November 15, 1951


AFTER RECESS The house resumed at eight o'clock.


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, 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

1068

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.

Topic:   GOVERNMENT ANNUITIES ACT
Subtopic:   INCREASE IN MAXIMUM ANNUITY TO $2,400 AND PROVISION OF GREATER FLEXIBILITY
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SC

Charles Edward Johnston

Social Credit

Mr. C. E. Johnston (Bow River):

Mr. Speaker, I wish to say a few words on the subject of annuities. The hon. member who preceded me made reference to the debate of 1948. I took occasion to go over that debate very carefully, and comparing the speeches on this matter by the late minister of labour, Mr. Mitchell, with those by our present minister, it seems to me there is not much in common. With respect to the legislation before us, the only change that is being made, and it is a rather substantial one, is that the amount of the annuity is to be increased from $100 to $200 a month. The hon. member who preceded me stated that was good, and so it is, but he thought it did not go far enough.

I want to develop that point a little further. I do not intend to set myself up as a prophet, but I cannot believe that this legislation is all the government has in mind. If it is all the government has in mind to bring before the house at this session of parliament, then there is something radically wrong about the statements that have been made by the Minister of National Health and Welfare (Mr. Martin). I want to refer to a statement made by him just the other day. In the Ottawa Citizen of Wednesday, November 14, 1951, there is a report of a speech made by the minister over the trans-Canada network of the C.B.C. in the series, "The Nation's Business". The heading of the article is, "Prospect of Independence in Old Age". The Canadian Press dispatch reads as follows:

Health Minister Martin said last night that the federal government's old age security program is intended to ensure that Canadians, when they grow old, have the "prospect-not of charity-but of independence and a decent livelihood."

If, as the minister points out, our old age pensioners are to have independence and not

charity, this annuity bill which will follow the resolution cannot help them in that respect. There must be some other legislation which the government is contemplating, and I shall mention that later.

When the Minister of National Health and Welfare was introducing the pension legislation he gave us a little talk about the annuity program of the government which would work in conjunction with old age security. When the same minister was speaking over the air he indicated that the purpose of the government's old age pension was to give security and independence. When the minister spoke on October 25, 1951, about old age pensions he had this to say, as recorded at page 384 of Hansard:

I am sure that as this new program comes to be integrated into the existing pattern of retirement provisions provided by individuals, by employers and in other ways, it will be recognized for what it is intended to be-not as a total retirement security scheme in itself-

Notice that.

-not as a total retirement security scheme in itself, replacing and supplanting all others, but as the core, the keystone of a national savings and retirement plan, around which each individual in this country will be encouraged to build his own retirement security program in a manner and to an extent peculiarly suited to his own needs.

If you connect what the minister says about this not being intended as the whole plan for security for old age pensioners with what he said over the C.B.C. about independence, a decent livelihood and not charity, then there must be something more to come. On the same page of Hansard, the minister went on to say:

My colleague the Minister of Labour (Mr. Gregg) will shortly be revealing to this house the manner in which it is proposed to modify the government annuity scheme so as to fit into this new pattern.

Then he goes on to speak about the different types of the annuities which the government will bring down in order to integrate them into this old age pension scheme. When the Minister of Labour (Mr. Gregg) was speaking about this annuity plan we are discussing now, he went back to 1908 when the Government Annuities Act was introduced. He read the preamble of the bill which was introduced in 1908; that is to be found in Hansard for November 8, 1951, at page 863. It reads as follows:

The object of the act is to encourage systematic voluntary saving for old age security by providing facilities for that purpose. This is clearly set forth in the preamble to the act which reads as follows:

"Whereas it is in the public interest that habits of thrift be promoted and that the people of Canada be encouraged and aided thereto so that provision be made for old age; and whereas it is expedient that further facilities be afforded for the attaining of the said objectives.

