Finance Committee on Sept. 19th, 2016

[The Chair, Liberal, Wayne Easter]

I call the meeting to order.

Welcome, Minister and deputy.

Pursuant to Standing Order 108(2), we're doing a study on the Canada Pension Plan agreement. The minister and deputy will be on for the first hour, and then Department of Finance officials will be here for the next hour.

Minister, the floor is yours. Welcome, and thank you for coming.

[Bill Morneau, Liberal, Minister of Finance]

Thank you very much.

Thank you, Mr. Chair and members of the committee.

I'm pleased to be here to talk to you about our historic agreement to strengthen Canada's pension plan. This agreement that will not only help Canadians save more for retirement, but will grow the economy.

As my colleagues will know, ensuring retirement security was a key part of the fundamental promise we made Canadians a year ago. A promise to help the middle class and those working hard to join it.

A year ago we committed to help Canadians reach their dream of a secure retirement. Not only did we keep that promise, but I couldn't be more proud of the way in which we did it. When my finance minister colleagues and I first started these talks last December, I felt that we had a real opportunity to seize on a renewed spirit of collaboration to get things done. This is, after all, one of the reasons I chose public life.

As we met for the first time, just up the street from here at the finance building, there were different views around the table, to be sure, but there was an undeniable feeling that everyone came to the table with the best interests of the people we serve at heart. It was that spirit of collaboration that won the day in Vancouver this past June. I'd like to think it was federalism at its best.

Of course, the House had risen for the summer when we concluded that deal, so it gives me great pleasure today to be here, on the very first day we're back together, to tell you more about our plan to strengthen the Canada Pension Plan and to answer any questions you might have. The officials here today have agreed to stay an extra hour to walk through any details you might want to talk about. I appreciate their work and their detailed analysis, which has guided us throughout this entire process.

Part of that analysis was first answering what we saw as a critically important question: do we need a stronger Canada Pension Plan? In our view, the answer is unequivocally yes, and here's why.

We know that middle-class Canadians are working harder than ever, and many are worried that they won't have enough set aside for their eventual retirement. That feeling was palpable as we all knocked on doors, held town halls, and talked to people as part of our work.

We also know that young Canadians in particular are facing the challenge of securing adequate retirement savings at a time when fewer can expect to work in jobs that will include a workplace pension plan. In my former line of work, I talked to students who invariably didn't place much importance on a solid pension plan when they were looking for their first job. It's either not on their radar screen or it's no longer a reasonable expectation that they hold, but I can tell you that this perception changes over time. That's why achieving a safe, secure, and dignified retirement is without a doubt among the most significant long-term goals for hard-working Canadians.

Our analysis shows that one-quarter of families nearing retirement—1.1 million Canadian families—currently face a drop in their standard of living when they retire.

It's no wonder Canadians want a stronger Canada Pension Plan. An independent, self-commissioned poll by the Angus Reid Institute in June found that three-quarters of Canadians support an expansion of the Canada Pension Plan, so we as a government have set out to help hard-working Canadians. Helping them achieve a secure retirement is one of our very highest priorities.

That's why. Now I'd like to tell you a little bit about how we intend on doing this.

The agreed-upon Canada Pension Plan enhancement will not only mean more money for Canadians when they retire; it will also mean a stronger economy and more middle-class jobs. To fund these enhanced benefits, annual CPP contributions will increase modestly over seven years, starting in 2019.

To fund these enhanced benefits, annual CPP contributions will increase modestly over seven years, starting in 2019. For most, it will represent about a 1 percentage point increase in contributions, and these will be phased-in gradually.

For example, someone who makes about $55,000 a year will contribute about an additional $6 a month in 2019.

By the end of the phase-in period, contributions for this person would be about an additional $43 per month—roughly $20 per paycheque. This small increase in contributions would provide a significant increase in retirement income. Under the enhancement, this worker would receive about $17,500 a year in CPP retirement benefits, about $4,400 more than under the status quo.

Our government is ensuring as smooth a transition as possible by providing tax deductibility for new employee contributions, meaning that tax savings to Canadians from the enhanced CPP will total $710 million. We are also providing more help for low-income workers through the Working Income Tax Benefit (WITB), an investment of $260 million. Taken together, these measures will account for $970 million in federal fiscal support in 2021-22.

