Five things to know about CPP reform

Less than 24 hours after provincial and federal politicians worked out a not- quite unanimous, and largely unexpected, agreement in principle to expand the Canada Pension Plan, stakeholders on all sides were still analyzing the details. Here are five things to know about the agreement.

1

Under Monday’s plan, the maximum Canada Pension Plan benefit will rise to about $17,478 a year from $13,000. Employers will pay increased CPP premiums of about $408 a year for each employee, who will pay matching amounts, and they will be phased in over seven years, starting in 2019. An average Canadian worker earning about $55,000 will pay an additional $7 a month in 2019. That would increase to $34 a month by 2023. The maximum annual benefits will kick in once the plan is fully implemented.

2

The system is designed so that each generation of workers pays for its own retirement. That makes it different from two other income replacement programs for seniors and retirees: old age security (OAS) and the guaranteed income supplement (GIS). Those measures are covered through general tax revenues, meaning that workers today pay taxes to raise the incomes of poorer seniors.

CPP contribution rates have only been raised once in the last 20 years. In 1997, finance ministers agreed to a phased-in increase in premiums to ensure one generation of workers wasn’t paying for another generation’s retirement.

The argument today is that the CPP should pay more in benefits and help those who aren’t saving enough for retirement. The argument against raising premiums is that it would hit workers’ wallets at a time when governments keep saying the economy is fragile.

3

The deal might never have happened without Ontario Premier Kathleen Wynne, she said Tuesday. It was her government’s decision to pass legislation creating a separate provincial pension plan that prevented the issue from languishing on the back burner, Wynne said.

“Quite frankly, I was a thorn in the side of many of my colleagues,” she said. “Had we not continued to put this issue on the table squarely with our colleagues across the country, I firmly believe that we would not be here today.” Benefits under the enhanced CPP will be two-thirds of what Ontario workers would have received.

4Not

every province has to have the CPP. Quebec has its own version. Saskatchewan has its own pension plan, but the payments are voluntary, acting more like an RRSP. Along with Quebec, Manitoba didn’t sign onto the deal on Monday.

5

Manitoba Premier Brian Pallister says his government did not support the changes in part because people should not expect to retire on a public pension alone. Higher taxes in Manitoba in recent years have eroded people’s ability to set aside money for retirement, Pallister said, adding that his government is working on suggestions to change the national deal. He also said Manitoba abstained from the vote partly because his government has only been in office for two months. Saskatchewan’s finance minister, meanwhile, says his province compromised to accept the reform because it feared something worse would be imposed.