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November 27, 2013
PEI floats proposal for CPP expansion

The province of Prince Edward Island has presented a proposal for the expansion of the Canada Pension Plan (CPP.)

Speaking at the Atlantic Provinces Economic Council in September, PEI Finance Minister Wesley Sheridan presented a plan that would expand both the pension benefits and contribution levels of CPP members earning between 50 per cent and 200 per cent of the average wage.

The PEI plan attempts to address one of the major obstacles to the reform of the national public pension plan; namely, current benefit levels appear to be adequate for people at the opposite ends of the income ladder.  Specifically, the combination of CPP and Guaranteed Income Supplement benefits replaces a large portion of the incomes of those earning less than 50 per cent of the average wage.  (The average Canadian income is approximately $45,000 per year.)   For those earning 200 per cent of the average wage, roughly $100,000 or more, personal savings, investments and other assets in combination with the CPP, the Old Age Security (OAS) benefit and other pension incomes often provide adequate replacement income at retirement.

However for the middle income group, those earning between $25,000 to $100,000 annually, the maximum CPP benefit of $12,150 and OAS benefit of $6,611 may not be enough to adequately replace their former income after they retire.

Under the PEI proposal, those earning less than 50 per cent of the average wage would not have to make additional contributions to the CPP.  However, the province’s plan would increase the yearly maximum pensionable earnings (YMPE) limit from today’s level of $51,100 to $100,000, effectively doubling the income range from which CPP deductions would occur.  As well, contribution levels would increase from 9.9 per cent of pensionable income to 12.1 per cent.

In return, pension benefits for this group would increase from 25 per cent pensionable earnings to 40 per cent, moving the maximum CPP benefit from $12,150 to $23,400 per year.

The province suggests implementing the new regime within a two to three year period.

While the PEI proposal does not mirror Ontario’s proposal to enhance the CPP benefit, they appear to share the same objectives and strategies:  increasing individual CPP contribution levels in return for larger benefit pay-outs at retirement.

With other pension reform initiatives under consideration in the Atlantic provinces, an Ontario-Atlantic coalition to encourage the renovation of the CPP is a possibility.  Together, they comprise five provinces representing 50 per cent of the Canadian population, almost enough constitutionally to change the national pension plan.

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