This fiscal support will be partially offset over the long term by an increase in tax revenue due to increased Canada Pension Plan benefits, but the real impact of a stronger Canada Pension Plan will be felt over the long term. That's because Canadian retirees will have more money to spend on their needs, such as healthy food, transportation, and housing, which will lead to greater confidence and more jobs, and will create the conditions for overall economic growth in Canada.

As you may know, once fully in place, the CPP enhancement will increase the maximum Canada Pension Plan retirement benefit by about 50%. The current maximum benefit is $13,110. In 2016 terms, the enhanced CPP represents an increase of nearly $7,000, to a maximum benefit of nearly $20,000. Young Canadians who are just entering the workforce and who are facing the greatest challenge going forward will see the largest increase in benefits.

Here's how it'll work.

Right now, the CPP replaces only a quarter of Canadians' average annual earnings upon retirement. That means if you're, say, a welder making $55,000 or $50,000 per year over your working life, you'll get a quarter of that per year over your retirement, or, in the case of that $50,000-a-year worker, about $12,000. There's also currently a limit of about $55,000 at which this quarter share maxes out. If you make more than $55,000 a year, you'll still get only a quarter of $55,000.

The enhancement that Canada's governments have agreed to does two things that will see Canadians receive more through the CPP in retirement.

First, it will increase the share of your annual earnings that you'll get in retirement from one-quarter to one-third. If you're like our welder friend making $50,000 a year over your working life, you'll receive about $16,000 per year in retirement instead of today's $12,000.

Second, it will increase the point at which this new one-third replacement rate maxes out by about 14%, which is projected to be equal to $82,700 in 2025. If you are, say, a commercial pilot making $80,000 per year over your working life, in retirement you'll get a third of that per year from the CPP. This means that you'll get 50% more benefits from the CPP in your pocket every year for the rest of your life.

It means for Canadians more time with their grandkids and less time worrying about the rent. It means buying healthier food, getting out more, or maybe joining a gym. It means more jobs and economic activity all around us, and we think that's a good thing.

Before I take your questions, I want to tell you a bit more about what I want to accomplish as finance minister. When I look at Canada's future, I see promise, I see opportunity, and I see growth, but when I look around me, I see too many Canadians who are worried and are struggling to make ends meet.

I mentioned earlier that 1.1 million families approaching retirement can't be sure that they can retire in dignity. It's clear from this statistic alone that creating economic growth won't be enough if it's concentrated in the hands of a few. That's now commonly understood around the world, not least around the G20 table where I was just a little while ago. In many respects, our government was ahead of the curve.

In our first year we cut taxes for 9 million Canadians, introduced the Canada Child Benefit, increased student grants, and increased monthly payments for the most vulnerable seniors.

We've also begun making unprecedented investments to strengthen the heart of the Canadian economy; investments that will help the middle class grow and prosper today, while delivering economic growth for years to come.

The agreement-in-principle we struck with the provinces is part of this broader goal.

I'm personally very proud of this agreement, and I'm grateful that my provincial colleagues and so many of us across all parties share this view. We're investing in a brighter future for our children and our grandchildren.

I'd like to thank you for your time today.

Thank you for your attention.

I'd be happy to answer any questions that might come from the floor, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Mr. Minister.

We will go to five-minute rounds rather than the normal seven-minute rounds. That way we can get everybody on, as everybody would love the opportunity to ask a question.

Mr. MacKinnon, you are first.

[Steven MacKinnon, Liberal, Gatineau, QC]

Thank you, Mr. Chair.

Thank you for your presentation, Mr. Minister.

On behalf of my colleagues on this side of the table, I would like first to congratulate you for bringing all the provinces together to reach a national agreement which, if I understand correctly, includes improvements for Quebec. Those improvements should be announced within a few months. This national announcement will ensure that the lack of savings and the reduction in the registered plan and pensions will be offset by the enhancement of the Canada Pension Plan.

Can you please tell us how, together with your provincial and territorial colleagues, you were able to strike deal in such a short time?

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you very much for your question.

