Several provincial finance ministers have agreed to expand the benefits available under the Canada Pension Plan (CPP). Quebec and Manitoba, however, remain on the sidelines.
On June 20, Federal Minister of Finance Bill Morneau announced that he and a number of his counterparts had reached an agreement in principle to enhance the CPP starting January 1, 2019. In particular, they have agreed to make changes that will increase the level of income replacement from one quarter to one third of pensionable earnings.
This means that a Canadian with $50,000 in constant earnings throughout their working life will receive a yearly pension benefit of around $16,000 instead of the $12,000 they would currently receive, or $4,000 more per year. The finance ministers have also agreed to increase the maximum amount of income subject to CPP by 14%, which is projected to be equal to about $82,700 in 2025.
Changes affordable for businesses and Canadians
In his statement, Morneau emphasised that the government wants to make sure these changes "are affordable for businesses and Canadians". With this in mind, he indicated that there will be "a long and gradual phase-in" to give businesses time to adjust.
There are also provisions to enhance the federal Working Income Tax Benefit as a means of offsetting the effect of increased contributions on low-income workers. Finally, Morneau says that there are plans to provide a tax deduction instead of a tax credit for employee contributions; this is to avoid increasing the after-tax cost of saving for Canadians.
Quebec and Manitoba remain part of the discussions
“The outcome of this meeting shows that Canada works best when its governments come together in the interest of the people we serve. The agreement in principle includes British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador, with Quebec and Manitoba agreeing to remain part of the discussions moving forward," said Morneau. "I want to thank my provincial and territorial colleagues for their important contributions to the future of the CPP and to the retirement security of current and future generations."