Most of Canada's finance ministers reached an agreement in principle Monday to revamp the Canada Pension Plan, although Quebec and Manitoba have not signed on to the deal.This is great news for future generations of Canadians. Read my last comment on chasing a CPP consensus to get my thoughts on why it's critically important to enhance the CPP once and for all.
Under the agreement, which would go into effect 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.
Once the plan is fully implemented, the maximum annual benefits will increase by about one-third to $17,478.
Finance Minister Bill Morneau said the deal will improve the CPP in a way that will make a difference to working Canadians.
"We have come to a conclusion that we are going to improve the retirement security of Canadians, we're going to improve the Canada Pension Plan that will make a real difference in future Canadians' situations," he said.
Morneau said Quebec, which has its own pension plan, and Manitoba continue to be part of the process, despite not signing on to the agreement.
"Quebec is in a different situation," he added. "The Quebec pension plan is a different vehicle. The costs are different than the Canadian Pension Plan. The idea that more analysis is required is something that we completely understood around the table."
For Manitoba, Morneau said the deal comes too soon for the province's new Tory government.
"Manitoba is a brand-new government. They've been in power for four weeks, so they were a productive voice around the table, a voice of continued interest in working together, but of course this comes pretty fast and hard for them."
Ontario Finance Minister Charles Sousa said young Canadians will reap the benefits from Monday's decision.
"Today, this federal government has shown great leadership and great desire to do something of great benefit for our young people."
Sousa said the plan would replace the one his government had been working on.
British Columbia Finance Minister Mike de Jong, who had reservations about expanding the CPP, said he came on board because the plan is affordable for employees.
"I think we have reached a balanced approach to setting the objectives that were set out."
A change to the CPP needs the consent of Ottawa and a minimum of seven provinces representing at least two-thirds of the country's population.
Heading into Monday's federal-provincial meeting, it was still unclear whether Ottawa would piece together the minimum required provincial support for change. Saskatchewan, for example, did not support CPP enhancement.
Sources say Ottawa made a major 11th-hour push in hope of securing enough countrywide support to boost the CPP and suggest Prime Minister Justin Trudeau was involved in the extra effort.
There hasn't been such a level of consensus on CPP reform at a national scale since the 1990s.
Morneau has argued that enhancing the CPP is critical to ensuring future generations will be able to retire in dignity, no matter the state of their finances.
However, critics have warned that expanding the CPP would squeeze workers and employers for additional contributions — and hurt the still-fragile Canadian economy.
The federal government intensified its lobbying efforts over the final days and hours of meetings in Vancouver as it tried to attract support from enough provinces to ensure a CPP upgrade, said sources with knowledge of the talks.
Bernard Dussault, Canada's former Chief Actuary, was kind enough to share his thoughts with me:
- The increase in the 25% retirement pension rate (i.e. from 25% to 33.33%) is more modest than we ever heard before, still though a not negligible 8.33% increase.
- To my unexpected great satisfaction, the few details provided about the strengthening mean that lower income (e,g, $25,000) workers will not be excluded form coverage.
- Indeed, If the actual intent were to exclude them ($25,000), then Bill Morneau Statement's "a Canadian with $50,000 in constant earnings throughout their working life would receive a yearly pension benefit of around $16,000 instead of the $12,000" would be inaccurate because the strengthening with a $25,000 exclusion would provide a yearly pension of $14,000 instead of $16,000, as the first $25,000 of employment earnings would not benefit from the 8.33% increase.
- Even if Manitoba did not vote for the now agreed CPP expansion, it shall join and be part of it.
- Even if Quebec did not vote for the now agreed CPP expansion, it will have to expand the QPP in a manner similar to the CPP expansion. In this vein, QC may will do what it wants regarding the financing of their own expansion but shall not have a choice as to providing a design of benefits that shall be as beneficial as that of the CPP expansion. This relates to my point below, i.e. inclusion of low income earners.
- Ontario Finance Minister indicated in the midst of yesterdays ’announcement that it will not implement the ORPP if the agreed CPP expansion is ultimately approved.