The Canada Pension Plan Where Next?

Transcription

1 The Canada Pension Plan Where Next? Saskatchewan Federation of Labour Pensions Conference Regina, Saskatchewan May 2, 2018 Chris Roberts Canadian Labour Congress

2 Outline Summary of 2016 CPP enhancement and December 2017 improvements to CPP Important regulatory decisions to come Agenda for further CPP reform

3 Canadian labour has a stake in the success of the expanded CPP

4 Increase in CPP Benefits

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8 Increase in CPP Contributions

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12 2016 Working Income Tax Benefit (WITB) improvements to support low-income earners Earnings $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

13 Young workers, middle-income earners, and non-union workers likely to see the greatest benefit

14 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.

15 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.

16 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.

17 Additional Annual CPP Benefit

18 Where does this leave workers in Canada?

19 Canada continues to rely heavily on workplace plans and private saving Canada OECD Average Source: OECD Pensions at a Glance

20 Canada s RIS rests heavily on third pillar Canada OECD Average Source: OECD Pensions at a Glance

21 New private-sector jobs don t come with pensions Employment RPP Members 21

22 Secure pensions increasingly out of reach for private-sector workers

23 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 23

24 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 24

25 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.

26 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

27 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.

28 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 28

29 Unlike the base CPP, the enhanced benefit will rely heavily on investment returns Source: 28 th CPP Actuarial Report

30 Ratio of assets to expenditures to stabilize at 25

31 Additional CPP assets to outstrip base CPP assets starting in 2055 Source: Office of the Chief Actuary, 2017

32 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 32

33 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) 33

34 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 34

35 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?

36 Thank you canadianlabour.ca lgf/cope225