As you know, retirement has been a matter of concern for several years now in Canada. It was difficult to decide how to improve the situation for Canadians. We know that company pension plans are not as common as in the past. That is one of the reasons we began our campaign over a year ago. We wanted to tell Canadians that the Canada Pension Plan had to be improved.

In December, I began discussions with my provincial colleagues in order to determine how we could improve things. We had good, open discussions. Everyone agreed that we have to find a way to improve the situation.

After a few months and some important analysis by our department and the provinces, we concluded that we had to find a way forward. With the provinces, we decided that a significant increase would be needed in the future, but that the changes had to be made gradually. That was important to us and of course to the provinces. We had to make sure that the change would not be too radical for small and medium-sized enterprises, that it was implemented gradually, and that it would benefit people in the future.

It wasn't easy, but it is an important issue and I am pleased that we have found a way forward.

[Steven MacKinnon, Liberal, Gatineau, QC]

I expect that my colleagues on the other side of the table will object loudly, pointing to the tax increase. We must remember though that, if we had pursued that line of thinking, the Canada Pension Plan would never have been created in the 1960s. The same can be said about the 1990s, when former Prime Minister Paul Martin, one of your predecessors, decided to strengthen the Canada Pension Plan.

I was relieved and even pleasantly surprised to see that the very short-term impact on jobs and growth was negligible and that the medium and long-term impact would be positive and beneficial.

Can you comment on those impacts? As you did during your presentation, can you tell us about the medium and long-term economic impact of these new measures on jobs and growth?

[Bill Morneau, Liberal, Toronto Centre, ON]

Yes, of course. That is very important.

We know that when a retirement system is not favourable for the vast majority of Canadians, confidence in the future is not high enough. Families and Canadians who do not have enough money to retire in dignity certainly do not have a degree of security that is beneficial to the economy. Confidence in the future must be high enough to foster a strong economy.

For the long term, we know that we need a good retirement system and that people have to be confident. We are very proud to have found a path that will be good for the economy and at the same time help families improve their financial situation.

So I have a great deal of confidence that our economy will grow and create good jobs. At the same time, we can improve our pension plan to help people retire in dignity.

[The Chair, Liberal, Wayne Easter]

Thank you, Mr. MacKinnon and Mr. Minister.

Ms. Raitt is next.

[Lisa Raitt, Conservative, Milton, ON]

Thank you very much for coming today. I appreciate it.

As you can probably guess, I'm going to ask you some questions about the book you wrote in 2012 called The Real Retirement, because it became a touchstone in terms of understanding what we face in the future regarding retirement for Canadians. I would submit to you, Minister, that there is a big difference between what you wrote in 2012 and what you're telling us here today.

You gave us four reasons for why it was necessary to make these changes to the CPP. One of them is that there's a feeling in the country that people haven't set aside enough money and that young people are not saving. You also said that one-quarter of Canadians face a significant drop in their lifestyle, according to an Angus Reid poll.

I want to start with the Angus Reid poll, Mr. Minister, just to point out that about their polling results, Angus Reid indicated that “the general public seems not to be paying close attention to the process. Fully one-in-three...say they 'haven't seen or heard anything' about CPP expansion”. This was around the time when you said that was the motivation and, again, why you thought you had the approval of the Canadian public to do this. They go on to say that “roughly the same number (35%) report that they're following news coverage or chatting with friends about it.” This is what Angus Reid said about those numbers: “This latter total is significantly lower than most issues about which ARI asks this question.”

Therefore clearly, Minister, the reality is that Canadians certainly didn't understand what you were proposing as motivation for the changes to CPP.

Minister, you said a couple of things in The Real Retirement when you were asked about the Ontario Liberal Party suggestion to expand CPP. Your quote was “we would be putting too many eggs in one basket”. You commended the former Harper government for increasing and putting in place the TFSA. You said, on retirement age, that if we were to retire three years later than we do now, “any concerns about having adequate retirement income would practically vanish.”You said, “It would also alleviate any shortages in the workforce due to the aging population.” Finally, you also indicated as well, Minister, in your book, that “the Dickensian image of poverty is virtually non-existent in Canada today.”