Topic:   GOVERNMENT ANNUITIES ACT
Subtopic:   INCREASE IN MAXIMUM ANNUITY TO $2,400 AND PROVISION OF GREATER FLEXIBILITY
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IS, 1951


The preamble of the measure in 1908 put forth the idea that the annuity bill would be the type of legislation which would encourage thrift, and would encourage people to lay money aside for their old age so they might not be living in poverty. Then the minister went on: Considering, therefore, the purpose of the act, to promote voluntary saving for old age security, it is appropriate that this bill to extend the facilities afforded by the act should be considered by this house at a time when parliament has under consideration legislation making provision for payment of an old age pension to Canadian residents 70 years of age or over. The bill we have before us cannot do that to any extent whatever, at least as it appears from the resolution. Of what use will it be to these people who are going to be dependent upon old age pensions to And out that our maximum annuity is being raised now from $100 to $200 per month? As the hon. member for Winnipeg North Centre (Mr. Knowles) stated, those people who can afford to buy a $200 per month annuity certainly will never need old age pensions. That being so, what sense is there in the preamble to the annuity bill of 1908? What sense is there attached to the statement the Minister of National Health and Welfare made over the air, or the one he made in introducing the old age pension legislation? What sense is there attached to the statement of the Minister of Labour on November 8? There is no sense attached to those statements. When we go back, Mr. Speaker, and think of the reasons that were given in 1948 for the amendment to the annuities act which was introduced at that time-


CCF

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

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

Mr. Knowles:

By order in council.

Topic:   IS, 1951
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SC

Charles Edward Johnston

Social Credit

Mr. Johnston:

Yes, by order in council. It was made effective by order in council on April 19, 1948, and the rate of interest was reduced from 4 per cent to 3 per cent. Those of us who protested most vigorously at that time-and there were many of us-pointed out that this type of legislation was not going to be of assistance to the ordinary man for whom these annuities were originally intended. The reason the minister gave for lowering the interest rate from 4 per cent to 3 per cent was that this program had to be put on a pay-as-you-go basis. He pointed out the ridiculousness of any business enterprise being carried on when it was going in the hole all the time. He referred to some of the socialist legislation which was passed in Saskatchewan, and ridiculed it. One of the other reasons given in 1948 was that the interest rate on government bonds was being

Government Annuities Act lowered, and he did not want government annuities in competition with government bonds. The minister also pointed out that the interest rate charged by insurance companies had gone down and, therefore, taking the picture as a whole it was only reasonable that the interest rate on government annuities should be reduced from 4 per cent to 3 per cent.

I do not think those were good reasons for lowering the interest rate at that time, but if they were valid then let us look at conditions today. The interest rates on government bonds are up. Is there any logical reason then why the interest rate on annuities should not go up? The interest rate on insurance policies and loans made by insurance companies has gone up to 5 or 51 per cent. Is there any logical reason why the government should not at this session of parliament bring the interest rates on annuities up to where they were? Almost every reason given at the time of the reduction in rates has been offset, and those conditions no longer exist. In fact interest rates on other types of investments have risen, and the annuity is the only type of investment upon which the interest rate has not risen. What chance has the ordinary man of buying large quantities of government bonds? He has no chance. If he does buy them he has no assurance that they are going to stay at par. If he has an annuity, he knows it is going to stay there for life because no mortgage company, no person on earth can take that away from him. It is his, and nothing can be registered against it. It seems to me that what the Minister of National Health and Welfare was saying had some logic to it, when he was tying the old age pension in with this over-all annuity plan so these people would not have to accept charity but would have something they could call their own, and have a decent standard of living, if the government makes that possible. The only way that can be done is by the Minister of Labour bringing in an annuity plan which will be co-ordinated with the old age pension scheme in order to give these citizens, as the Minister of National Health and Welfare said, a decent standard of living.

The Minister of Labour and the parliamentary assistant must know that this legislation we now have before us will not do that. Something else must be done. There is no argument on earth that can convince me that a man who is going to need the old age pension can afford to buy an annuity of $200 a month. That argument is just ridiculous on its face. So that is not the

Government Annuities Act scheme which the government proposes to tie in with the old age pension. It just cannot work.

