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Agreement in principle for CPP expansion

Image: www.nupge.ca

Image: www.nupge.ca

On June 20, 2016, the federal government Finance Minister reached an agreement in principle with most of the provincial and territorial Finance Ministers to strengthen the Canada Pension Plan (CPP) for future generations of Canadians.

The CPP is run jointly by both levels of government and changes require the support of seven of 10 provinces representing two-thirds of the Canadian population.

The agreement in principle includes British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador. Quebec and Manitoba did not sign the agreement but will remain part of the discussion going forwards.

Canada’s Finance Ministers (except Quebec and Manitoba) have agreed in principle to work on a CPP enhancement starting January 1, 2019 and phased in over seven years until 2025, that would:

  • increase income replacement from one quarter to one third of pensionable earnings—this means that, at maturity, 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 they would currently receive, or $4,000 more per year; and
  • increase the maximum amount of income subject to CPP by 14 percent, which is projected to be equal to roughly $82,700 in 2025.

To ensure that these changes are affordable for businesses and Canadians, they are taking three measures:

  • introducing a long and gradual phase-in starting on January 1, 2019 that will allow more time for businesses to adjust;
  • enhancing the federal Working Income Tax Benefit as a means of offsetting the impact of increased contributions on low-income workers; and
  • providing a tax deduction—instead of a tax credit—for employee contributions associated with the enhanced portion of CPP in order to avoid increasing the after-tax cost of saving for Canadians.”

Moreover, this agreement will require workers and their employers to pay higher contributions. The CPP will now replace 33 percent of earnings at the time of retirement instead of 25 percent of earnings.

An example of how the incremental enhancement would impact the take-home pay of an individual earning $54,900 per year is outlined here.

Quebec finance minister further stated that they are looking into their own expansion of the QPP but not in the same vain as what is intended for the CPP, which in his opinion goes too far and is very costly.

Manitoba Finance Minister Cameron Friesen did not speak to reporters after the meeting. A spokesperson said the minister will address the media Tuesday June 21, 2016 at the Manitoba legislature after he has the chance to brief cabinet on the issue.

The proposed enhancement will now be considered by the respective jurisdictions and, if approved, formalized no later than July 15, 2016.

Canadian Finance Minister Bill Morneau and Ontario Finance Minister Charles Sousa issued the following joint statement following the Finance Minister’s Meeting in Vancouver on June 20, 2016:

The Government of Canada and the Government of Ontario agree that the agreement in principle to enhance the Canada Pension Plan must be approved by all signatories no later than July 15, 2016.”

Not everybody is happy about the CPP expansion.

Perrin Beatty, president and chief executive of the Canadian Chamber of Commerce said in a news release that, “The announced agreement to expand the CPP will basically be a form of payroll tax which, when it is in full force, will put further financial strain on Canada’s already struggling businesses and on the middle class.”

The Canadian Federation of Independent Business said the proposed CPP expansion is “a devastating move for Canadian workers and the economy in general.”

It is tremendously disappointing to see that finance ministers are putting Canadian wages, hours and jobs in jeopardy and willfully moving to make an already shaky economy even worse,” CFIB president Dan Kelly said.

So what happens with the ORPP?

Ontario Finance Minister Charles Sousa says that if the national deal goes ahead, his province will not go forward with its proposed Ontario Retirement Pension Plan.

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Yosie Saint-Cyr

Managing Editor at First Reference Inc.
Yosie Saint-Cyr, LL.B., is a trained lawyer called to the Quebec bar in 1988 and is still a member in good standing. She practiced business, employment and labour law until 1999. For over 15 years, Yosie has been the Managing Editor of the following publications, Human Resources Advisor, Human Resources PolicyPro, HRinfodesk and Accessibility Standards PolicyPro from First Reference. Yosie is one of Canada’s best known and most respected HR authors, with an extensive background in employment and labour across the country. Read more
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