Minister, if your feeling in 2012 and your expert advice in 2012-13 were that people will have enough to set aside, that TFSAs are a good way for young people to save, that the Angus Reid Institute actually doesn't say what you contend, that the Canadian population does believe this is a good thing—because, frankly, they don't know about it—and, finally, that one-quarter of Canadian families face a significant drop in lifestyle, then I would say that when you already said concerns about having retirement income would practically vanish if we were to retire three years earlier, why did you roll back the amount we can put into our TFSAs? Why did you change the retirement age? Why did you do CPP expansion when it's completely counterintuitive to everything you wrote as the plan for us to be able to be self-sufficient and indeed prosperous going into the future?

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you. That was a long question.

[Lisa Raitt, Conservative, Milton, ON]

Yes. I expected a long answer, Minister, to be honest, so I thought I'd get it all in.

[Bill Morneau, Liberal, Toronto Centre, ON]

First of all, I owe you a note of thanks. I think you were part of the team that decided we should be talking about this today, and I want to say on this very first day back in the House this fall that I couldn't be happier than to be talking about how we are expanding the Canada Pension Plan for Canadians.

We made a promise to Canadians that we would work to enhance the Canada Pension Plan. We made a promise to Canadians that we would work in collaboration with the provinces to come to a solution that could make a real and measurable difference in their lives over the long term so that we could help them to retire in dignity, and we were very pleased to be able to work together with the provinces to get to an answer that, over the long term, could really do something that we know needs to be done.

I'll take you back to some of the key issues and challenges here. A significant number of Canadians, 1.1 million Canadian families, are not saving enough right now to have the same level of income or the same standard of living when they retire as they have today. This is just a challenge that we face as a nation. We know the system we put in place over the last two generations, in which workplace pensions would help many Canadians, is no longer functioning in the way that it has historically. More and more organizations are winding up defined benefit plans and fewer and fewer Canadians are actually in those programs, so there is a real challenge facing Canadian families. We know that the way to solve this is to figure out how we can enhance the Canada Pension Plan, the most effective savings vehicle that Canadians can have, in a way that would not only help the economy over the long term but also ensure that people have a way to save that puts them in a much stronger position.

The agreement we have come to will actually be an improvement for one-quarter of those Canadians who are facing that challenging situation, and it will do so in a way that will enable the economy to grow and enable us to create jobs along the way. We believe it is absolutely one of the key cornerstones of what we have done so far in our work for Canadians, and we are very proud to be moving forward this fall in putting it into legislation.

[Lisa Raitt, Conservative, Milton, ON]

Thank you, Minister.

[The Chair, Liberal, Wayne Easter]

Thank you.

Sorry; between you both, you ran the clock out of time.

Mr. Duvall is next.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you very much.

Thank you, Mr. Minister, for coming today. I really appreciate it and the update you gave us.

There are many concerns across Canada on how this plan will be implemented going into the future. We've heard a lot of rumours, but now you're here today to try to put some of those rumours to bed.

As you know, seven out of 10 working Canadians have no workplace pension. We see the value of doing something for an enhancement, especially with the Canada Pension Plan, but when I look at what is being proposed here, it certainly does not go far enough, and I'll tell you why: under this plan, you would have to begin at the age of about 16 years to get the maximum benefits when you retire. Not until 2025 will you be fully due it, so you'd have to work about 40 years to get the maximum benefit.

The problem with the maximum benefit is that we're talking about maximum costs and income, but many people on average do not get the maximum benefit even now. People are getting an average of about $684. We keep talking about $16,000 when that's not even close to it. The reason is that many factories have closed down, pensions have wound up, and layoffs have occurred. People have nothing else to go to but precarious jobs or part-time jobs, which pay little and require premiums to get any kind of maximum benefit.

My question to you is this. This may be a great thing for our grandchildren and our children who are starting out to work, but we need to know what will happen to the people who are near retirement now and will face those problems. Where's the benefit for them, and how will this increase? In Hamilton it has hit us dearly, especially with the manufacturing jobs that have broken down and the number of jobs out there that are paying people a third to half their wage.

I've been listening to people out there, when I've gone door to door in Hamilton, and many of them think, with the way this has been promoted, that there's an increase coming for them under the Canada Pension Plan. They're already retired. I'm not sure where the information on that is coming from. How are we going to do that? We need a clear breakdown from the government on who will benefit the most, who will benefit the least, how these changes will interact with other programs, and how we will strengthen workplace pension plans.