I know there are a number of schemes which the government proposes to bring in. There is the deferred life plan, the deferred guaranteed plan, the deferred last survivor plan, the individual contract, group contracts and things of that sort.

Topic:   IS, 1951
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SC
SC

Charles Edward Johnston

Social Credit

Mr. Johnston:

When the provincial government of Alberta can make their interest rate 3J per cent, surely this federal government can make the rate at least 4 per cent, particularly in view of the fact that the interest rate used to be 4 per cent. All those reasons the government gave for reducing the rate have now been overcome or wiped out. There is therefore no reason from any point of view why the government cannot increase that interest rate and put it back to its original 4 per cent.

I do not think the government is going to lose any money by this legislation. It has been stated that the administration cost is about 1 per cent of the premiums. But if the government does not make possible some form of annuity plan which can be co-ordinated with the old age pension plan, they will have to increase the amount of the old age pension. From the government's point of view, it would seem to me more economical to make an annuity plan so worthwhile that people would put forth every effort to be thrifty, to save and provide for themselves in their old age by buying an annuity, even though it be small, thereby assisting themselves to have a better standard of living when they reach the age of 70. If the government are going to benefit by that legislation they should have no hesitancy in bringing in an annuity plan which will encourage thrift and saving, and which will encourage these people to start buying an annuity no matter how small it may be.

However I look at this problem it seems to me the government is going to benefit; that is, if they increase the interest rate which is to be paid on annuities. I am sure they must realize that as assistance to the old age pension and as encouragement to thrift, the resolution we have before us advocating an increase from $100 to $200 will not serve the purpose that was intended. They themselves must do something better than is indicated in the proposed legislation.

We are going to support the legislation. The increase from $100 to $200 will benefit some people. It will benefit only those who are comparatively well off. The purchase of an annuity paying $200 a month will cost a great deal of money. I venture to say that not many members of parliament will be able to buy an annuity paying $200 a month starting at age 65, much less anyone who is expecting to go on the old age pension. We hope the government will take this suggestion seriously into consideration. I hope the parliamentary assistant, who is sitting

in his place in the house at the moment, will make an effort to see that, before the end of this session, some other legislation is brought down which will give the promised assistance to old age pensioners.

Topic:   IS, 1951
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LIB

Paul-Émile Côté (Parliamentary Assistant to the Minister of Labour)

Liberal

Mr. Paul E. Cote (Parliamentary Assistant to the Minister of Labour):

Mr. Speaker, I do not intend to speak at any length at this stage. My first reason for not doing so is that I have the assurance that the discussion will be more fruitful when a copy of the bill amending the Government Annuities Act is in the hands of hon. members. In the second place-and this is particularly in reply to one of the questions put this afternoon by the hon. member for Hamilton West (Mrs. Fairclough)-it is the intention of the Minister of Labour, to recommend that the bill be referred to the standing committee on industrial relations immediately after it has received its second reading. For these reasons I think that tonight I should deal only with a few of the questions which have arisen during this debate. In the first place-and this will meet the expectation of the three hon. members who have spoken on this resolution-with the approval of the house I should like to place on Hansard a table giving a few examples showing the monthly premium required to purchase a level annuity for life commencing at age 65 for males and age 60 for females, compared with the monthly premium necessary to produce annuities of the same amount but which reduce at age 70 by the amount of the old age security, namely $40 a month. This will put in concrete form the change which will be made by the amending bill to provide co-ordination of the government annuities with the old age security scheme.

