The head of an organization that has been campaigning for CPP reform for years said Monday’s deal would create the first benefits increase for the plan since it was created in 1966.
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Low-income earners would get help managing the increase in their CPP contributions by an increase in the Working Income Tax Benefit.
Not every province must have the CPP; Quebec has their own pension plan, as does Saskatchewan. But it’s not clear employees fully account for the various deductions and taxes managed by their employers.
The federal government reached an agreement with most of the provinces Monday to revamp the program for the first time in almost two decades.
SENIORS and retiree groups across the country welcomed the agreement to increase the CPP announced by the finance ministers after their meeting Monday.
Quebec operates its own sister program of the CPP – the QPP. Quebec can adjust the QPP as it likes, but it has typically followed the CPP.
The agreement to raise CPP benefits to replace 33 per cent of pre-retirement earnings up to a maximum amount of $82,700 is an improvement on the current CPP replacement rate of 25 per cent of pre-retirement earnings up to a maximum of $54,900.
But by policy-making standards, the agreement-in-principle – an unlikely outcome just a few months ago – happened in the blink of an eye. He said would also phase them in over the same period.
More than one-third of employed Canadians said such increases will reduce their ability to spend on essential goods and services, the small business advocacy group said in a statement.
Industry experts have mixed feelings about the news.
Both workers and their employers will soon be on the hook for higher contributions to the Canada Pension Plan.
“Not only will middle class households see their disposable income fall during their working lives, but it is to be expected that they will reduce their voluntary saving as a result, for instance their RRSP contributions”, says Youri Chassin, research director at the MEI. The public pension system will be central to financing their retirement. This notion, says the Institute, is completely false. In return, they get a monthly benefit in retirement for as long as they live. In Canada, this non-financial asset represents over $1.8 trillion, which is much higher than the sum of all RRSPs and TFSAs.
The poverty rate among the elderly is also lower than among the Canadian population as a whole.
Meanwhile, Fred Vettese, chief actuary of Morneau Shepell, tells Benefits Canada that despite its complexities, “an expanded CPP will ultimately prove to be the right call”.
“All of those benefits really do contribute to the success of this moment and the success of this change”, she said.
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In plain terms, a middle-income Canadian entering the work force now who earns an average of $50,000 a year would receive a pension of $16,000 a year (in today’s dollars) in retirement, instead of the $12,000 allocated under the current regime, according to Finance Canada.