Perhaps you could start from there.

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you.

I think it's important to address the challenges you're presenting. It's certainly the case that many Canadians are finding themselves in challenging situations, both during the course of their working lives and as they face the prospect of retirement.

Our approach has been, first and foremost, to work to improve the situation of middle-class Canadians and those trying to get into the middle class by taking some really important first steps. Reducing taxes for nine million middle-class Canadians we see as an important step in putting more money in people's pockets. The enhancement of the way we deal with child benefits helps many families—nine out of ten families with children—with the new Canada child benefit. We've taken some important steps during people's working lives.

We also recognize that there continue to be Canadians who are retired who are living in very difficult situations. While we've made progress over the last couple of generations in reducing the number of impoverished seniors, we still have people who are living in difficult situations. Our decision to increase the guaranteed income supplement, a top-up, helps hundreds of thousands of seniors living in difficult situations with up to $947 per year in additional funds. The decision to move the old age security age from 67 to where it had been, at 65, helps in particular those Canadians who are earning under the cut-off point at which OAS is clawed back, so it helps Canadians in more vulnerable situations.

With respect to the CPP enhancement, we recognize that this is something about the future. We are trying to ensure that our retirement system stays one of the most respected systems on the globe by ensuring that it remains fully funded. This enhancement that we've negotiated with the provinces will be fully funded. It will allow for no intergenerational transfers from one generation to the other by having the people who will get the benefit be the ones who put the money into it. Anybody who does put money into it will get some return from it, but as you correctly pointed out, the maximum return will be for those people who are in it for their entire career.

Our view is that we need to work on the short term by improving people's lives and on the longer term by making investments in the economy, investments in infrastructure, and investments in creating a more innovative and productive economy, and by trying to help people ensure that they save appropriately so they can have a secure and dignified retirement, which is what this is intended to do.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

Go ahead, Ms. O'Connell.

[Jennifer O'Connell, Liberal, Pickering—Uxbridge, ON]

Thank you, Mr. Chair.

Thank you, Minister, for being here today.

I want to continue with the line of questioning and the thought that we just finished on. I think we've all heard in our constituencies the stories of seniors choosing between medication or food, and how heartbreaking it is. You've already mentioned the GIS top-up. I see this as a vision towards the future, so that we don't get into a situation of future generations of seniors also needing a GIS top-up or getting into a situation in which they're struggling, because we're looking to the future and seeing where there are gaps and holes.

When I look at my own generation and my friends entering the workforce now and at what retirement means, I see you were right in your opening comments, in that we're not thinking about retirement. We're not thinking about that long-term planning. If you don't have an employer who is doing that for you with a pension plan, it's not top of mind. You and I both come from Ontario, where this was certainly a significant issue for the provincial election. Also, there's the issue of housing in certain regions. I look at future generations not having the same housing opportunities that maybe my parents had, for example.

Can you speak a bit in terms of how this works in Ontario, given that the provincial government attempted to work on a partnership with the former government? They decided to go it alone anyway because it was so critical in Ontario. With this new negotiation and collaboration with the provinces, what does this mean in Ontario in terms of their vision and what they want to do now by having a more national approach?

[Bill Morneau, Liberal, Toronto Centre, ON]

Thank you.

I think perhaps the best way to address your comments and questions is to give a sense of the consensus that we had in June when we got together with our provincial counterparts. We had clearly a number of provinces that had continued working on a potential Canada Pension Plan enhancement for a number of years. This is not a new discussion. Canadians have recognized for a long time that with the changing nature of work, with the increased longevity of all of us, which is positive, and with the lower interest rate environment we're in right now, retirement security is more at risk than it has been in previous generations.

Ontario, as one of those provinces, put forward an approach to deal with retirement security in Ontario, but they were very open to a national solution, as the other provinces were. Their view, as well as that of the other provinces around the table, and our view was that one of the strengths we have in Canada in our retirement system is that it's a national system. It's a system whereby employers are able to move people around the country without having to deal with different situations in different provinces but with a situation where there's a sense of the common good, which is finding a retirement system that can work for everyone.