Government Annuities Act

Before placing this table on Hansard I wish to mention that in the case of a male annuitant, in a contract providing for $75 pension a month at age 65, reducing at age 70 by the amount of the old age security, $40, the premium will be reduced by one-third over the premium which is payable on an ordinary life annuity contract. In the second category given by the table the amount of the annuity is figured at $100 a month, commencing at 65 and reducing to $60 at age 70. In this case the reduction in the premium will be roughly 25 per cent. In the third category, in the case of a contract providing for an annuity of $125 a month at age 65 and reducing by $40 at age 70, the reduction in the premium will be roughly 20 per cent.

Topic:   IS, 1951
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SC
LIB

Paul-Émile Côté (Parliamentary Assistant to the Minister of Labour)

Liberal

Mr. Cote (Verdun-La Salle):

Well, in the first category where the monthly annuity is figured at $75, the cost of the premium at age 20 would be $6.19 a month. In the case of a $100 monthly annuity, the cost would be $9.28 a month; and in the third category, the annuity of $125, the monthly cost would be $12.37, and so on. Perhaps my hon. friend would be interested in looking at this table which is a fair illustration of what was meant by the minister when he announced a new type of annuity, the term annuity contract, which would co-ordinate with the old age security plan.

The table follows:

Government Annuities Act

Topic:   IS, 1951
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A FEW EXAMPLES SHOWING THE MONTHLY PREMIUM REQUIRED TO PURCHASE A LEVEL ANNUITY FOR LIFE COMMENCING AT AGE 65 MALES, 60 FEMALES, COMPARED WITH THE MONTHLY PREMIUM NECESSARY TO PRODUCE ANNUITIES OF THE SAME AMOUNT BUT WHICH REDUCE AT AGE 70 BY THE AMOUNT OF THE OLD AGE SECURITY ($40 PER MONTH.


Monthly Premiums Starting At: Age 20 Age 30 Age 40 Ord. Life Guar. 10 Ord. Life Guar. 10 Ord. Life Guar. 10MALES Annuity- $75 per month commencing age 65 and payable for life $ 9.27 $10.17 $14.22 $15.57 $23.58 $25.83$75 per month commencing age 65, reducing to $35 per month at age 70 6.19 6.73 9.49 10.29 15.74 17.07Difference in $ 3.08 3.44 4.73 5.28 7.84 8.76Difference as % of larger premium 33-2% 33-9% 33-2% 33-9% 33-2% 33-9%$100 per month commencing age 65 and payable for life $12.36 $13.56 $18.96 $20.76 $31.44 $34.44$100 per month commencing age 65, reducing to $60 per month at age 70 9.28 10.12 14.23 15.48 23.60 25.68Difference in $ 3.08 3.44 4.73 5.28 7.84 8.76Difference as % of larger premium 24-9% 25-4% 24-9% 25-4% 24-9% 25-4%$125 per month commencing age 65 and payable for life $15.45 $16.95 $23.70 $25.95 $39.30 $43.05$125 per month commencing age 65, reducing to $85 per month at age 70 12.37 13.51 18.97 20.67 31.46 34.29Difference in $ 3.08 3.44 4.73 5.28 7.84 8.76Difference as % of larger premium 19-9% 20-3% 19-9% 20-3% 19-9% 20-3%FEMALES Annuity- $75 per month commencing age 60 and payable for life $15.21 $15.66 $24.12 $24.84 $42.66 $44.01$75 per month commencing age 60, reducing to $35 per month at age 70 11.37 11.82 18.03 18.75 31.88 33.23Difference in $ 3.84 3.84 6.09 6.09 10.78 10.78Difference as % of larger premium 25-3% 24-5% 25-3% 24-5% 25-3% 24-5%$100 per month commencing age 60 and payable for life $20.28 $20.88 $32.16 $33.12 $56.88 $58.68$100 per month commencing age 60, reducing to $60 per month at age 70 16.44 17.04 26.07 27.03 46.10 47.90Difference in $ 3.84 3.84 6.09 6.09 10.78 10.78Difference as % of larger premium 19-0% 18-4% 19-0% 18-4% 19-0% 18-4%$125 per month commencing age 60 and payable for life $25.35 $26.10 $40.20 $41.40 $71.10 $73.35$125 per month commencing age 60, reducing to $85 per month at age 70 21.51 22.26 34.11 35.31 60.32 62.57Difference in $ 3.84 3.84 6.09 6.09 10.78 10.78Difference as % of larger premium 15-2% 14-7% 15-2% 14-7% 15-2% 14-7%



