Mr. Stanley Knowles (Winnipeg North Centre):
Mr. Speaker, we welcome the
introduction of the bill forecast by the resolution now before the house. Each of the changes proposed in the Government Annuities Act is an acceptable and desirable change. Even so, there are a number of questions we will want to ask when we get into one of the committee stages, such as the questions enunciated just before six o'clock by the hon. member for Hamilton West (Mrs. Fairclough).
Having said that there are features about the bill which make it acceptable, I should point out that we regard it as a good move, for those who can afford to purchase higher annuities, that the amount that can be purchased is to be increased from $100 to $200 a month. That is only in keeping with the increased cost of living and the decreased value of the Canadian dollar.
It is also to be pointed out that it is a good move to provide for kinds of annuities other than those that have been provided
thus far. The minister has pointed out that the bill will make possible the purchase of annuities for a limited period of time, up to twenty years, in addition to the type of annuity now available that runs for the balance of one's life. In addition, as has already been pointed out, there is to be a type of annuity which one can mesh with government old age security legislation. There is also one other type, but we can deal with that when we reach the committee stage. As I say, these new types of annuities are welcome and acceptable to us. From what we have heard thus far it would seem that the other changes are likewise worth considering, such as the possibility of a cash surrender value, and one or two other changes which have been proposed.
However, I think I should say before I go further that we regret that at this time, when something is being done about the Government Annuities Act, nothing is being done about the feature that is most important, namely the rate on which annuities are computed. The hon. member for Hamilton West had something to say about that this afternoon. Those of us who were here in 1948 will recall the suddenness with which the interest rate, the basis upon which annuity rates are computed, was reduced as from April 19 of that year. I have in my hand a copy of order in council P.C. 1713 which was passed on April 16, 1948, which was a Friday, and subsequently tabled in the house on Monday, April 19, 1948, having effect as from that date.
The two main results of that order in council were to change the interest rate from 4 per cent to 3 per cent, and to change the mortality tables used in computing the rates that are arrived at on the basis of the interest figure already determined. As the Minister of Labour (Mr. Gregg) pointed out the other day, the Government Annuities Act was first brought into being in 1908. If my information is correct, the rate used at that time was 4 per cent. Sir Wilfrid Laurier referred to that fact in the debate which took place in the house on June 18, 1908; and it remained at 4 per cent from that date until April 19, 1948.
We regret very deeply the change that was made at that time. In fact it seemed to us a bit of a blow to what was a very good plan to enable people to provide for their own retirement. We have no illusions about the Government Annuities Act being a plan that can meet the requirements of all the Canadian people; but it certainly was a good plan for those who were able to take advantage of it. But reducing from 4 per cent to
Government Annuities Act 3 per cent the interest figure used in computing the rates certainly reduced the value of government annuities. As we pointed out in 1948 when this change was made, the result was that anyone who had purchased an annuity prior to April 19, 1948, even though he might not have paid very much on it up to that time, still had the advantage of the 4 per cent interest rate; whereas those who purchased annuities after that date would have the advantage of only the 3 per cent rate.
We pointed out also that this created a division within the ranks of employees working for one and the same firm; for even though a firm may have had a group contract prior to April 19, 1948, any employee who became a participant in that contract after April 19, 1948, got his annuity at the new and less advantageous rate. I know of examples where employees working for the same firm pay in different amounts toward their retirement, because of the line that was drawn by the order in council to which I have referred.
In addition to the depreciation in the value of government annuities that was effected by changing the interest rate from 4 per cent to 3 per cent, that same order in council effected a change from the mortality table that had been in use up to that time to another table which is less advantageous to the purchaser of the annuity. This is spelled out in detail in the order in council. I have had occasion to put it on the record before, so I shall not repeat it tonight. But I would say again, as we pointed out in 1948, that we have felt that the change from one table to the other was unfair, particularly in view of the fact that in recent years the greatest increase in the number of annuities purchased has been by employees in group contracts. The other night the Minister of Labour (Mr. Gregg) gave figures to show that there had been a substantial increase in this respect. For example, in 1941 there were 58,780 individual contracts and only 7,000 persons involved in group contracts. By 1951 the number of individual contracts had increased to 147,514, an increase of 147 per cent, while the individuals in group contracts had increased to 128,299, a rather staggering increase of 1732 per cent. I emphasize the fact that the greatest increase in the purchase of annuities, in recent years at any rate, is by employees of firms who arrange group contracts.
