Labour s Plan for an improved Canada Pension Plan How it works for Newfoundland & Labrador RETIREMENT R SECURITY for everyone canadianlabour.ca
Labour s plan for retirement security: DOUBLE CANADA PENSION PLAN (CPP) BENEFITS The (CLC) proposes to phase in a doubling of Canada Pension Plan benefits from 25% to 50% of average earnings on a pre-funded basis. Additional contributions from workers and employers would be invested to pay for higher pensions in the future. A 100% increase in future CPP benefits can be financed by raising CPP premiums by only 60% over seven years. It would take approximately 40 years for the new system to be fully mature, but a higher pension credit would be earned in each year following a decision to expand the CPP. Partial benefits would be earned while the premium increase is being phased-in over seven years. While the maximum CPP retirement benefit is $934.17 per month, this goes only to those who have consistently earned above the average over their entire working life. The average monthly CPP retirement benefit in 2009 was just $501.97. Our proposal would increase the average benefit each year, and double the average benefit when fully implemented. In fact, future benefits will be higher since they will be boosted by any increase in real wages in the future. Our retirement income system should give workers an income they can count on through the years they spend after leaving paid work. Most experts believe this means that they should get 60 to 70% of their previous earnings for life, fully indexed to inflation. Public pensions the Canada Pension Plan (CPP) and Old Age Security (OAS) provide secure pensions which are fully indexed to inflation. All citizens (except recent immigrants) get OAS, paid for from taxes, and all workers (including selfemployed workers) contribute to the CPP over their working lives. The CPP provides a fully portable, secure, inflation indexed, defined benefit pension at very low cost. But public pensions (CPP plus OAS and the Guaranteed Income Supplement) provide only a bare-bones pension a maximum of about 40% of previous earnings in theory, and about one-third on average. That means that most workers must rely on the private part of our pension system employer pension plans and RRSPs for a big chunk of their retirement income. Experience has shown that private pensions provide, at best, very uncertain returns. In the recent financial crisis, many RRSPs lost a huge chunk of their value, and some employer pension plans went under leaving large unfunded pension promises. Only about 3% of income is saved through RRSPs each year, far below what is allowed, and there is now more than $500 billion of unused contribution room. Less than one in three workers pay into an RRSP each year, and, as shown in Table 1, the majority of contributions were made by those who earn more than $80,000 per year. Average RRSP savings of an older worker nearing retirement are only about $60,000 enough to pay for an annuity of less than $300 per month.
Table 1 RRSP Contributors and Contributions in 2008 Number of Taxfilers Total RRSP Contributors (Number) Percentage of RRSP Contributors (%) RETIREMENT N SECURITY U Y for veryone Total RRSP Contributiions Percentage of RRSP Contributions, by contributors with total income of $80,000 or more (%) Canada 24,035,930 6,178,900 26 $33,314,040,000 52 Newfoundland and Labrador 395,850 64,920 16 $331,090,000 53 Prince Edward Island 104,110 18,990 18 $88,035,000 39 Nova Scotia 682,960 130,120 19 $633,100,000 48 New Brunswick 568,320 103,670 18 $535,800,000 50 Quebec 5,932,910 1,557,620 26 $7,428,880,000 43 Ontario 9,029,190 2,352,710 26 $13,205,055,000 55 Manitoba 852,300 207,610 24 $961,870,000 45 Saskatchewan 734,510 182,140 25 $942,055,000 51 Alberta 2,515,790 749,110 30 $4,582,175,000 62 British Columbia 3,152,990 796,270 25 $4,511,880,000 49 Yukon 22,590 6,200 27 $35,195,000 53 Northwest Territories 27,730 7,440 27 $45,080,000 73 Nunavut 16,690 2,110 13 $13,825,000 82 Source: Statistics Canada, Cansim, Table 111-0039. RRSPs are much more costly than big pension plans. Most mutual funds have management expense ratios of between 2% and 3%, much higher than the CPP management cost of less than one-half of one per cent. There has been a marked drop in private pension plan coverage with employer plans now covering only 38% of the workforce, down from 46% in 1977. Recent studies have shown that the proportion of middle income earners who get less than 60% of their previous earnings in retirement is about 20 to 30%, and is set to rise significantly as pension coverage falls. This is a hugely important issue in the context of a rapidly ageing society. Over the next twenty-five years, the number of Canadians aged 65 and over will more than double (up 115%), and the number of seniors for every 100 persons in the workforce will also double, from 20 to 40. Seniors with very low incomes qualify for a public pension top-up through the Guaranteed Income Supplement. But the total amount falls short of raising them to a decent standard of living. The maximum amount of OAS plus GIS is only $1,169 for a single person, or $14,034 per year. That is why the CLC has called for a 15% increase in the GIS to lift all seniors out of low income. Provincial governments are responsible for providing a very wide range of services to seniors, including health care provided by physicians and hospitals, and long-term and home care. Most provinces provide drugs to seniors at low cost, and most provide income assistance to lower income seniors to supplement CPP and OAS/GIS. The pressures on provincial budgets arising from population ageing would be significantly reduced if future seniors had better pensions than they will receive under current arrangements.