I have not very much to add, Mr. Speaker, except that on. this specific point I have just discussed I may say that in the first phase of this combined annuity contract, the highest amount of annuity provided by this contract may exceed the maximum of $2,400 inasmuch as the average payment calculated on an actuarial basis does not exceed $2,400 per annum. That means that between 65 and 70 the annuitant can get more than $200 a month because when the reduction of his annuity starts at age 70 on an actuarial basis the average monthly or yearly annuity that will be paid to him will not exceed the new maximum set by the legislation. Before I take my seat I must correct a false impression that the hon. member for Hamilton West (Mrs. Fairclough) seemed to be under this afternoon when she intimated that under the new amendments in the group contracts an employee will be authorized, should he change employer, to have his credit transferred to another group plan. This is a misconception. Nothing of the sort is intended by the amendment. What is meant is that should the employer change somehow or other through sale of the interest of a firm in any plan, then the contract will be amended under this new amendment to transfer to the acquiring company or individuals the participation which he may have as employer in this particular employer-employee plan. That is all I wish to say tonight, Mr. Speaker. I shall not discuss the interest rates. Much emphasis has been placed on the change in rates which took place in April, 1948, by the reduction from 4 per cent to 3 per cent. I might remind my hon. friends that there is no statutory provision for such a change. The interest rate is determined under a provision of the act which empowers the governor in council to vary the rate of interest upward or downward. Therefore I will not discuss it. I just wish to remind my hon. friends that if they will review the circumstances in 1908 when the government annuities were introduced they will realize that this was not intended to be what in late years we have been accustomed to call a subsidized social welfare scheme. It is true that inasmuch as the administrative charges were being borne by the government this was an element of subsidy. Inasmuch as there has been a favourable differential between the rate of interest of annuity contracts and the yield of long-term government bonds, there has been an element of subsidy. But in 1908 -and it is on what took place at that time that the real spirit and purpose of the legislation must be determined-the rate of interest yielded by government bonds was 3-9 per Government Annuities Act cent when the interest was determined at 4 per cent for the purpose of government annuities. Therefore at that time a differential of one-tenth of one per cent in the rate of interest was surely not intended to be and remain an important feature of subsidization by the government.


SC

Charles Edward Johnston

Social Credit

Mr. Johnston:

Are you going to wait until it reaches 9 per cent before you make any changes?

Topic:   A FEW EXAMPLES SHOWING THE MONTHLY PREMIUM REQUIRED TO PURCHASE A LEVEL ANNUITY FOR LIFE COMMENCING AT AGE 65 MALES, 60 FEMALES, COMPARED WITH THE MONTHLY PREMIUM NECESSARY TO PRODUCE ANNUITIES OF THE SAME AMOUNT BUT WHICH REDUCE AT AGE 70 BY THE AMOUNT OF THE OLD AGE SECURITY ($40 PER MONTH.
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LIB

Paul-Émile Côté (Parliamentary Assistant to the Minister of Labour)

Liberal

Mr. Cote (Verdun-La Salle):

As time went by there were changes. During the first quarter century of the existence of our legislation the yield on government bonds- varied from 3-9 per cent to 6 per cent. So this 4 per cent has played both ways.

I believe there has been ample discussion of the question of interest rates at this stage. I am sure the Minister of Labour was wise in his intention to recommend reference of the bill to the committee on industrial relations, before which, if the committee wishes, officials of the department including actuaries will appear. These officials will be only too pleased to give their views on any point that may have to do with their sphere of responsibility. I should think all hon. members should be satisfied that these amendments are intended to improve the act, to give greater flexibility and to provide better protection and privileges for the annuitants, as well as for any others interested in these contracts.

