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The Canada Pension Plan – Where Next?
Saskatchewan Federation of Labour Pensions Conference
Regina, Saskatchewan
May 2, 2018
Chris Roberts
Canadian Labour Congress
Outline
• Summary of 2016 CPP enhancement and December 2017 improvements to CPP
• Important regulatory decisions to come
• Agenda for further CPP reform
Canadian labour has a stake in the success of the expanded CPP
Increase in CPP Benefits
Increase in CPP Contributions
2016 Working Income Tax Benefit (WITB) improvements to support low-income
earners
$5,000 $10,000 $15,000 $20,000
WITB enhancement benefit +$20 +$105 +$150 +$140
Employee CPP contributions to
enhanced CPP (net of tax)-$15 -$65 -$100 -$130
Net impact +$5 +$40 +$50 +$10
Earnings
Young workers, middle-income earners, and non-union workers likely to see the greatest
benefit
A 25-year-old earning
$20,000:
Current CPP benefit =
$4,776 a year
With the enhancement,
an extra $1,591 a year,
for a total of $6,367.
A 30-year-old earning
$40,000:
Current CPP benefit =
$9,552 a year
With the enhancement:
an extra $2,785 a year,
for a total of $12,337.
A 40-year-old earning
$60,000:
Current CPP benefit =
$13,100 a year
With the enhancement:
an extra $3,404 a year,
for a total of $16,504.
Additional Annual CPP Benefit
Where does this leave workers in Canada?
Canada continues to rely heavily on workplace plans and private saving
19
Canada
Source: OECD Pensions at a Glance 2015
OECD
Average
Canada’s RIS rests heavily on third pillar
20
Canada
OECD
Average
Source: OECD Pensions at a Glance 2017
New private-sector jobs don’t come with pensions
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RPP Members
Employment
Secure pensions increasingly out of reach for private-sector workers
Post-June 2016 labour priorities on CPP reform
• CPP survivor benefits and Guaranteed Income Supplement (GIS) clawback
• CPP death benefit
• CPP child-rearing and disability drop-outs
• Insufficient rates mechanism in enhanced CPP benefit
• CPP plan governance and communication
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CPP survivor benefits and GIS clawback
• Maximum GIS benefit reduced by 50 cents for every dollar of CPP income
• This reduction is in addition to impact on GIS top-up - reduced by 25 cents for every dollar of income in excess of $2,000 for GIS single recipients and $4,000 of combined income for couples
• Milligan and Schirle (2016): a $3,500 GIS exemption for expanded CPP benefits would allow expanded CPP benefits fully flow through to individuals with average annual earnings up to $44,000
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Improvements to CPP survivor’s pension
• Currently, the CPP survivor’s pension is reduced by 10% for every year the survivor is under age 45
• Reduction lasts until age 65
• Survivors under the age of 35 do not receive a survivor’s pension until age 65
• Starting in 2019, no reduction or elimination of the survivor’s pension for survivors under age 45
• 40,000 individuals expected to benefit in 2019.
Increased CPP death benefit
• 1997 death benefit = 6 months of retirement benefits, to a maximum of $3,580, increased annually in line with wage growth
• That year, death benefit reduced to $2,500 and frozen
• Starting in 2019, the CPP death benefit will be converted to a flat-rate payment of $2,500 for all eligible contributors, regardless of earnings
• In 2016, 12,000 people on average received death benefits in a given month
• 2016 monthly average death benefit payment: $2,294 26
New post-retirement disability benefit
• Currently, individuals receiving the CPP retirement pension who become disabled cannot receive the larger CPP disability pension, even if under age 65
• Starting in 2019, recipients of the retirement pension who develop a severe and prolonged disability while under the age of 65 will receive an additional payment
• An estimated 3,600 individuals will benefit from the change in 2019, rising to approximately 8,000 by 2024.
Regulatory reforms: insufficient rates mechanism in enhanced CPP
• Benefit and contribution level stability a priority and an expectation of Canadians
• “The CPP provides a secure, predictable benefit, which means that Canadians can worry less about outliving their savings, or having their savings impacted by significant market downturns.” – Finance Canada
• Existing insufficient rates mechanism: Finance Ministers decide in the first instance how the plan will adjust to a funding deficit
• If Finance Ministers can’t agree, contributions and indexation benefits are adjusted equally to eliminate the shortfall
• CLC position: the current insufficient rate mechanism should be preserved in the enhanced benefit
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Unlike the base CPP, the enhanced benefit will rely heavily on investment returns
Source: 28th CPP Actuarial Report
Ratio of assets to expenditures to stabilize at 25
Additional CPP assets to outstrip base CPP assets starting in 2055
Source:
Office of
the Chief
Actuary,
2017
Governance and communication
• Limited transparency in triennial review of CPP finances
• CPP2 benefit’s sensitivity to investment returns may fuel calls for greater transparency and broader input into plan adjustments
• CPP Advisory Board discontinued in 1997
• Better communication with CPP beneficiaries needed, especially given additional complexity of the enhanced CPP
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Child-rearing and disability drop-outs
• CPP actuarial report No. 5 (tabled before Parliament in 1977) –
additional cost of the child-rearing provision projected to raise
combined contribution rate by 0.1% of contributory earnings by
2005 and 0.3% by 2025
• Minister of National Health and Welfare Marc Lalonde:
"...it seems only fair and reasonable that...parents should not
be penalized under the CPP for undertaking a socially
desirable and necessary task." (Globe and Mail, 20 July 1977)
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From child-rearing and disability ‘drop-outs’ to ‘drop-ins’
• Protects the CPP retirement pension of parents of young children and CPP disability recipients
• CPP enhancement omitted child-rearing and disability drop-outs
• Bill C-74 provides some protection through the use of ‘drop-ins’ or pension credits
• Pensionable income attributed to individuals with disabilities based on 70% of average earnings 6 years prior to becoming disabled
• Parents of young children: 100% of average earnings 5 years prior to becoming a parent
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Summary
• The labour movement maintains a full agenda on CPP reform – and pension reform
• Unions will monitor implementation and press for additional improvements to CPP governance and administration
• Canada has shored up Pillar 2 (CPP/QPP) – but what about Pillar 3?
