Finance Committee on Nov. 14th, 2016

[Claude Lavoie]

Yes.

[The Chair, Liberal, Wayne Easter]

Just send them to the clerk, Mr. Lavoie.

Yes, Mr. Purves.

[Glenn Purves]

Thank you, Chair.

Perhaps I could refer to one of the questions raised that had to do with the annual contributions. If you look at page 16 of the backgrounder, table 4 talks about year-over-year increases in annual contributions. Only in a very rare instance does it reach $1,000. In most cases it's less than $1,000. Table 2 has it as well.

[The Chair, Liberal, Wayne Easter]

Thank you very much. That's a good clarification, Mr. Purves.

Mr. Duvall.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you, Mr. Chair.

Thank you, everybody, for coming today and answering these questions.

The CPP benefits that a person receives are based on an average of what earnings there have been from the time the person is 18 until they retire. To accommodate the periods when a person might have some hiccups—low earnings, or zero earnings—during those years, the plan allows for the lowest eight years of earnings to be dropped out from the calculation. This exemption is referred to as a drop-out.

There are also two other items we have besides the basic exemption that specifically are called drop-outs. One is for disability, and one is for child-rearing. If the person decides to stay home to raise their child, they won't be penalized for during that during their life.

That's in the base plan. When I look in the enhanced plan, I don't see that in there. Is there a reason that's not in there, or did I miss something?

[Marianna Giordano, Director, CPP Policy and Legislation, Income Security and Social Development Branch, Department of Employment and Social Development]

I'll answer this one.

You're correct that the drop-outs still remain in the base plan. With respect to the general drop-out, I can say that it is built into the structure being enhanced, so it's still there. Today, you have a base plan in which your contributions start at age 18 and end at age 65. You're talking about 47 years. You have a general drop-out of 17%, which drops out eight years, so that brings you to your best 39 years. The enhancement doesn't have that drop-out per se, but it takes your best 40 years. It's very similar to the general drop-out that is put in. There's also a plus-65 drop-out. You take in the base plan your contributions above age 65, and you replace your lower earnings prior to 65. That is also built in, because, again, you take your best 40 years.

With respect to the child-rearing and disability drop-outs, they will remain in the base plan and they will still protect individuals for eligibility purposes and continue to enhance their benefit.

With respect to the enhanced portion of the plan, these are not duplicated in the enhanced portion of the plan, as this plan is closely linked to the individual's contributions. As Glenn mentioned before, it's very similar to a workplace pension plan. It aligns with the full funding provisions by minimizing the subsidies and also by minimizing the intragenerational and intergenerational transfers.

[Scott Duvall, NDP, Hamilton Mountain, ON]

If I may interrupt you there, did you do an analysis of what the actual cost would be if the drop-out provisions were included in the enhancements? Was there a cost done on that?

[Marianna Giordano]

With regard to the cost, I think that would be under Mr. Montambeault.

[Michel Montambeault]

No, we have no costing. The agreement did not include the drop-outs for CRDO, so we did not do any costing.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Were there instructions not to do the costing? Where did that come from? People believed they were going to get an enhanced CPP but not have two different phases. Were there instructions not to include that, or why wasn't it included?

[Michel Montambeault]

The deciders were what I call the CPP committee, which consists of the chair of the CPP committee, who is sitting beside me, and the 10 provinces and territories. They discussed the parameters, and we were not asked to cost that parameter.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Thank you.

Mr. Purves.

[Glenn Purves]

Thank you.

Given the fact that what was agreed to in Vancouver was an enhancement that focuses on income replacement very similar to the RPP, the package that was designed is very much consistent with what you would see in a workplace. For that reason, this is an enhancement to the base CPP. The base CPP continues to have all the provisions that are contained within the base CPP. This focuses on increasing the income for Canadians going forward for their security in retirement.

[Scott Duvall, NDP, Hamilton Mountain, ON]

I understand that, but we also thought that the enhanced security would mean that the middle class would feel more as though they were part of it. That was the whole purpose of it. This drop-out provision really, really affects them. If they're paying the enhancement, now they're going to have two different categories. When they pay the base they're allowed it, but when they're paying the enhancement, they're not included in it.