I have in my hand a brief protesting the increase in government annuity rates submitted by William M. Mercer Limited in June, 1948. In this brief this firm deals with the actuarial basis of the new rates. I point out again that the changes made in 1948
Government Annuities Act were two, one decreasing the interest rate from 4 to 3 per cent and the other changing the actuarial basis by adopting a new mortality table. This author points out on pages 15 and 16 of the brief:
(b) The greatest volume of government annuities business is now concerned with the underwriting of group retirement plans where all employees, in poor and good health, are included, and where average life expectancies are much lower than among a group of individuals, each of whom has purchased an annuity because he has reason to believe that he will live long enough to at least see a return of his premiums.
The new mortality rates are based on a longer life expectancy. In view of the fact that life expectancy is increasing it seems plausible to adopt rates that recognize that fact, but it is one thing to adopt such rates when you are dealing with individual cases where each person is in a somewhat preferred class and another thing when you are dealing with a group of employees, some of whom are healthy and some of whom are not so healthy but who are all mixed in together. William M. Mercer Limited, I may say, has made a most exhaustive study of annuities, both public and private.
As we pointed out in 1948, we were deeply disappointed at the decrease in the value of annuities resulting from order in council P. C. 1713, which changed the rates of annuities on two counts. I have in my hand a document from the Department of Labour showing the cost of annuities under the old rates in effect prior to April 19, 1948 and under the rates that became effective after that order in council was passed. I find from this that a male aged 30 years purchasing an annuity of $100 a month to commence at 65 years and guaranteed for ten years would have had to pay $15.06 per month under the old rates, but would pay $20.50 under the new rates, an increase of 36 per cent. A female person, aged 20, buying an annuity of $100 per month to commence at age 60 and guaranteed for ten years would have had to pay $14.37 under the old plan, but pays $20.64 under the new, an increase of 43 per cent. These tables are available and hon. members can work out other examples for themselves.
Those are some of the changes effected by the order in council which Mr. Mitchell tabled on April 19, 1948. We regret that when the whole question of annuities is being looked into there is no suggestion from the government side that anything is going to be done to restore the rates which were in effect prior to that date in 1948- Apart from the excuse of changing the mortality tables, the
excuse that was given for changing the interest rate was that the interest rate on Canadian government bonds was down a bit from what it had been. Since then we have had at least one increase in the interest rate of one class of government bond. There have indeed been other increases, but I mention in particular that the new series of Canada savings bonds carries a rate of 3-21 per cent, when averaged out over the ten-year period, as compared with 2-75 per cent paid by the previous issue of the same series. If there has been a reversal of the trend that was indicated to the house in 1948 I suggest that recognition should be given to that reversal and the annuities brought back to the 4 per cent figure which was in effect for the forty years from 1908 to 1948.
I make this plea because so far as the great majority of Canadians are concerned, it is no use to tell them they can now purchase an annuity or retirement pension of $200 per month. They cannot afford to buy an annuity of $100 per month; they cannot afford to buy an annuity of $50 per month. What the people of this country really need is something to help them help themselves provide a better retirement than is proposed by the general legislation, and this help should be in the way of a reduction in the cost of annuities.
In this connection it is sometimes pointed out, and the hon. member for Hamilton West (Mrs. Fairclough) referred to it in one way and another this afternoon, that the administrative costs of government annuities are borne by the public treasury. There are some who argue, particularly those who have opposed the idea of the government being in this field, that these annuities should carry themselves. I should like to refer again to the Mercer pamphlet which I have before me, which states that the administrative costs of government annuities have approximated one per cent of the premium income, including both individual and group business. Then the pamphlet goes on to say:
When it is realized that the insurance companies allocate 71 per cent of the premium income from group business, and a much higher percentage from individual business, for administration expenses and commissions, the low administrative costs of government annuities are obvious.
We submit then, that the administrative costs of the government annuities branch have been so com-mendably low that they cannot possibly be used as an argument for an increase in rates any more than the selling and administrative costs of government bonds can be used as an argument to lower their yield.
