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February 21, 2013
Finance ministers agree to consider CPP expansion

Canada’s finance ministers have agreed to study the possible enhancement of the Canada Pension Plan (CPP.)

In the annual meeting of the federal and provincial finance ministers held in December 2012, the ministers agreed to consider “modest increases” to the program, provided appropriate “economic triggers” are in place to support the expansion of the universal pension plan.

The first step will involve defining those terms before the next finance ministers’ meeting in June 2013.

“The ministers agree that we would task officials with working on definitions of ‘modest increase’ and ‘economic triggers’ that we would then discuss at our next meeting,” said federal Minister of Finance Jim Flaherty.  “We’ll need to have some kind of measure of real gross domestic product growth and unemployment rate, or both, so the ministers can be confident that the economy can take the extra burden that would be put on employers and employees.”  

With the economy growing at a sluggish pace and the risk of a revived recession stalking Canada’s trading partners in Europe and the United States, the ministers are reluctant to add new levels of taxation to support public pensions without an appropriate economic foundation being in place.

Currently, the Canada Pension Plan provides a maximum benefit of 25 per cent of the yearly maximum pensionable earnings (YMPE).  In 2013, that will amount to $987.67 per month.  The plan is funded through joint employer-employee contributions totalling 9.9 per cent of each eligible employee’s annual pensionable earnings.  Increasing the pension’s pay-out will require hiking of both individual and corporate payroll taxes.  

The possible enhancement of the CPP would be a victory for the province of Ontario, which has supported expanding the government pension plan to provide a pay-out of as much as 35 per cent of the YMPE with a corresponding joint employer and employee contribution rate of 12 per cent of pensionable earnings.  Similar plans have also been proposed by the Canadian Labour Congress and other groups.

While the ultimate “modest increase” may not come close to the contribution and pay-out levels proposed by Ontario, the fact that the country’s finance ministers are open to considering enhancing the CPP could spell the end of the federal government’s proposal to develop the pooled registered pension plan (PRPP), an alternate government pension plan that would allow workers employed by organizations that do not offer pension plans or group RRSPs to save privately for retirement through workplace payroll contributions.  With PRPPs, employee contributions would be directed to and administered by private financial institutions.

The PRPP concept has been strongly favoured by Canada’s banks, insurance companies and other financial institutions but has been panned by policy research groups such as the C.D. Howe Institute and organized labour.

Meanwhile, with the average Canadian saving only $60,000 for retirement by age 65 and with the initial wave of baby boomers beginning to claim government pension benefits, the government pension plan and proposals for its possible enhancement will continue to be a priority throughout 2013.

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