You've given me one answer, about the provinces knowing about this, but were any women's groups or organizations for people with disabilities ever consulted about this and asked how they felt?

[Glenn Purves]

First of all, I should say that on retirement income, there's ongoing consultation through the triennial reviews with the provinces and so forth. In this period, there has been engagement with different levels of government to ensure that the focus of the enhancement is on income replacement, and that the base CPP itself and any engagement on changes to the base CPP are very much covered in triennial reviews. Of course, many engagements take place on that, but this enhancement is very much about improving the income security of Canadians in retirement.

[Scott Duvall, NDP, Hamilton Mountain, ON]

Mr. Purves, has the Department of Finance or the office of the chief actuary projected the impact on the gap between the male and female average CPP retirement benefits? If so, what is that impact?

[Glenn Purves]

We don't have any calculations internally, at the Department of Finance, on that issue.

[Scott Duvall, NDP, Hamilton Mountain, ON]

You're saying we don't have that.... I'm not trying to be hostile, I'm just trying to say that I'm having difficulty in saying retirement replacement and yet these people who make $54,000 to $82,000 are not included in retirement replacement if they have a disability or are bringing up children?

[Glenn Purves]

Perhaps my colleague can describe the provisions. I'm concerned that people don't understand the provisions and their applications as they pertain to the broader CPP and all the provisions contained in it.

[The Chair, Liberal, Wayne Easter]

Ms. Giordano.

[Marianna Giordano]

As you know, the disability and the child-rearing provisions allow you a drop-out period when you're disabled or when you're taking care of young children. It helps you protect your eligibility for some benefits, and it also helps you increase your average. As you said, it's an average of your pensionable earnings.

The enhancement is not an average per se. The enhancement is based on what you accumulate in your best 40 years. The social insurance portion of the CPP remains in the base. The enhancement is linked to people's contributions. It's like a top-up to your retirement or other survivors' pension or disability pension, so you get your base CPP, which will cover your flat rates for your disability, your flat rates for your survivors, which are paid by contributions from all. Your top-up is linked to your own contributions.

[The Chair, Liberal, Wayne Easter]

We'll have to stop you there.

Did you want to add something more, Mr. Purves? Okay.

Mr. Ouellette.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

Thank you very much, Mr. Chair.

I must say that I'm also quite interested in this. I'll use the example of my wife. We had five children over the course of a 10-year period. She had a defined benefit pension as a teacher, but you're saying, essentially, that when she was working as a teacher, even though she wasn't making a salary—she was getting EI and various benefits—she was still able to pay into her pension plan to not lose space compared to, for instance, a male colleague who progresses in his career at the same time, so she wouldn't end up a little poorer in retirement because she took time out to do something really beneficial for society, raising children. What I'm hearing is that the new enhancement doesn't have a provision for someone like my wife to ensure she still can maintain that level of earnings.

[Marianna Giordano]

The base CPP will continue to protect that portion. However, the enhancement will be on the contribution that she made...so if she's outside of the workforce. We're seeing that women spend less and less time outside the workforce. Right now during her career a woman will stay on average fewer than four years outside the workforce, so the child-rearing provision has less and less impact. We're foreseeing in the future it will continue that way.

[Robert-Falcon Ouellette, Liberal, Winnipeg Centre, MB]

But eight years could still be substantial in a defined benefit plan. In the military, for instance, it would be equal to around 8% of someone's salary.

I'm a little concerned that we haven't looked at calculating that. I understand there's a child-rearing provision and a general drop-out provision, but I believe if someone and their employer were willing to contribute to the CPP during a certain period when they could show what their salary would be over a certain time, they should still have that ability to contribute to the CPP to ensure they don't lose that long-term buying power.

Obviously the contributions are very important, and I understand we want to have no longer a pay-as-you-go CPP plan but something that's...and we don't want to transfer wealth from one generation to another. At any rate, I hope somehow someone would be interested in looking at that in greater detail, both the actuary and the finance department.

I was wondering if you could give me the additional costs in the form of increased Government of Canada payments to cover the employer portion of the CPP enhancement in relation to federal employees. Around 250,000 public servants are in the employ of the federal government, and I'd like to know how much extra the enhancement is going to cost the federal government. I'd asked this previously and no one got back to me, so I'm asking again.