Motion agreed to and the house went into committee, Mr. Dion in the chair.

Topic:   A FEW EXAMPLES SHOWING THE MONTHLY PREMIUM REQUIRED TO PURCHASE A LEVEL ANNUITY FOR LIFE COMMENCING AT AGE 65 MALES, 60 FEMALES, COMPARED WITH THE MONTHLY PREMIUM NECESSARY TO PRODUCE ANNUITIES OF THE SAME AMOUNT BUT WHICH REDUCE AT AGE 70 BY THE AMOUNT OF THE OLD AGE SECURITY ($40 PER MONTH.
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LIB

Daniel (Dan) McIvor

Liberal

Mr. Mclvor:

Will this amendment improve the position of agents who sell annuities on commission? The passing of the old age pensions legislation, which increases the pension, has discouraged these agents, and they cannot afford to sell their annuities at the same rate. Will this improve their position in any way? We want to hold them in their jobs, if possible.

Topic:   A FEW EXAMPLES SHOWING THE MONTHLY PREMIUM REQUIRED TO PURCHASE A LEVEL ANNUITY FOR LIFE COMMENCING AT AGE 65 MALES, 60 FEMALES, COMPARED WITH THE MONTHLY PREMIUM NECESSARY TO PRODUCE ANNUITIES OF THE SAME AMOUNT BUT WHICH REDUCE AT AGE 70 BY THE AMOUNT OF THE OLD AGE SECURITY ($40 PER MONTH.
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LIB

Paul-Émile Côté (Parliamentary Assistant to the Minister of Labour)

Liberal

Mr. Cote (Verdun-La Salle):

The rate of commission received by salesmen is determined by regulation. There is nothing in the amendments to be brought forward which will change the rate at which the salesmen are remunerated. It may be that new features brought into the act will increase the sale of annuities to an extent greater than may have been forecast, and in that sense salesmen would find the job easier and their remuneration would increase accordingly.

Topic:   A FEW EXAMPLES SHOWING THE MONTHLY PREMIUM REQUIRED TO PURCHASE A LEVEL ANNUITY FOR LIFE COMMENCING AT AGE 65 MALES, 60 FEMALES, COMPARED WITH THE MONTHLY PREMIUM NECESSARY TO PRODUCE ANNUITIES OF THE SAME AMOUNT BUT WHICH REDUCE AT AGE 70 BY THE AMOUNT OF THE OLD AGE SECURITY ($40 PER MONTH.
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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. Chairman, I should like to say a few words by way of comment concerning some of the observations of the parliamentary assistant to the Minister of

Government Annuities Act Labour. I would like, too, to put a few questions to him about the legislation based on the resolution.

I have noted with interest the study both the parliamentary assistant and the minister have made of the debate which took place when this legislation was first introduced forty-three years ago. Incidentally what developed at that time came from the study given to the subject by a committee. I believe that even in those far-off days there was in the minds of those who were putting the legislation through some realization of the part society could play in helping people provide for their own old age. I would like the parliamentary assistant to realize that, although that was a long time ago in terms of Canadian social history, even at that time many other countries of the world had embarked upon programs of social security, particularly a number of countries in western Europe.

As I recall the debate which took place in June of 1908, Sir Wilfrid Laurier and other members of the government of that day spoke and pointed out that there were two elements of subsidy in the matter; the parliamentary assistant has referred to them in passing. On the one hand the plan was being subsidized in part because the administration costs were to be paid by the government. There was also an element of subsidy because of the higher interest rate, even though it was only a fraction of a per cent, being accorded to annuities as compared with the interest rate on ordinary government bonds.