An Ageing Population Between 2010 and 2036, the number of persons aged 65 and over in Newfoundland and Labrador will double to 156,000, and the number of seniors for every 100 persons of working age (ages 15 to 65) will rise from 21.9 to 58.1. (See Table 2 on Population Projections.) Employer Pension Coverage In 2005, 51% of workers in Newfoundland and Labrador were covered by an employer pension plan, well above the national average of 38%. However, coverage has fallen from 54% in 1997. The median income of senior families from private pensions, investments, and work was just $10,400, and much less for singles. Table 2 Population Projections 65+ (2010 and 2036) Persons Aged 65 and Over (000 s) Increase Dependency Ratio 65 and over as % of working age population 2010 2036 2010 2036 Canada 4,823.0 10,378.1 115.2% 20.4 39.1 Newfoundland and Labrador 77.8 155.8 100.3% 21.9 58.1 Prince Edward Island 22.1 45.1 104.1% 23.0 47.7 Nova Scotia 151.5 291.8 92.6% 23.3 52.1 New Brunswick 119.6 234.7 96.2% 23.1 54.1 Ontario 1,835.8 4,040.8 120.1% 20.0 37.9 Manitoba 171.5 326.5 90.4% 20.7 35.5 Saskatchewan 153.2 272.1 77.6% 22.4 40.7 Alberta 399.9 1,122.0 180.6% 14.9 31.4 British Columbia 675.3 1,496.3 121.6% 21.4 40.3 Yukon 2.9 10.1 248.3% 11.6 41.5 NWT 2.4 9.7 304.2% 7.7 30.5 Nunavut 1.1 4.5 309.1% 5.0 19.0 Source: Statistics Canada Cat. 91-520 X. Population Projections. Table 14 (M4 Scenario.)
RETIREMENT N SECURITY U Y for veryone CPP and OAS Benefits As shown in Table 3, the average CPP retirement benefit in Newfoundland and Labrador today is just $405.97 per month, well below the national average. Even so, the total amount of retirement and survivors benefits paid amounts to $521 million. Another $692 million are paid in OAS/GIS/Allowance benefits. 59% of Newfoundland and Labrador OAS recipients have low enough incomes to qualify for at least some GIS benefit, well above the national average of 35%. Table 3 Canada Pension Plan / Old Age Security Canada Pension Plan Benefits Canada Newfoundland and Labrador Retirement Benefits paid in 2009-2010 $22,197,518,900 $422,667,200 Survivor s Benefits paid in 2009-2010 $3,876,260,000 $98,414,000 Total $26,073,778,900 $521,081,200 Number of Beneficiaries Retirement Benefits 3,822,133 90,560 Survivor s Benefits 1,031,614 25,905 Total 4,853,747 116,465 Average Monthly Benefit Paid $501.97 $405.97 Average Survivor s Benefit Paid $313.54 $314.91 OAS/GIS Benefits OAS Benefits paid $27,149,101,148 $468,615,179 GIS Benefits paid $7,707,743,980 $197,220,357 Allowance paid $523,373,620 $26,064,470 Total $35,380,218,748 $691,900,006 Number of OAS Recipients 4,726,583 77,844 Number of GIS Recipients 1,645,888 46,021 % of OAS receiving GIS 34.82% 59.12% Source: HRSDC CPP/OAS Statistical Bulletin, June 2010. Tables 2, 3, 8, 27, 31. Data for CPP do not include QPP but Quebec is included in Canada s OAS total.