It was in that spirit of consensus that we set out to come to an answer. Ontario had an approach that was different from what we came up with, but we were able to use their ideas and to bring forward ideas from other provinces. We had very helpful interventions from many provinces to get to an answer that we think is going to be positive for, as you say, the generation of Canadians that's coming next, and that is the generation of Canadians who are less likely to have a workforce pension plan, who are more likely to be living in a lower interest rate environment, and who are more likely to have a larger number of jobs with different retirement situations in those different jobs.

We feel that we've improved the situation for Canadians in the future. We are confident that the way we've done it, which is a very gradual introduction to the program, starting in 2019 and increasing it over a seven-year period, is an approach that will allow our economy to continue to be strong. We have a win-win. It will be better for people in the long run and it will allow our economy to be strong in the short and the medium term.

[The Chair, Liberal, Wayne Easter]

Thank you. You're out of time as well.

Mr. McColeman is next, and then Mr. Sorbara.

[Phil McColeman, Conservative, Brantford—Brant, ON]

I'm glad you referred to the name “Wynne”, because let me tell you about my Ontario perspective as a small business owner employing about 20 people for 25 years.

Over the business round tables that we held this summer, this was one of the most significant issues in their minds. At the Senate committee, Jack Mintz said that what really is happening now is that there's a movement afoot to try to kill off the Ontario retirement pension plan, the ORPP. Supporting that argument in, I suppose, a very different way, the premier herself came out after your meetings and stated unequivocally that she was the person who drove the agenda, she was the one everyone could thank, and she was the one who set the very aggressive timetable in terms of meeting deadlines that even the Province of British Columbia said are unrealistic.

A very different view has been given from the business side, Minister. Do you think you've done a good job of informing Canadians generally about the major impacts this will have? I notice that something that just came out from the ministry this morning says that this plan will have a very negative impact on business in the initial stages. Is that correct?

[Bill Morneau, Liberal, Toronto Centre, ON]

Thanks for your question. I think I'd like to start by saying that we had a very positive spirit around the table in June. We came to a conclusion that's historic. We collaborated—provinces and the federal government around the table—to get to a solution that's going to help hundreds of thousands of Canadians to retire in dignity.

We know that this is a very important issue for Canadians as they determine how they're going to set up their financial affairs during the course of their lives. It's a worry for so many people that they won't have the capability to retire in dignity, and I think we can be proud of the fact that we have improved the situation of those Canadians in the future.

[Phil McColeman, Conservative, Brantford—Brant, ON]

A recent Ipsos poll said that 40% of current seniors or people who are just about to go into retirement believe that they are going to be the recipients of some of these benefits. That's the kind of communication disconnect that's happened in this country. It's being portrayed as though these are CPP benefits and everyone is going to be benefiting, not just the people who are just starting in the workforce, who will be able to accumulate it through their lifetimes.

Again, I'm going to say that all the research Ontario did suggests that in this very sluggish economy we have currently, now is not the time to introduce something like this, because it's going to affect businesses, small businesses especially, which will have to decide whether they're going to be giving their employees increases, or will be able to give them increases, or in some cases will even have to let people go because of the increased benefits.

I know you say that the numbers are modest, but when you compare them to the child benefit program that your government instituted, which, you told the country, was one of the biggest things that could ever happen, they're half the numbers of what you say are modest increases to CPP.

[Bill Morneau, Liberal, Toronto Centre, ON]

Again, we are so proud of the fact that we were able to collaborate with provinces to get to an answer that's going to improve people's retirement incomes. We're also very cognizant of the fact that it's important to do this in a way that allows our economy to continue to thrive, and that is exactly why we put in an approach to this program that allows businesses and individuals to adjust over a period of time.

I'll remind you that it starts in 2019. In 2019, the amount that a company will be putting aside for an employee on a monthly basis is $6. We know that money is going into that employee's savings. We also know that it will end up giving that same employee $4,000 more in retirement income over the long run.

We believe this is the responsible thing for us to do. We know that the timing over nine years will entirely enable individuals and companies to adjust, and the outcome we'll get is hundreds of thousands of Canadians able to retire in dignity because they have a more secure situation than they had previously.

[The Chair, Liberal, Wayne Easter]

Thanks to both of you.

Go ahead, Mr. Sorbara.