So I do not think anything can be made out of any different approach to the problem, as far as annuities are concerned, even back there forty-three years ago. They did not go as far as we do today in terms of the principle of using subsidies. Government budgets in those days amounted to only a small fraction of one of our estimates in these modern days. Nevertheless it was part of the framework of the legislation that it was a good thing for society to play its part in helping people to provide at least to some extent for their retirement. If society is going to do that, then it is far better to put it on as broad a basis as possible, the sort of basis which would make it possible for the largest number of people to take advantage of it.

The aim is not just to provide extra money for the wealthy; that is hardly defensible on any social basis. The aim is rather to help the ordinary rank and file of the Canadian people to do this sort of thing. To the extent we help people to provide for their own retirement, just to that extent we lessen the

[Mr. Knowles.l

necessity for other forms of public assistance of one kind or another. I suggest that Sir Wilfrid Laurier and members of his cabinet in 1908 thought this was good business, and I do not think we should be offering to the Canadian people today anything less advantageous than the Laurier government offered forty-three years ago.

The parliamentary assistant spoke about the slight difference there was between the 3-9 per cent on government bonds and the 4 per cent, which was the rate fixed by order in council in 1908. He said across the years there had been fluctuations in the rate of interest paid on government bonds, and said that at one point it rose as high as 6 per cent. I would remind him that the interest paid on government annuities was not increased in keeping with the increase to 6 per cent on bonds, but that it stayed at 4 per cent across those years. Similarly, I do not think the downward change should have been made at all.

The parliamentary assistant is quite right in pointing out that the change, although made by order in council, was correctly made in that way, because the original legislation did not fix by statute the rate of interest but rather left it to the governor in council. I think there is something to be said for the idea that the government has responsibility to the people in these matters. Here is a rate that was fixed, and upon which the people could depend for forty years. Many people had bought their annuities on the basis of that rate. Then, as I said earlier, suddenly a change is made; a line is drawn right down the middle of a group of employees, between those who pay a lower and those who pay a higher rate for their annuities. I have noted with interest that in recent years the Prime Minister has taken a certain position with respect to various matters which, constitutionally, can be dealt with by order in council. His position has been that they should be brought before parliament, even though this is not legally required. He took that view only a couple of days ago in connection with a matter of extradition which was brought to the attention of the house by the hon. member for Lake Centre. I think the Prime Minister is to be complimented upon his attitude. I have known him to take it a number of times in the last few years, in connection with matters which, within the constitutional right of the government, would fall within that class which could be dealt with by order in council. However, the Prime Minister has said he has felt such matters should be brought before parliament.

I think the same applies to a matter like this. There was a rate for forty years. It

was changed suddenly by order in council in April, 1948. I do not -think that was playing fair with parliament or the Canadian people, and I urge strongly that reconsideration be given to restoring that rate. I realize the parliamentary assistant is not in a position to discuss this phase of the matter, that it is a matter of government policy which would have to be taken up with the minister, or when the officials come before the committee on industrial relations. As I stated in my earlier remarks, this is the most important feature with respect to annuities, namely the rate at which they can be bought.

Now that we are in committee there are a few questions I should like to put to the parliamentary assistant. I shall put one or two, sit down and give him a chance to answer. It has been indicated that there will be some differences in the new plans as compared with the plans now in effect. One of the most notable differences is that a person will be able to have his annuity fixed so that it pays a higher amount until he is 70 years, and comes down to a lower level from then on. May I ask if that provision will apply only to annuities taken out after these amendments have been passed, or will those who now possess annuity contracts have the right to make such alterations in their contracts?

Topic:   A FEW EXAMPLES SHOWING THE MONTHLY PREMIUM REQUIRED TO PURCHASE A LEVEL ANNUITY FOR LIFE COMMENCING AT AGE 65 MALES, 60 FEMALES, COMPARED WITH THE MONTHLY PREMIUM NECESSARY TO PRODUCE ANNUITIES OF THE SAME AMOUNT BUT WHICH REDUCE AT AGE 70 BY THE AMOUNT OF THE OLD AGE SECURITY ($40 PER MONTH.
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November 15, 1951