Mr. LEWIS MENARY (Wellington North):
I should like to say a few words on these annuities. I might say that if you are twenty-five years of age and far-sighted enough to plan ahead to when you will be sixty-five and want to retire on $100 a month, it will cost you $186.12 a year instead of $129.12. or 44 per cent more to do so now with the dominion government annuities than before a recent order in council cut the interest rate from four to three per cent, If you are twenty, the new plan will cost you $151.44 a year instead of $101.28, or an increase of 49-5 per cent; if thirty-five, $295.08 instead of $218.64, or an increase of 35 per cent, and if forty, $385.08 instead of $294.48, or an increase of 30-8 per cent. These figures were listed recently by W. D. Welsford, manager of William M. Mercer Limited, independent pension consultants, to show how cutting the interest rate by one per cent boosted the new rates.
In relation to company retirement plans for their employees, the difference is even more startling. Under the new rates it will cost a
Government Annuities Act
firm 130 per cent more to finance the pension of a forty year old worker than under the old. A firm with five hundred workers, considering a retirement plan based on the annuities, will pay an additional 8150,000 for past employees' service just to get the scheme in operation. In ten years the one per cent interest cut will mean 8200,000 from this one company's treasury.
Setting back mortality tables by three years, in addition to the interest cut, is another blow at the annuities. Such a revision is not justified on the basis of a group plan. Even the insurance companies are not using as stiff a table as this, and they are making money.
Another factor that will affect the popularity of these annuities is that it will no longer be possible to pay odd amounts at odd times at the post office toward the annuity. Hitherto you could pay as little as twenty-five cents a week, or prepay as much as $1,000 if you had the ready cash. Now the annuities are on a firm contract basis, and special arrangements have to be made for prepayment, while arrears must be paid within reasonable limits, according to the government announcement.
However, there is nothing to indicate that people who bought their annuities before April 19 will have to change their method of payment. Keeping the two classes of customers apart may turn out to be an administrative problem of headache proportions. What if the dominion government bonds which now pay 2-05 per cent could not be cashed in at any time? They certainly would not be as popular. Where else can the government borrow money at three per cent, as they will be able to with the new annuities?
Another point is that if the government annuities are made less attractive, it will not mean that pension plans and individual annuities will be purchased from insurance companies instead. It will mean that they just will not be purchased, and the possibility of old age security w'ithin the framework of private enterprise will disappear.
Still another point is that if annuities remain attractive, Canada's expanding population and level of business activity would result in more money being collected by the government in premiums than would be paid out and that this could be an anti-inflationary measure.
Unless cash surrender values are offered, a lowering of the interest rate will mean relatively few government annuities sold. A larger part of corporation funds will be directed to plant investment and the payment of dividends and the important deflationary force will disappear.
An upward movement in interest rates has started which should increase the insurance companies' earnings beyond four per cent. If insurance company contracts did not have to bear such a high loading for commissions and expenses, it should be possible to make them quite competitive with government annuity contracts, particularly since the insurance company contracts offer cash values, and the government annuity contracts do not.
It has been suggested that the 81,200 a year limit should be raised to $2,000, because a couple can no longer retire comfortably on $1,200 a year.
Many people bought annuities by the small payment plan. Parents saved this way to educate their children to fit them for different walks of life. I think our government with the huge surplus on hand have forgotten that perhaps never in the history of Canada have our people found it as hard to make a living and raise and educate their children. It is difficult for most Canadian citizens to understand why the government should lower the interest rate on annuities, while at the same time the policy of the Bank of Canada has been changed so that interest yields on government and other bonds arc increased.
Mr. JOHN R. MacNICOL (Davenport): Mr. Speaker, I am not so sure that the change in the interest rate from four to three per cent will not defeat the purpose the framers of the original act had in mind, namely, to have as many as possible of the lower-paid classes take part in a. government scheme of this kind, because that will increase the cost to the annuitant.
I am aware that at page 59 of the report issued by the Department of Labour it is stated that about $977,089 had to be transferred from one account to another, evidently because reserves had run down. But the report does not state that this transfer of money occurred as a result of the lower rates before 1936, or how much of it occurred after the rates were raised in 1936, when they were advanced 15 per cent. I think that should have been stated, because perhaps before 1936 the rate was too low'. However, the advancing of the rate by 15 per cent in 1936 should have made the program self-sustaining. Those w'ho were interested before that time should not be penalized if the rates were not high enough.
I have the idea that the bill should not be proceeded with at this session. It should be deferred until next session, so that a special committee could be set up to which actuaries from outside as well as the department's
Government Annuities Act
actuaries and other experts could be summoned to give the committee facts and figures as to whether the rates should have been again raised.
The rates have already been raised several times; and since 1936, they had to be changed again in 1938. Some rates were up and some were down, which goes to show that whoever prepared those rates was not sure of what he was doing. Perhaps the present state of affairs is not satisfactory. Maybe the rates should be raised again; maybe they should be lowered again.
That is why I feel action should be deferred until next session, so that a parliamentary committee set up by the house would have power to call witnesses to advise as to whether the rate of interest should be lowered from four to three per cent, and whether all the other insurance rates should remain; as they are at the present time or not.
I have always supported government annuities and looked upon them as something for the benefit of the ordinary worker. The facts show that the subscriptions are to a greater extent .taken up by that earner class, because of those who arranged for payments up to $1,200 a year, about 90 per cent arranged amounts less than that. This shows that the investors were people of ordinary means. I shall not repeat what I said on the first occasion this matter was discussed, when I opposed the reduction from four to three per cent. In my judgment action should be deferred until another session to allow a proper investigation by a parliamentary committee.
Topic: PROVISIONS AS TO ISSUE, CONVERSION AND, AMENDMENT