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Chapter 8

SOC375 Chapter 8: Oct. 19- Chapter 8 (LECTURE & TEXTBOOK)


Department
Sociology
Course Code
SOC375
Professor
Kwame Boadu
Chapter
8

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Chapter 8- Finance and Economics
Intro
- Canada has one of the best income-security systems in the world as measured against international benchmarks
o Has oe of the loest rates of seiors’ lo ioe aog the deeloped atios
- B , Caada’s pesio sste had redued the poverty rate for older people to ¼ from its 1980 level
- For middle- and upper-income earners, the Canadian system encourages retirement investment throughout their
working life with tax-deferral programs
o Canada retirement income system replaces income of low-income seniors well
- Studies show that money tends to flow from the older to the younger generations opposite of the assumed
dependency ratios (that older people depend on the young for support)
o Many older people can meet their own financial needs and still assist their children and grandchildren
o Older people have better incomes than many people imagine
- Caadia retireet ioe sste eourages iestet throughout a perso’s orkig life – leads to more
diersified ioe i retireet ad aouts for the relatiel high ioe of Caada’s seiors toda
- Retirement income system still has its flaws while income has risen in the past few years for older people in
general, certain groups still have incomes below the poverty line in old age
o Older people from lower-ioe akgrouds, people ho a’t speak Freh or Eglish, people ithout
much education, and people who live in small towns tend to have lower than average incomes
o Very old people, women, and unattached individuals often live below the poverty line
o Those on fixed pension systems (not indexed to the cost of living) get poorer every year due to inflation
- Most people, except the very rich and the very poor, will feel a drop in their income when they retire
- Groups suggesting change to the pension system concerns have led to the great pension debate in the 1980s, and
more recently to debates over the universality ad sustaiailit of Caada’ puli pesio sste
o Great pension debate- debate in the 80s over how to fund public pensions for older Canadians in the future
o Universality- the idea that everyone in Canada has a right to a public pension regardless of their income
o Results of these debates have begun to influence the retirement income system and will influence the
pensions of future retirees
- “tatistis Caada  defies lo ioe as ioe leels at hih failies or persos ot i eooi failies
spend 20% more than average of their before-tax income on food, shelter and clothig
o Graph shows the general downward trend in the poverty rate for all older people
o B the earl s, seiors’ lo-income rate had dropped below all other age groups continued to decline
and hovered around 5% from 2006 onward
o By 2010, seniors, compared with people aged 18 to 64, had about half the low-income rate (5.3% vs. 10.1%)
o The decrease in poverty rates holds for all groups of older people, but senior women who live alone still
show the highest rates of poverty among older people
- The oldest age group shows the highest proportion of people with feelings of financial security
o These fidigs poit to the oerall suess of Caada’s retireet ioe sste
o But, note that in some cases nearly 1/4 of the people in an age group do not feel financially secure points
to the need among some older people for better pension support
Historial Deelopets i Caada’s Pesio “ste
- Before the 1920s, our pesio poli refleted the arket ethos
o Individual should take responsibility got themselves in old age and those who need help should get it from
their families no government assistance
o But city life and industrialization in Canada made this ethos hard to practice
High rent and overcrowding in houses made it difficult for the poor to look after their parents
- In 1925, monthly pension of $20 for those aged 70+, passed a residence requirement, and a means test (a test of
financial need)
- In 1927, the Old Age Pension Act became law and defined pensions as a right due to all older Canadians
o Men had greater access to these pensions than women due to state’s assuptio aout ale doiae
in families
- In 1951, the Old Age Security Act and Old Age Assistance Act replaced the Old Age Pension Act
o OASA provided $40 a month at age 70+ (from the federal government) no contributions were required
o OAAA set up a means-tested pension for people between 65-69 who could demonstrate financial need
Costs were shared by provincial and federal governments
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o Federal governments were keeping payments low so people would have an incentive to provide for their
own old age
- In the 1960s, the Guaranteed Income Supplement started to supplement Old Age Security
o Designed to help the poorest old people
- By the 1970s, Canada had two types of programs in place:
o 1. Income-security programs- programs such as the Old Age Security (OAS) and Guaranteed Income
Supplement (GIS) that help people meet their basic needs in retirement
o 2. Income-maintenance programs- programs such as the Canada and Quebec Pension Plans that help people
maintain their pre-retirement income and lifestyle
Canada Pension Plan (CPP) accounted for 47% of older Caadias’ retireet ioes
- And by the 1990s, seniors began to get more of their income from occupational pensions and other sources than ever
before
o Diersifiatio of seiors’ ioe soures led to a oerall irease i seiors’ ioe
o This diversification occurred among people in all income levels, not just wealthy people
“tudies sho that the ore dierse a perso’s ioe soures, the etter off that perso eoes
financially
- The net worth of all age groups aged 35 and over increased between 1999 and 2005 net worth of the 55- to 64-year
age group shows the greatest gain
o These people ill rig these assets ith the ito old age; the’ll ake up the ealthiest geeratio of
older Canadians
o But, variations in wealth exist within this group ½ of this age group have less than this median amount, and
some people live at the poorest end of the income spectrum
The Canadian Retirement Income System Today
- Tier 1: Government transfers (for the very poor)
o Federal transfer programs: the Old Age Security (OAS), the Guaranteed Income Supplement (GIS), and the
Allowance (ALW); no direct contribution required government pays them out of tax revenues
Nearly all Canadian aged 65+, rich or poor, get the same OAS pension
OAS as a means-tested pension plan
o Claw back- a required payment of OAS benefits from wealthier seniors to the
government
GIS goes to people with low or no incomes (other than the OAS) the poorest seniors
ALW payments go to spouses or common-law partners or survivors of OAS pensioners
Helps survivors aged 60-64 and couples with only one income
o These transfers reduce low-income rates and decrease income inequality
o In 2008, first-tier programs accounted for 16.9% of the incomes for men and 30% of the incomes for women
Older women rely more heavily on government transfers; older men rely receive more of their
income from private pensions
o Low-income seniors get 77% of their income from OAS/GIS and
other government transfers
Depend heavily on these transfers
o Between 1980 and 2006, low income among seniors decreased
from 21.3 percent to 5.4%a rate lower than in most
industrialized countries
o Large proportion of single seniors (most of them unattached
women) live in poverty even with government transfers
- Tier 2: The CPP and QPP (exact same)
o Quebec has its own plan but its virtually the exact same
o Ensures that workers have some pension beyond the
OAS/GIS/ALW when they retire
o Also saves the federal government money in GIS and ALW
payments in the future
o Combines two types of pension plans: savings plan and a
transfer plan
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find more resources at oneclass.com
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