June 30, 1948

GOVERNMENT ANNUITIES

QUESTION AS TO INCREASE OF RATES


On the orders of the day:


CCF

Stanley Howard Knowles (Whip of the Co-operative Commonwealth Federation)

Co-operative Commonwealth Federation (C.C.F.)

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

Inquiries oj the Ministry

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

Inquiries oj the Ministry

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.

Topic:   GOVERNMENT ANNUITIES
Subtopic:   QUESTION AS TO INCREASE OF RATES
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CCF

Stanley Howard Knowles (Whip of the Co-operative Commonwealth Federation)

Co-operative Commonwealth Federation (C.C.F.)

Mr. KNOWLES:

Mr. Speaker, I realize that I am not permitted to debate the matter at this time. If I could I would object to many things that the minister has said; but may I ask this question? In view of the representations that have been received from the public and made to the government on the floor of parliament, will the government still give consideration to the matter of annuity rates?

Topic:   GOVERNMENT ANNUITIES
Subtopic:   QUESTION AS TO INCREASE OF RATES
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LIB

Humphrey Mitchell (Minister of Labour)

Liberal

Mr. MITCHELL:

It is the intention of the government to submit the whole question of annuities to a special committee at the next session of parliament.

Topic:   GOVERNMENT ANNUITIES
Subtopic:   QUESTION AS TO INCREASE OF RATES
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LIB

Thomas Reid (Parliamentary Assistant to the Minister of National Revenue)

Liberal

Mr. REID:

Will the minister give the house the figures as to the number of people who have paid from $10,000 to $16,000 in a lump sum for the buying of annuities? The information I get in the city from which I come is that there are more applications from people who are in a position to pay $8,000 or more for the purchase of an annuity than there are from those in the lower income brackets. These people surely cannot be considered poor.

Topic:   GOVERNMENT ANNUITIES
Subtopic:   QUESTION AS TO INCREASE OF RATES
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PC

Howard Charles Green

Progressive Conservative

Mr. GREEN:

In many cases they are widows.

Topic:   GOVERNMENT ANNUITIES
Subtopic:   QUESTION AS TO INCREASE OF RATES
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LIB

Thomas Reid (Parliamentary Assistant to the Minister of National Revenue)

Liberal

Mr. REID:

Large companies are paying up to $10,000 for each employee, the MacMillan *company and others.

Topic:   GOVERNMENT ANNUITIES
Subtopic:   QUESTION AS TO INCREASE OF RATES
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LIB

Humphrey Mitchell (Minister of Labour)

Liberal

Mr. MITCHELL:

Obviously we cannot

debate this matter on the orders of the day. I ^hall be glad to provide the hon. member for New Westminster, and any other 'hon. gentleman, with the information asked for.

Topic:   GOVERNMENT ANNUITIES
Subtopic:   QUESTION AS TO INCREASE OF RATES
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TARIFFS AND TRADE

STATUS OF ADJUSTMENTS INCLUDED IN SCHEDULE V OF GENERAL AGREEMENT


On the orders of the day:


CCF

Major James William Coldwell

Co-operative Commonwealth Federation (C.C.F.)

Mr. M. J. COLDWELL (Rosetown-Big-gar):

A resolution on the order paper dated December 5, dealing with the Geneva agreements, one of the matters for which the house was called together early last December, has been passed over. What is the position of the tariff adjustments that were included in schedule V of the general agreement? Parliament has not approved the resolution. No bill has been introduced. The announcement was made that this would go into effect. May the position be stated, so that the house may be clear on the matter?

Topic:   TARIFFS AND TRADE
Subtopic:   STATUS OF ADJUSTMENTS INCLUDED IN SCHEDULE V OF GENERAL AGREEMENT
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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Hon. DOUGLAS ABBOTT (Minister of Finance):

The tariff rates agreed upon in the Geneva agreements have been given provisional application in Canada and in other countries, as is contemplated in the agreements themselves. They have been given provisional application here by order in council. The statutory implementation of the agreements will take two forms. The resolutions, which still stand on the order paper, if adopted, will provide for the formal approval of the agreements entered into at Geneva. When that is done it will require legislative implementation by an amendment of the customs tariff. The resolution which stands in my name under government notices of motion is a formal resolution which must be passed, I am advised by my legal advisers as preceding a money bill. I am advised that an amendment to the customs tariff cannot be introduced unless preceded by a resolution. The amendments to the customs tariff will not be proposed until the resolution standing in the name of the Prime Minister, which is a general resolution asking for the approval of the agreements, has been adopted. In the meantime the tariff changes are in effect, and will continue in effect for the time being. The same position applies in the United Kingdom, and I understand the same position exists in t'he United States.

Topic:   TARIFFS AND TRADE
Subtopic:   STATUS OF ADJUSTMENTS INCLUDED IN SCHEDULE V OF GENERAL AGREEMENT
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?

Mr. M. J. COLD WELL@Rosetown-Biggar

Tariff changes, which are changes in taxation, have been made by order in council, although parliament has been in session since the first of the year. Can this continue indefinitely? Will the government always be able to vary taxes by order in council without the approval of parliament?

Topic:   TARIFFS AND TRADE
Subtopic:   STATUS OF ADJUSTMENTS INCLUDED IN SCHEDULE V OF GENERAL AGREEMENT
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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. ABBOTT:

As my hon. friend knows, all the tariff changes are reductions. I cannot say just how long. I had better not give

Inquiries oj the Ministry

my hon. friend a specific answer, but I have been informed that there will be ample opportunity at the next session of parliament to take the appropriate legislative action before the provincial application expires.

I am informed that no country has yet given legislative approval to the agreements entered into. In some countries it can be done by executive action; in others parliamentary approval is required.

Topic:   TARIFFS AND TRADE
Subtopic:   STATUS OF ADJUSTMENTS INCLUDED IN SCHEDULE V OF GENERAL AGREEMENT
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PC

John Thomas Hackett

Progressive Conservative

Mr. HACKETT:

Is it not a fact that these reductions in tariff duties enacted by order in council prevent Canada from making any further increase in the duty on these items?

Topic:   TARIFFS AND TRADE
Subtopic:   STATUS OF ADJUSTMENTS INCLUDED IN SCHEDULE V OF GENERAL AGREEMENT
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LIB

Douglas Charles Abbott (Minister of Finance and Receiver General)

Liberal

Mr. ABBOTT:

That is incorrect.

Topic:   TARIFFS AND TRADE
Subtopic:   STATUS OF ADJUSTMENTS INCLUDED IN SCHEDULE V OF GENERAL AGREEMENT
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PC

James MacKerras Macdonnell

Progressive Conservative

Mr. MACDONNELL (Muskoka-Ontario):

May I ask the Minister of Finance whether he will agree that while it is not his fault that these rumours are circulated, it is the fault of the government that these things that started as rumours now turn out not to have been rumours at all but to have been true?

Topic:   TARIFFS AND TRADE
Subtopic:   STATUS OF ADJUSTMENTS INCLUDED IN SCHEDULE V OF GENERAL AGREEMENT
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June 30, 1948