The Canadian Safety Net for the Elderly

Reference: U.S. Social Security Administration Office of Retirement and Disability Policy

Social Security Bulletin, Vol. 68 No. 2, 2008
By Michael Wiseman and Martynas Yčas


Summary

Recently various analysts have called attention to the apparent success of the Canadian social assistance system in reducing poverty among the elderly and have suggested that there may be lessons to be drawn from the Canadian experience that are relevant to the evolution of the U.S. Supplemental Security Income (SSI) program. This article profiles the Canadian system, compares the system to the U.S. SSI program, reviews the consequences for elderly poverty rates, assesses system costs, and then comments on pertinence of the Canadian experience to SSI policy. The Canadian minimum income guarantee for the elderly is substantially more generous than what is provided by the United States, but it is misleading to claim that the Canadian system costs only “slightly more” than the U.S. program. Such a judgment overlooks a key and costly part of the Canadian system, the Old Age Security demogrant. We estimate the total costs to Canada of providing income support for elderly persons receiving a Guaranteed Income Supplement (GIS) in 2004 to be approximately C$13.3 billion (roughly US$11.1 billion), slightly more than 1 percent of gross domestic product (GDP) and almost fourteen times the U.S. allocation for SSI and food stamps for elderly SSI recipients. The significance of this commitment is underscored when it is recognized that in 2004 Canadian GDP per capita was just 80 percent of the U.S. level. The Canadian example suggests U.S. policymakers consider better integration of SSI with basic Social Security benefits, experimenting with alternatives to restricting SSI eligibility to individuals with very few assets, and reducing barriers to program access.

Introduction

The future of the U.S. Social Security program continues to be the focus of a public debate compelled by the system’s projected insolvency. Although the outcome of the political struggle is difficult to forecast, it is likely that changes made to the Social Security system to address financing will affect the nation’s “safety net,” or minimum income guarantee, for elderly and disabled people—the Supplemental Security Income (SSI) program. The 2001 report of the President’s Commission to Strengthen Social Security acknowledged this connection and recommended that “Social Security reform plans should also encompass reforms in SSI policy, to improve retirement incomes for those persons who might not otherwise attain poverty-level income in old age” (President’s Commission 2001, 136). Since the Commission issued its report, several Social Security reform proposals have included provisions aimed at providing a minimum guaranteed benefit for workers with low career earnings. Little has been done, however, to address the connection between a reformed Social Security system and the SSI program in providing income security for the most vulnerable of the elderly.

Recently, various analysts have called attention to the apparent success of the Canadian social assistance system in reducing poverty among the elderly and suggested that there may be lessons to be drawn from the Canadian experience that are relevant to SSI strategy. Timothy Smeeding and Susanna Sandstrom (2004) report, “Canada has managed to achieve much greater poverty reduction among seniors [than has the United States] while spending much less on social retirement programs than other rich countries (and slightly more than the United States)” (p. 11). They recommend considering the integrated Canadian social insurance/social assistance system “as a model for future United States OASI [Old-Age and Survivors Insurance]-SSI interactions” (p. 12).

This recommendation is based on cross-national comparisons using data collected in connection with the Luxembourg Income Study (LIS).1 An example of these data is reproduced in Table 1. Poverty for this analysis is defined as having disposable income adjusted for family size that is less than 50 percent of the national median. When applying this standard, poverty among the elderly in the United States is the worst among the seven countries listed, and Canada typically ranks first or second.2 In particular, Smeeding and his colleagues note the apparently superior performance of the Canadian system in reducing poverty rates among elderly women living alone, a growing share of all elderly persons (Smeeding with Williamson 2001, 24; Smeeding 2006a).

This article profiles the Canadian system, compares the system to the U.S. SSI program, reviews the consequences for elderly poverty rates, assesses system costs, and then comments on pertinence of the Canadian experience to SSI policy. Our core argument is that Smeeding and his colleagues are right in judging the Canadian minimum income guarantee to be substantially more generous than what is provided by the United States, but that it is misleading to claim that the Canadian system costs only “slightly more” than the U.S. program. Such a judgment overlooks a key and costly part of the Canadian system, the Old Age Security demogrant.

Table 1. Poverty rates among the elderly: Percentage of population aged 65 or older with income less than 50 percent of adjusted national median disposable income for all persons

Country……..Year…………Poverty rate

Elderly
United States …..2000……. 24.7
United Kingdom 1999 …….20.9
Germany…………. 2000 …….10.1
Canada ……………1998 ………7.8
Sweden……………2000 ………7.7
Italy ………………. 2000………13.7
Finland…………… 2000 ……..8.5

Elderly women
United States …..2000 …….28.6
United Kingdom 1999 …….26.2
Germany ………….2000 …….13.0
Canada ……………1998 ………9.6
Sweden …………… 2000 …….10.3
Italy ………………… 2000 …….16.2
Finland …………… 2000 …….11.8

Elderly women living alone
United States …..2000 ……. 45.5
United Kingdom 1999 ……. 40.7
Germany ………….2000 ……. 19.6
Canada ……………. 1998 …….17.7
Sweden …………… 2000 …….16.5
Italy ………………. 2000 ……. 28.7
Finland…………… 2000 ……. 21.2

SOURCE: Adapted from Smeeding and Sandstrom (2004, Table 1).
NOTE: Household incomes are adjusted to individual equivalence by dividing household income by the square root of household size. See text and Förster (2005).

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