Foundations

• Author: Ari N. Kaplan
• Profession: Partner, Koskie Minsky LLP. Faculty of Law, University of Western Ontario
• Pages: 35-93

CHAP TER 2

FOUNDATIONS

A. INTRODUCTION

This chapter describes some key events in the histor y and evolution of

pension law and regulat ion in Canada, with a signif‌i cant focus on the

Ontario regulatory regime.

B. THE DAR K AGES

1) Pre-Twentieth Century

a) Doctrine of individua l responsibility

At the turn of the twentieth century, formally-constituted pension plans

were few and far between and the concept of the employment pension as

an enforceable legal right simply did not exist. The doctrine of individ-

ual responsibility, which characterized employment duri ng the industrial

revolution, produced the “four fear” of working life: sickness, unemploy-

ment, old age and death. As Morton and McCallum describe in their pion-

eer ing work on Ca nad ian o ccup ati onal supe ran nuat ion p lan s, “ol d age w as

a misery ch ief‌l y evaded by early deat h.”1 During this period, the presump-

tion was that breadwinners worked until they no longer could, and relied

1 D. Morton & M. McCallum, “Sup erannuation to Indexation : Employment

Pensions in the P ublic and Private Sector in Ca nada, 1870–1970,” in Task Force

35

PENSION LAW36

on support f rom family memb ers and handouts from religious, i mmigrant,

fraternal, mutual a nd other charitable organi zations2 and trade unions.3

b) Early employment plans

The f‌i rst notable employment-based retirement scheme was i ntroduced

in 1821 by Cana da’s oldest corpor ation, Hud son’s Bay C ompany (H BC).

HBC’s plan was a prof‌i t-sharing ar rangement that offered discret ionary

payments to pensioners of the Company. In 1874, t he Grand Trunk

Railway (later Can adian National) established what might be describe d

as the f‌i rst, formal, private sector retirement plan that included quasi-

objective criteria for determin ing the amount of pension benef‌i t.

c) Pension Fund Societies Act

At about the same time as the federal Gover nment introduced its f‌i rst civil

service plan, Parliament, in order to promote private initiat ive, adopted,

in 1887, the Act to empower the employees of incorporated companies to

establish Pension Fund Societies,4 later constituted as the Pe nsion Fun d So-

cieties Act.5 Pension societies were statutory vehicles which admini stered

pension schemes under which employers could purchase p ensions for

their employees from the state, and, later, from insura nce companies. A

noteworthy requirement of a pension society was th at the revenues of the

fund could not revert to the employer.6 Priorities in the event of the wind-

up of a pension society were not dealt with in t he Act itself, but were pro-

vided for in accordance with the ter ms of the society’s by-laws.7

d) The Superannuation Act

One of the earliest publicly-sponsored reti rement schemes in Canada

was established by t he federal government for its civil ser vants. The

Superannuation Act, 1870 was initially a n employee-only contributory

on Inf‌l atio n Protection for Employment Pension Plan s, Research Studies, Volume 1

(Toronto: Queen’s Printer, 1988) at 4.

2 Morton & McCallum at 5. Nat ional societies and frate rnal orders included the

Orange Lodge, t he St. George Society, and the Hibern ians.

3 The Toronto Typographical Union was one of t he f‌i rst to pay benef‌i ts to it s

sick and aging mem bers: see Sally F. Zerker, The Rise and Fall of the Toronto

Typographical Union, 1832–1972: A Case Study of Foreign Domination (Toronto:

University of Toronto Pres s, 1982).

4 S.C. 1887, c. 21.

5 R.S.C. 1906, c. 123 (Rev.).

6 For more on pension fund s ocieties, see C. Deniger, Le fonde ment historique du

partage en équit é de l’excédent d’actifs des caisses de retraite (L L.M. Thesis, Faculté

des études supér ieures, Université de Montréa l, 1994) [unpublished].

7 See Re Pensions Fun d Society of La Banque Nation ale, [1925] 4 D.L.R. 97, [1925]

S.C.R. 698, aff ’d [1926] 3 D.L.R. 988 (P.C.).

Foundat ions 37

plan that provide d a 2 percent benef‌i t to employees hav ing a maximum

of thir ty-f‌i ve years of serv ice. In 1912, the government introduced em-

ployer contributions to the scheme.

The legislation’s long title described its objective: An Act for Better

Ensuring the Eff‌i ciency of the Civil Service of Canada, by Providing for

the Superannuation of Persons Employed Therein in Certain Cases.8 The

nascent civil service plan was le ss subtly described during the House

of Commons debates as enabling “the Government to get rid of person s

who had arrived at a time of li fe when they could not longer perform

their work eff‌i ciently.”9

2) The Interwar Years

a) Introduction

By 1900, there were approximately twelve employer-sponsored retirement

plans in Canad a. The inter-bellum period saw the begi nnings of a Canad-

ian pension system in t he introduction of government pensions and a r ise

in the development of retirement plans sponsored by employers.

b) Old Age Pensions Act

The concept of a minimum level of post-retirement sustenance, as a

matter of public policy, became a normative principle in 1927 when the

Government of Canada introduced the Old Age Pensions Act. The Old

Age Pension (OAP) was a social benef‌i t offered to eligible persons over

age 70, and was more or less unrelated to employment, and based on

means. With strict residency requi rements,10 and an income test that

supposed assist ance from children and income from propert y, it was

more akin to today’s social wel fare programs t han a true pension.

In 1952, the government replaced the OAP with the Old Age Security

Act. The Old Age Security benef‌i t (OAS) eliminated the means test for per-

sons over age 70 (although it remained for those between ages 65 and 70).

c) Public sector retirement schemes

The 1920s gave rise to employment pension plans in the broader public

sector in Ontario, Quebec, Brit ish Columbia and Alberta. By t he end of

that decade, most provinces had established employment pension ar-

rangements for their public school teachers.

8 S.C. 1870, c. 4.

9 House of Commons Deba tes (16 April 1870) at 1054.

10 To qualify, a person had to be at lea st seventy years old, a Brit ish subject (or the widow

of someone who had been a Br itish subject), have lived in Canad a for at least twenty

years and live d in the province where they were apply ing for the prior f‌i ve years.