Finance ministers reach deal to expand Canada Pension Plan

Theglobeandmail.com
June 21, 2016
By Bill Curry and Sunny Dhillion

Ottawa and most provincial finance ministers have reached a breakthrough agreement to expand the Canada Pension Plan, with all but Manitoba and Quebec signing on to the deal.

“It’s an historic day that we’ve spent together,” said federal Finance Minister Bill Morneau, after a day of negotiations with his provincial and territorial counterparts.

The deal marks the first significant increase in CPP benefits since the program was launched 50 years ago. Premiums were increased in the 1990s, but those measures were to ensure the program was sustainable over the long term and did not include new benefits.

Mr. Morneau announced the agreement in principle Monday that will set in motion a seven-year phase-in that is expected to start on Jan. 1, 2019. The new plan will require workers and their employers to pay higher contributions.

Federal, provincial and territorial finance ministers have been debating CPP reform options since 2009 but repeatedly fell short of the required support to move ahead. The CPP is run jointly by both levels of government and changes require the support of seven of 10 provinces representing two-thirds of the Canadian population.

Ontario Finance Minister Charles Sousa says that if the national deal goes ahead, his province will not go forward with its proposed Ontario Retirement Pension Plan.

Quebec was one of two holdouts. Finance Minister Carlos Leitao issued a strongly worded statement that criticizes the national plan for going too far and being “very costly.”

In an interview, Mr. Leitao said his province would be proposing an alternative version of the expansion in Quebec that would exempt the new premiums from income between $3,500 and about $27,500. The Quebec Pension Plan is similar but separate from the CPP and already has slightly higher premiums than the CPP.

“In our view, it’s not sufficiently targeted and that’s why we didn’t sign on,” he said.

Manitoba Finance Minister Cameron Friesen did not speak to reporters after the meeting. Manitoba’s newly elected Progressive Conservative government formed its cabinet in May. A spokesperson said the minister will address the media Tuesday at the Manitoba legislature after he has the chance to brief cabinet on the issue.

Under the current CPP, employers and employees each contribute 4.95 per cent of income between $3,500 and $54,900. The maximum CPP benefit is $13,110. The average annual payment is $7,974.84.

Under the new deal, the upper earnings limit would rise to $82,700 by 2025. The current CPP deal is meant to replace 25 per cent of earnings up to the ceiling, while the new plan would aim to replace one third of income up to the new, higher ceiling.

Once fully phased in, CPP premiums would rise by 1 per cent each for employers and employees. Self-employed Canadians must pay both the employee and employer premiums.

In an interview, Mr. Sousa said the deal will help younger Canadians who don’t have access to the defined benefit pensions that many older Canadians now enjoy. Mr. Sousa said the key to reaching a deal was to promise a longer phase-in, which allowed provinces struggling with the impact of low energy prices to sign on.

“They’re struggling, and we’re all sensitive to the volatility in the market,” he said. “This agreement was made because we added a little bit more escalation and graduation in order to minimize the initial impacts, while still getting to the endgame.”

The ORPP, which has been approved by the Ontario legislature, would have required contributions of 1.9 per cent each from employees and employers on income between $3,500 and $90,000. The ORPP proposed a system in which employers would have been exempt from participating if they already provided their employees with a pension plan that met specific criteria.

One of the biggest arguments over CPP expansion was whether it would benefit lower-income Canadians given that higher CPP benefits could lead to a reduction in the Guaranteed Income Supplement, which is aimed at seniors with low incomes.

To address this, the new plan proposes an increase to the federal Working Income Tax Benefit to help low-income earners. The deal would also make the enhanced portion of employee CPP contributions tax deductible.

“I think we have reached a balanced approach to satisfying the objectives that were set out,” said B.C. Finance Minister Mike de Jong. “That is, a modest enhancement that is fully funded, that is affordable; affordable from the perspective of the employees who will be asked eventually to contribute a little bit more to enhance their ultimate benefits, and affordable, importantly, from the point of view of employers.”