The CLC CPP Proposal and Newfoundland and Labrador Table 4, CPP Retirement Benefits by Province and Territory, estimates the impact of the CLC proposal for each province in 2036, when the new system would be at the halfway point of full implementation. The average CPP retirement benefit is estimated to increase by $3,165 per year, from $5,554 per year to $10,781 per year. The total amount in CPP retirement benefits paid to Newfoundland and Labrador residents is estimated to increase by $574 million per year, from just over $1 billion to $1.6 billion. Table 4 CPP Retirement Benefits by Province and Territory Status Quo vs Calculation does not include increase in survivor benefits Number of CPP Recipients in 2036 Average Benefit Status Quo Annual Benefits Status Quo Canada 8,225,230 $6,867 $56,482,654,410 Newfoundland and Labrador 181,392 $5,554 $1,007,451,168 Prince Edward Island 52,470 $6,007 $315,187,290 Nova Scotia 313,609 $6,533 $2,048,807,597 New Brunswick 258,660 $6,093 $1,576,015,380 Ontario 4,010,209 $7,270 $29,154,219,430 Manitoba 348,600 $6,707 $2,338,060,200 Saskatchewan 283,316 $6,528 $1,849,486,848 Alberta 1,144,789 $6,995 $8,007,799,055 British Columbia 1,509,289 $6,890 $10,399,001,210 Yukon 12,235 $7,171 $87,737,185 NWT 10,408 $6,355 $66,142,840 Nunavut 4,287 $5,130 $21,992,310 Number of Recipients assumes the provincial increase is in proportion to the increase in the proportion of the population aged 65 and over, 2010 to 2036. Note: Benefits can be drawn from age 60. At the national level, this calculation yields a total in line with that in Table 5 of the 2006 CPP Actuarial Report. Note: Canada total does not include QPP. The Average Status Quo benefit is in today s dollars and assumes a 14% real increase to 2036 based on the national projection in Tables 4 and 8 of the 2006 CPP Actuarial Report. The Average Benefit under the CLC plan assumes implementation of a doubled benefit rate has been 50% implemented by 2036, and incorporates the same increase in real benefits as the Status Quo benefit.
RETIREMENT N SECURITY U Y for veryone CLC Plan at Mid-Implementation Average Benefit Annual Benefits Increase in Average Benefit Increase in Total Provincial Benefits CLC Plan CLC Plan CLC Plan CLC Plan $10,781 $88,677,767,424 $3,914 $32,195,113,014 $8,720 $1,581,698,334 $3,166 $574,247,166 $9,431 $494,844,045 $3,424 $179,656,755 $10,257 $3,216,627,927 $3,724 $1,167,820,330 $9,566 $2,474,344,147 $3,473 $898,328,767 $11,414 $45,772,124,505 $4,144 $16,617,905,075 $10,530 $3,670,754,514 $3,823 $1,332,694,314 $10,249 $2,903,694,351 $3,721 $1,054,207,503 $10,982 $12,572,244,516 $3,987 $4,564,445,461 $10,817 $16,326,431,900 $3,927 $5,927,430,690 $11,258 $137,747,380 $4,087 $50,010,195 $9,977 $103,844,259 $3,622 $37,701,419 $8,054 $34,527,927 $2,924 $12,535,617
RETIREMENT R N SECURITY R Y for veryone National Headquarters 2841 Riverside Drive Ottawa, ON K1V 8X7 Telephone: 613-521-3400 Fax: 613-521-4655 Join the campaign. Invite your friends. Let s get the job done! www.facebook.com/pages/ Retirement-Security-For-Everyone Atlantic Region 2282 Mountain Road Moncton, NB E1G 1B4 Telephone: 506-858-9350 atlantic@clc-ctc.ca Ontario Region 15 Gervais Drive, Suite 305 Toronto, ON M3C 1Y8 Telephone: 416-441-3710 ontario@clc-ctc.ca Prairie Region 1888 Angus Street Regina, SK S4T 1Z4 Telephone: 306-525-6137 prairie@clc-ctc.ca Pacific Region #201-5118 Joyce Street Vancouver, BC V5R 4H1 Telephone: 604-430-6766 pacific@clc-ctc.ca Québec Fédération des travailleurs et travailleuses du Québec 565, boulevard Crémazie Est, bureau 12100 Montréal, QC H2M 2W3 Telehone: 514-383-8000 ftq@ftq.qc.ca canadianlabour.ca