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Pensions in Canada

Three-Pillars of Pensions
Canada’s first pension policy, enacted in 1927, was a modest program that provided benefits only to the poorest of seniors (Makarenko). Moreover, the scheme applied a means test, a liberal principle, to determine eligibility for pensions. However, due to the Great Depression, countless people fell below the poverty line and significant reforms were made thereafter to prevent the elderly to fall below the poverty line (Makarenko). Today, Canada's pension system is a three-pillar system that is made up of a mixture of public and private pension schemes. An OECD report describes Canada’s pension policy as one that, “offers a universal flat-rate benefit, which can be topped up with an income-tested benefit, and earnings-related public schemes” (“Pensions at a Glance 2013: Country Profiles – Canada” 224)

First-Pillar
The first pillar, Old Age Security (OAS) program, provides most Canadians aged 65 and over with a basic, flat-rate pension. The Old Age Security (OAS) program is funded through general government revenue and has a means-tested component called the Guaranteed Income Security (GIS) which provides an adequate safety net for those who recorded low incomes during their working lives (“2015 Pension Policy Notes Canada” 1). According to Bowman, the universal basic pension was a defining feature of the social democratic state (112). Since the Old Age Security policy was a universal flat-rate basic pension, it is a socialist policy. Liberals accepted pensions as long as they served as safety nets for the “deserving poor” They acknowledge that the elderly fall into the category of the “deserving poor” because market conditions have left them unable to accumulate sufficient savings for retirement (Bowman 102). The Guaranteed Income Security serves as a safety net for the elderly; therefore it is a liberal policy.

Second-Pillar
The second pillar, Canada Pension Plan, is a universal public retirement program. With the exception of Quebec, the CPP is jointly administered by the federal and provincial government. This program does not provide direct transfers of wealth/subsidies of government revenue to its recipients. Instead, the CPP is funded based on contributions made by employees and their respective employers over the course of their working lives (Makarenko). Both employees and employers are required by law to contribute to this program. The CPP is directly tied to one’s employment and participation in the workforce (Makarenko). Hence, this program is a contributory, earnings-related social program. This approach to pensions as a contributory, earnings-related program is a conservative policy. It conforms to the insurance principle characteristic of the conservative welfare state as the benefits are a function of previous contributions and thus, strongly related to earnings (Bowman 105). Moreover, this particular pension policy has no significant measures of using the retirement funds to reduce market-driven inequality, which is characteristic of a conservative principle.

Third-Pillar
The third pillar consists of a variety of optional and private pension plans. Canada’s pension policy allows citizens to invest their money in a wide variety of private pension funds. These funds include the Registered Retirement Savings Plan (RRSP), which receives tax advantages from the government and the Occupational registered pension plans, which may be sponsored by employers on a voluntary basis (“Pension Country Profile: Canada” 173). Retirement savings may also consist of other personal, financial assets like real estate or a business. By liberalizing access to the private market and limiting public assistance, many Canadians rely on the private market as a supplementary insurance fund. In fact, public transfers account for a relatively small amount of retirement funds for the elderly. Public transfers account for 39% of retirement income, compared to the OECD average of 59% (“Pensions at a Glance 2013: OECD and G20 Indicators Canada” 1). Meanwhile, funds from private sources, including private pensions, represent 42% of retirement income, compared to the OECD average of 18% (“Pensions at a Glance 2013: OECD and G20 Indicators Canada” 2). The third pillar that consists of private pension plans is a liberal model because of its reliance on markets. By deregulating pension policy and creating ease of access to private pension funds, Canada also takes a liberal approach to pensions.

Bowman, John R. Capitalisms Compared: Welfare, Work, and Business. CQ, 2014. 10-112. Print.

Makarenko, Jay. "Canada Pension Plan: Overview, History and Debates." Mapleleafweb. 20 Apr. 2010. Web. 28 July 2015.

OECD. Pensions at a Glance 2013: OECD and G20 Indicators Canada. OECD Publishing, Paris. DOI:  http://dx.doi.org/10.1787/pension_glance-2013-en. 2015. Web. 28 July. 2015.

OECD. 2015 Pension Policy Notes Canada. OECD Publishing. DOI: www.oecd.org/pensions/policy-notes-and-reviews.htm. 2015. Web. 28 July. 2015.

OECD. Pension Country Profile: Canada. OECD Publishing. 2009. Web. 28 July. 2015.

OECD. Pensions at a Glance 2013: Country Profiles – Canada. OECD Publishing. 2012. Web. 28 July. 2015.