Thank you very much, Chairman.
Good afternoon to all committee members.
As noted, my name is Glenn Purves, General Director of the Federal-Provincial Relations and Social Policy Franch at Finance Canada. I'm joined today by officials from Finance Canada, Employment and Social Development Canada, and the Canada Revenue Agency, as well as from the office of the chief actuary.
Today we're pleased to answer your questions on Bill C-26 or any questions that you may have on the Canada Pension Plan enhancement. I brought copies of the backgrounder that was posted on the Finance Canada website for those of you who want a copy. In addition, I believe our parliamentary secretary circulated for your benefit an additional supplementary document that just gives context on the contribution rate and on the earnings replacement. I was going to suggest just walking through that at the end of my opening remarks so we can position ourselves appropriately on that.
The Canada Pension Plan is a complex program involving three ministers and departments. To situate you, Finance Canada is responsible for leading discussions with provincial officials on possible changes to benefits and contributions. In addition, my department is responsible for the development of policy and legislation on the Canada Pension Plan Investment Board and the Income Tax Act. The Canada Revenue Agency is responsible for the collection and administration of contributions, while Employment and Social Development Canada has significant responsibility for the calculation and payment of benefits to Canadians and for the overall administration of the plan.
You'll also be hearing from the Office of the Superintendent of Financial Institutions, from my colleague Monsieur Montambeault. Their officials provide expert actuarial projections on the financial position of the plan. These projections are most recently contained in the 28th actuarial report tabled in Parliament on October 28, 2016.
I'd like to provide you with a quick walk-through of Bill C-26. The bill proposes amendments to the Canada Pension Plan, the Canada Pension Plan Investment Board Act, and the Income Tax Act consistent with the agreement reached by Canada's ministers of finance on June 20, 2016, to enhance the Canada Pension Plan.
The bill consists of two parts. Part 1 amends the Canada Pension Plan, notably: to increase the amounts of the retirement pensions from one quarter to one third of pensionable earnings, as well as the survivors' and disability pensions and the post-retirement benefits, subject to the amount of additional contributions made and the number of years over which those contributions are made; to increase the maximum level of pensionable earnings by 14%; and to provide for the making of additional contributions, beginning in 2019 and phased in gradually over seven years.
The focus of the enhancement is very much on income replacement. To this extent, it resembles very much a registered pension plan that you would see in the workplace.
Part 1 also amends the Canada Pension Plan Investment Board Act to provide for the transfer of funds between the investment board and a newly created government account for the additional contributions, and to provide for the preparation of financial statements in relation to amounts managed by the investment board involving the additional contributions and increased benefits.
Part 2 makes related amendments to the Income Tax Act to increase the working income tax benefit in an effort to offset the incremental CPP contributions for eligible low-income workers and to provide a deduction for additional employee contributions so that Canadians are not subject to higher costs associated with the after-tax savings plan.
With that, I'll just walk everyone briefly through this backgrounder that has been circulated. This is the document that has the red and the blue attached in it just so everyone is on the same page.
Let's talk about this in steps. The first step I'm going to walk through is the red and then I'll follow with the blue. In step one, just to configure everyone, figure 1 talks about the contribution rate. Figure 2 talks about the earnings replacement. Contribution rate is the amount that's paid in terms of contributing to the CPP, and the earnings replacement is the amount that is received on the income replacement side. In step one, the first additional contribution rate and the first additional replacement rate would gradually be phased in over the base or existing CPP earnings range from the year 2019 to the year 2023. This is the red. This is the phase that goes from 2019 to 2023 for both the contribution rate and the replacement rate.