As a matter of fact with respect to government bonds, as I have already pointed out- and certainly in the case of fcanada savings
bonds-since that time there has been an increase in the amount of interest to be paid. Another argument sometimes used against what is referred to as subsidizing these annuities is that they are there only for those who can afford them and therefore they should completely pay their way. May I point out that members of parliament generally, and I think the Canadian public too, have learned something more about the whole question of retirement security as a result of the work of the parliamentary committee of last year and as a result of the old age legislation which has already been passed by this parliament.
One thing that has come out of that study and has been driven home time and again is that no matter on what basis pensions are paid, whether they are old age pensions out of the public treasury, whether they are government annuities, whether they are private annuities or whether they are private savings, their value depends upon their purchasing power at the time they are spent. Indeed their value depends upon there being produced, at the time that money is spent, goods and services for those who have money to spend. In other words we have learned about this pay-as-you-go principle. We have learned that what counts is what is being paid in at any one time as against what is being drawn out at that same time by those who spend their so-called dollars on actual goods and services.
We have applied that principle without question to the Old Age Security Act which has already been passed by the house. We say in respect of that legislation that what is important is that there be enough set aside out of this year's production to pay for pensions in this year. I know there are certain differences with respect to an annuity plan. Members will say there is a fund. There is a fund on paper. There is a bookkeeping fund. There is not a separate fund in terms of dollars actually being set aside. The money is paid into the accounts of the receiver general and the annuities are likewise charged to the consolidated revenue fund. The fact is that in every year since 1908 the premiums paid in have exceeded the amounts paid out that year. That is increasingly the story as time goes on. On that basis, the plan is more than solvent.
I suggest it is time for us to look at the government annuity scheme in somewhat the same light that we look at the old age pension legislation which we dealt with at the end of last session and in the earlier part of the present session. On that basis I urge that
Government Annuities Act reconsideration be given to the question of the rates of these annuities. As I said a moment ago, it is desirable that the ceiling be raised to $200 a month instead of $100. An annuity of $100 a month just is not enough money to write home about any more. It is not enough to retire on in any sense of the word, to say nothing of those who have to live on $40. But the problem for most Canadians is not to get the right to buy a $208 pension instead of a $100 pension. The problem for most Canadians is to have the wherewithal to buy a pension of any amount whatsoever.
I hope that the greater interest the government is showing in this whole question of old age by its acceptance of the report of our committee and so on will result in a further review of this situation. In our study in the old age security committee we learned, for example, that in New Zealand, where they have had government pension schemes in effect for a good many years, the result so far as private pensions and private insurance are concerned has been to increase the amount of that sort of provision being made by citizens of that country. I hope that there will now be an incentive like that in this country. Up to now, so long as the means test has been in effect on pensions for those 70 and over, there has been little encouragement to Canadians to try to provide something for their old age. It is difficult enough to do anyway, but when people realized that such an amount as they might provide would simply result in their not being able to get the old age pension, for many people, workers in particular, the reply was: What is the use?
Now that the means test is off so far as those 70 and over are concerned-and let us hope it will be off at 65 one of these days very soon-there will be greater inducement to our people to try to provide some additional security to go with that which will be their right as citizens of this country. If we can look forward to people wanting to do that sort of thing, I suggest there is all the more reason why we should try to make it really possible and facilitate their efforts by putting the annuities act at least back on the basis it was on prior to 1948. As I say, it was in existence those many years at the 4 per cent rate and on the more advantageous mortality table. The change was made by order in council. True, the government had the right to do it by order in council because that was so provided in the original act of 1908, but
Government Annuities Act members who were here in the last parliament will recall the general outburst of feeling against the changes that were made at that time.
As I say, I deeply regret that with the matter now before us nothing has been done about this important phase of the question. The things that are being done are good. We will discuss them in committee here or in whatever committee to which the bill may be sent, but I suggest to the government this is not a piece of legislation to do much boasting about. If they are opening up the question of the annuities act the real job is to change the rates and at least put them back in the position they were prior to April 19, 1948.
Subtopic: INCREASE IN MAXIMUM ANNUITY TO $2,400 AND PROVISION OF GREATER FLEXIBILITY