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Federal, provincial and territorial Ministers of Finance, as joint stewards of the Canada Pension Plan (CPP), today announced the results of the program's triennial review at the close of their annual spring meetings at Meech Lake.
The review confirms that the CPP, a key pillar of Canada's retirement income system, remains on a sound financial footing. "The CPP is well positioned to weather the current market turbulence," said the Honourable Jim Flaherty, Minister of Finance. "Canadians can count on an affordable CPP today and for the future."
The CPP provides over 3.6 million retired Canadians with benefits of up to $909 per month. During their meeting, Finance Ministers agreed that the contribution rate would remain unchanged at 9.9% of pensionable earnings.
While the financial market downturn has affected the Plan's assets, income from these investments will not be needed to pay benefits for at least another decade, according to the Chief Actuary of the Plan.
Ministers also agreed to propose a number of changes to the Plan to better reflect the way Canadians live, work and retire. A modern public pension plan should treat workers fairly regardless of the age at which they take their retirement pension or how they choose to retire,
the Finance Ministers concluded. It should also recognize the need for some flexibility during contributors' working years.
Proposals to modernize the Plan in these respects will begin in 2011 and be phased in gradually. In particular, it is proposed that the CPP provide greater flexibility for those taking up the retirement benefit before the age of 65 to enable them to combine pension and work. The current requirement that they must either stop work or significantly reduce their earnings to receive their CPP retirement benefit will be removed. Those who choose to work while receiving the benefit will participate in the CPP and increase their pension. Their employers will also be required to participate. Participation will be voluntary for those over the age of 65. The proposed changes to CPP participation will apply to new and existing CPP pensioners.
This is an appropriate step towards helping Canadians increase their pensions,
said Minister Flaherty. It will also better integrate the CPP with the changes made by this Government in 2007 to allow for phased retirement in employer sponsored pension plans.
To improve equity in the Plan's flexible retirement provisions, the adjustments made to CPP pensions that are taken before and after age 65 will be gradually returned to their fair values beginning in 2011. These adjustments have been unchanged since 1987 despite significant shifts in the factors that affect their level. The proposed changes will be gradually phased in over a number of years and will affect only new CPP pensioners.
The current economic downturn is a reminder that work interruptions occur for a variety of reasons, including involuntary job losses, and that time out of the labour force can lower the amount of one's CPP pension. To provide greater flexibility to Canadians, an enhancement in the pension formula to exclude up to an additional year of low earnings is also being proposed by Finance Ministers.
Together, these changes will improve flexibility for working Canadians, enhance pension coverage, and improve equity in the CPP.
A number of technical changes are also proposed to the CPP. These changes include additional reporting by the Chief Actuary, clarification of provisions relating to late applicants for the CPP disability benefit, and the extension of refund and contribution election rules following income and contribution reassessments.
The successful completion of the CPP triennial review and agreement by all Finance Ministers on these important changes underline the successful collaborative management that has been the hallmark of this key area of joint federal, provincial and territorial jurisdiction,
added Minister Flaherty. The measures proposed today will ensure that the CPP continues to address the needs of Canadians, while remaining affordable and fair for future generations.
A joint federal-provincial-territorial information paper will be posted on the Department of Finance Canada website. The paper outlines the proposed changes in greater detail and how they will affect Canadians.
For further information, media may contact:
Chisholm Pothier
Press Secretary
Office of the Minister of Finance
613-996-7861
Jack Aubry
Media Relations
Department of Finance
613-996-8080
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