuities which approaches close to the Massachusetts standard, but which is differentiated from that standard by an indirect state subvention to the annuities fund.

The position of the Canadian government annuities in the range of plans may be defined more accurately by a few details. In New Zealand and in Great Britain the beneficiary is not asked to make any contribution towards the cost of the pension; the state bears the whole burden. On the continent of Europe -in Switzerland, in Belgium, in Germany, in France-there are in operation schemes under which the individual makes a small contribution and this is supplemented by a state bonus. This state bonus has different forms; in Germany it is a flat contribution to the pension; in Belgium and Neuchatel, Switzerland, it has a rough proportion to the contribution of the beneficiary. All these schemes, however, have as a funda

'The French "Caisse de Retraites," the oldest, dates from 1850. See The State and Pensions in Old Age, J. A. Spender, Chapter 6.

mental characteristic a definite contribution by the state, in addition to the payment of expenses of administration by the state. In Massachusetts, on the other hand, the state makes no direct contribution and the annuity premiums are "loaded" to cover the expenses of administration, although the state does make a considerable contribution towards those expenses. In Canada the annuity premiums are not "loaded" to provide for expenses of administration; these are borne by the state, and in addition the premiums are calculated on the basis of a rate of interest slightly higher than the normal market rate. In these two ways the Canadian government makes an indirect contribution to the cost of the annuities. As a result the Canadian rates are noticeably lower than those in force in Massachusetts, although not so low as in those European countries where the government makes a direct contribution to the fund.

I. ORIGIN.

The Canadian government annuities are the result of an effort on the part of the administration of Sir Wilfrid Laurier to outflank an agitation for old-age pensions. This agitation grew out of the discussions in the United Kingdom prior to the adoption of the present pension system, and came to a head in the session of Parliament of 1906 in the form of a motion calling for government action of some undefined character for the relief of the aged poor. The following year a similar motion was presented, and the Premier announced himself as opposed to old-age pensions unless contributory. This was in the House of Commons. In the Senate at the same session Sir Richard Cartwright, minister of trade and commerce, discussed the problem and laid on the table of the House a draft bill providing for old-age annuities."

In taking this action Sir Richard stated his attitude towards old-age pensions. He would not object to them if limited to the "honest and industrious" who through "accident or misfortune or some other cause of a similar kind" find themselves

1 Debates, House of Commons, Canada, 1906-7, vol. ii, pp. 3374–96. "Debates, Senate, Canada, 1906-7, p. 798.

in want in their old age. But he added: "My own impression is that in a great many cases such a scheme would be found to encourage extravagance, and the result would be that the thrifty, industrious workingman would find himself ultimately compelled to bear the burden of his less industrious, and possibly dissolute, companion." 1

To this general criticism Sir Richard admitted "one exception," which he stated thus:

I can understand in the case of old and densely-peopled countries where a large proportion of the population are leading a life from hand to mouth, where practically there is no margin, that statesmen may find themselves, or think themselves, compelled to adopt some such expedient; although, even there, I am strongly of opinion that the experiment is dubious, and, at best, can only be regarded as a temporary expedient, dealing with the effect and not with the cause. Fortunately for us in Canada, I think I am justified in saying, and I think the experience of my colleagues here and elsewhere will bear me out, there is very little risk of any hardworking, industrious, able-bodied man not being able to make adequate provision for his old age, if only an opportunity were given him.

It was to provide this "opportunity" that Sir Richard proposed the establishment of a system of government annuities. He stated his position as follows:

Speaking for myself alone, and in no sense speaking in this matter for my colleagues or other parties, I doubt extremely the expediency of having recourse to a system of old-age pensions, but I do believe there is a great opportunity for the state to avail itself of the machinery at its disposal for the purpose of placing within the grasp of every industrious man in Canada the opportunity at an easy rate, and at a very small cost to the state, of providing a reasonable annuity for his support at an advanced period of life. I say more: not only do I believe that this can be done practically without cost, or at an infinitesimal cost, to the state-infinitesimal, that is to say, in proportion to the benefits to be bestowed-but I believe that some such scheme would attain an end of very great national importance, and meet a great want which is now felt, and which will be more felt from time to time as we grow

1 Debates, Senate, Canada, 1906-7, p. 331 ff.

in wealth and importance, and as there are larger numbers of our people engaged in what we may call daily wage-earning occupations.

These are the views of the originator of the Canadian government annuities. It will be noticed that he said that he spoke for himself alone, and did not purport to express the opinion of the cabinet. These views were expressed the year before the system was actually established. In the meantime the subject of old-age pensions itself had been discussed in the House of Commons' and the Premier and Hon. W. S. Fielding, the finance minister, had both put forward the cabinet view. They were both critical of the proposal but agreed to the appointment of a committee to investigate the whole subject. That committee did not report; its proposer, Mr. R. F. Pringle, was defeated at the election that year, and the subject did not arise again till 1912 when the present government was in power. Since then another committee has sat and a great deal of evidence favorable to old-age pensions has been received. But at the regular session in 1914, when the Liberals raised a debate on the issue, the present minister of finance, Hon. W. T. White, took much the same ground as was occupied by his Liberal predecessor and declared that there was no need for old-age pensions in Canada.3

The agitation for old-age pensions has persisted in spite of the establishment of a government annuity system; but it is an agitation kept up by a few enthusiasts, aided by partisans, and has no grip on the public mind. The part played by party spirit in keeping it alive was amply evident in the debate in 1914 already referred to: the Liberal opposition were enthusiastic for pensions, although they had so recently been sceptical; and the Conservatives formerly favorable, now with the responsi bilities of power, had fallen heir to the rôle of the sceptics. In the debate the public apparently took little interest. Whether by the system of government annuities or otherwise, the teeth

1 Debates, House of Commons, 1907-8, pp. 2398-2435; 2786; 12660. Ibid, 1911-12, pp. 1362-90; 1822-39; 2217. Report was not printed. See Journals, 1912-13, pp. 625 and 638.

3 Debates, House of Commons, Canada, 1914, pp. 1333-58.

of the old-age pension agitation had been drawn before they were politically dangerous.

II. ANNUITY PLANS-COST.

Four main principles underlie the Canadian government an

nuities:

1. They have a state guarantee.

2. There is no forfeiture in case payments are interrupted or cease altogether.

3. The annuity cannot be mortgaged or seized for debt. 4. The annuity cannot be anticipated.

These underlying conditions are not all set out in the act' under which the annuities are administered. The state guarantee is implicit in the contract between the government and the annuitant. Non-forfeiture is secured by the policy of the annuity branch, and has a negative basis in law, in that there is no provision as to forfeiture. The act contains specific provision against the seizure of annuity for debt, except in case of fraud, and also against its transfer to another person. Anticipation is guarded against by provision that, except in case of invalidity or disablement, no annuity shall commence before the annuitant has reached the age of fifty-five.

Canadian government annuities are sharply distinguished from old-age pensions by the absence of a direct contribution by the government. The government does, however, make indirect contributions by two methods: through the rate of interest on which the annuities are based, and by the payment of the expenses of administration. The annuities are based on an interest rate of four per cent, which is higher than the rate paid by the government for money at the time the act was passed. This meant that the government was paying something towards the annuities at that time. Lately, on the other hand, the government has been paying more than four per cent for money, and consequently this contribution has ceased.

The contribution made to the annuities by way of the cost of

'The Government Annuities Act, 1908, (7-8 Edward VII, C. 5; as amended by Acts, 1909, C. 4; 1910 C. 4 and 5; and 1913, C. 7.)