Mr. STANLEY KNOWLES (Winnipeg North Centre):
Mr. 'Speaker, may I direct a question to the Minister of Labour?-although perhaps it is a question for the government as a whole. In view of the fact that the government is not proceeding this session with Bill 343, an act to amend the Government Annuities Act, against which there was opposition on the floor of the house, can the government say whether consideration is being given to restoring the rates on annuities to what they were prior to April 19?
Hon. HUMPHREY MITCHELL (Minister
of Labour): I anticipated this question and have a short statement to make.
The Government Annuities Act was passed by parliament in 1908. Therefore it has been on the statute books for forty years. Its purpose was to encourage habits of thrift and provide a means whereby Canadian citizens could make reasonable provision for their security in advanced years through the purchase of annuities, a purpose which carried the endorsa-tion and support of every citizen of Canada. The act was intended to afford facilities whereby annuities could be purchased on the following financial basis: (a) that the purchaser would pay all the cost except administration; (b) that the government would pay the cost of administration. There is nothing
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in the act which provides any other basis. I would like to make it doubly plain that parliament in passing the act intended that the purchaser of the annuity would pay all the cost except the cost of administration.
Now let us examine how the cost is estimated. First there is the question of how many years an annuitant will require to be paid the amount started in the contract-in other words, how long will he live to draw the annuity?
Second there arises the rate of interest which shall be allowed on the premium payments made by the purchaser.
On the question of the interest rate, it is clear from a study of Hansard at the time the annuities act was introduced that it was originally intended that the interest rate should change with changing rates of interest prevailing in the bond market. In the original discussion on the bill, the Hon. W. S. Fielding, then Minister of Finance, stated:
The rate may be changed from time to time according to monetary conditions.
If it was the intention of the drafters of the bill that any specific rate of interest would be paid, such would have been provided for in the act. However, parliament authorized the government to fix the rate of interest by regulation. It is clear that this was done to permit interest rates to be readily changed from time to time to meet changing conditions. It was never the intention that there should be any substantial public subsidy to the purchasers of government annuities other than that provided by having the government pay the administrative expenses.
When the act was passed, the government had the responsibility of fixing the rate of interest. At that time government bonds were yielding 3-89 per cent and the government, in order to fix an even figure, rounded it off to four per cent. I have explained how the interest rate was fixed- and I will now attempt to cover the question of the other item entering into the cost, namely, how many years the annuity will be required to be paid depending on the expectation of life of the annuitant. In fixing the mortality table to be used, the advice of the best known actuaries in Canada was obtained and followed. Life expectancy, as will be appreciated, has lengthened since the act was passed. In fixing the rate which must be charged the purchaser, we have two factors to take into consideration, the life expectancy and the interest rate allowable. From these two factors, tables are prepared and it is on the basis of these tables that the contract rates are set. After twenty-
eight years of operation, it became evident in 1936 that there was reason to doubt the soundness of the rate tables because of increased life expectancy.
A senate committee investigated the matter and recommended a further study by Professor M. A. Mackenzie of the university of Toronto and as a result of his report, the rates were substantially increased on February 1, 1938. Not only that but he recommended the transfer of S8.941,195.84 in order to maintain a reserve in the fund because of the sale of annuities at less than cost prior to that date.
Now, what is the situation as at this date? We find that we are selling annuities at less than cost because life expectancy is greater today than it was in 1936. This is particularly important in view of the continuing trend toward longevity especially in view of the fact that many of the contracts will not become payable for ten. fifteen or twenty-five years from this date. Indeed some will not become payable until the year 2000.
In addition to selling annuities on the bargain counter because of the mortality trend, there is the fact that up to April 19, 1948, an interest rate of four per cent compounded yearly was allowed on money paid by the purchasers of annuities; whereas in the case of citizens who sacrificed to buy war bonds and Canada savings bonds, an interest rate of from 31 per cent to three per cent only was allowed. Such a substantial difference in interest rates is discriminatory and unfair as between different types of people who provide old age security in different ways. One group has been providing old age security by purchasing government annuities but a far larger group has been buying government bonds-victory loan bonds, war savings certificates, and Canada savings bonds.
At the present rate of sales and assuming money to be worth three per cent, if we continue to pay a four per cent interest rate, my actuaries have estimated that there will be a capital deficit of over $100 million incurred from the new business of the next ten years and this does not give any consideration to the fact that sales have been increasing very rapidly. Added to this capital deficit, had we continued on the mortality tables without consideration to the extension of life expectancy, there would have been a substantial additional deficit. Having regard for these facts, I am convinced this parliament would have found me very remiss had I not brought the matter to the attention of the government and recommended suitable adjustments. In arriving at the decisions made and put into
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effect by order in council, this government, has not departed one iota from the basic principles of the 1908 act.
I believe I have answered in my statement all the points raised by hon. members in the several debates on this subject.
Something has been said in regard to the fact that persons purchasing annuities after April 19, 1948 will pay more than those who purchased prior to that date. This, of course, is true, but it is not a new feature and is no different from the situation faced in 1938 when the last adjustment was made, nor is it any different from the situation existing in all kinds of insurance business. I maintain that the investment in government annuities is the best investment any one who is looking for security can make and I assert without fear of successful contradiction that the new rates are the lowest at which annuities can be purchased in Canada.
Subtopic: QUESTION AS TO INCREASE OF RATES