Mr. Speaker, I am pleased to participate in the debate on Bill C-2. I would like to speak to my constituents and to Canadians about the Canada pension plan.
Many Canadians are concerned about the Canada pension plan. They are concerned about its features, about its security. Sometimes they get confused about how it relates to employment insurance, old age security, the GIS, RRSPs, RIFs and all of the other financial instruments that seem to be part of our daily dialogue in this House.
They also hear things like the plan is bankrupt or it will not be there for them when they get to retirement age. These things are not true.
I want to start my comments to this House by assuring all seniors in Canada who are currently receiving benefits under the CPP system, whether they are survivor benefits or disability benefits or whether they have reached retirement age and are collecting benefits, that under the proposals before the House those benefits will remain unchanged. They will continue to be fully indexed and will continue to be there for them so that they can enjoy the security and dignity of their retirement.
I want to clarify a few of the facts about the Canada pension plan system. I have this concern that Canadians do not know enough about our Canada pension plan system, the very basics of what it is all about. I want to review a bit of the background, a bit of the history, so they can have that level of confidence improved.
The Canada pension plan which came in in 1966 has as its hallmark the fact that it is a universal program. It is not an income redistribution program. It is not like the OAS or the GIS which are available based on your level of income. The CPP is available for participation by all working Canadians from the ages of 18 right up to 70. It is a plan that requires contributions by an employer and an employee on a matched basis, and the self-employed individual pays the full amount.
Canadians should also know that the Canada pension plan system is a joint responsibility between the federal government, the ten provinces and our two territories. Anything that happens in CPP requires the approval of two-thirds of the provinces, representing two-thirds of the population. Canadians should be assured that the best interests of all Canadians in all regions are being taken care of as we move forward to renew the Canada pension plan system.
When the plan came in back in 1966 it had to respond to the realities of the day. Who was retiring in the mid-sixties? It was Canadians who came through the depression of the thirties, through the war in the forties. These are Canadians who had a totally different dimension of Canadian life during what we would consider as their prime working years. It meant they did not have the kind of savings they otherwise would like to have had for retirement, and they had very little. As a consequence of the plan's being set up in a way that would allow benefits to reach full pension entitlement by 1975, it was accelerated. Because of that acceleration and because there were so few people working and making contributions there was no possibility of fully funding the plan. There was no possibility of asking Canadians to immediately put in dollars they needed for food and for basic subsistence.
The plan first paid out in 1967 to those who were 68 years old, and the first pension paid to a 65 year old occurred in 1970.
The Canada pension plan system is not just a pension. Possibly it is misnamed. Everyone knows that on reaching retirement, and you do have the option to retire early, currently you can get a pension of about $8,842.
There is also the ability to retire early, up to age 60, and receive a reduced pension of 5 percent for each year of reduction. A person can increase their pension entitlement by 5 percent each year if they defer their pension to age 70. There is some flexibility.
A very important tax planning point for all Canadians is that one spouse can split up to 50 percent of their Canada pension plan benefits with their spouse. That is very important if the other spouse stayed at home to manage the family home and care for preschool children and, therefore, does not have a sufficient number of working years. Possibly they did not work. It allows the income to be split. It is an important opportunity for Canadians to consider whether the income splitting of their pensions will reduce the tax burden on the family.
In addition to the pension portions there are important insurance components of the CPP. There is a survivors benefit. If a spouse passes away there is a continuing benefit to the surviving spouse even if they are under 65 years of age. There is also a benefit to the surviving children of $2,000 a year up to age 18 and up to age 25 if they are students.
One of the most important components of the Canada pension plan system is the disability feature. It means that Canadians who are in the unfortunate situation of having had a stroke or who are otherwise unable to earn an income can receive a disability benefit from the Canada pension plan. They will receive the disability benefit until they reach age 65, at which time they will commence collecting the normal pension payment.
This plan is secure, it is indexed and Canadians should know that it is not just a pension. We do not have to look simply at the money we put in and the pension we will get out. The plan is much more than simply a pension. It is an insurance program. It is there to protect Canadians.
Many of my colleagues have talked about the funding as being pay as you go. That is basically because in the start-up period that is exactly what was appropriate for that time.
Members have also noted that we have two years' worth of benefits. There is some $40 billion of Canada pension plan contributions invested in provincial bonds at a federal rate. Members might be interested to know that in 1996 those bonds generated a return of 11 percent. That is not nominal.
A lot of the discussions we have had today have been around the investment board. Canadians should understand that we are talking about getting into a more diversified portfolio of investments so there is a possibility to earn even higher rates of return. The more income the fund generates within itself, the more dollars are available to keep the costs to the employee and employer down.
There is another issue which I wanted to touch on briefly and that is the issue of the unfunded liability. Because of the way the plan was structured, there is no money waiting to pay the benefits. In fact about 30 years of benefits would have to be in place, which is a very substantial amount of money, and that cannot happen very quickly. The compromise is to move to fuller funding than we have today.
I wanted to talk a bit about the problems. The chief actuary in this plan requires a 25 year schedule of rates which employees will pay. The chief actuary has basically advised Canadians that although we pay at a rate of 5.85 percent, which is split equally between the employer and the employee, this rate will have to increase to 10.1 percent by about the year 2015, and by 2030 it will have to be raised to 14.2 percent. Those are the mathematics which are in place now.
All members would agree that the 14.2 percent is much too high a burden to ask current workers to pay to fund their future pension entitlements. Fairness and equity are important issues and important challenges.
If we were to make comparisons we would note that Sweden has a 21 percent contribution rate. France has a 19.8 percent contribution rate. Admittedly they do not have old age security or the GIS. However, we can see that if there is a need to provide benefits and we have not planned that rates can go very high.
Canadians should understand the important thing is to determine how we can modify and how we can massage the current Canada pension plan system so that benefits will be there for each and every generation to come on a fair and equitable basis. We do not want to pit seniors against youth and women against men or social groups who want all kinds of benefits which they feel they are entitled to.
We are not here to pit Canadians against each other because of the difference in their age or the difference in their income level. It is a universal program. It is there for all Canadians.
I will give an example. A gentleman whom I know very well, Mr. Phil Connell, who lives in my city of Mississauga appeared before the public hearings on this CPP review. Mr. Connell said that his contributions to the Canada pension plan up until he retired some seven years accumulated to about $9,300. He said “Yes, I get the employer's share which makes it $18,000 and that $18,000 was earning some income”. Mr. Connell also told the panel that his seven years of benefits from the CPP were $54,287, about five times more than he put in. He called it scandalous.
We understand very well that as the plan grows, matures and things change that we do have to deal with that. I repeat, Canadians, our current retirees, have to be assured that their benefits will not be affected by what we are doing in this place. They are going to continue at the current levels and they are going to continue to be indexed and they are going to continue to be there to protect them.
There are some factors which have changed which we have to take into account as we make these changes. First, Canadians are living longer than they did in the past. In fact we are living 3.1 years longer in retirement. In addition, it is expected that by the year 2030 we are going to live a further 1.4 years. In total, Canadians will live about four and a half years longer in retirement than current retirees.
Obviously because of medical technology and so on, it means that Canadians as a whole are healthier and we are going to live longer. That means retirement pensions are going to be drawn for longer periods of time. It means that it is a higher burden on the Canada pension plan system to deal with it.
The baby boomers are coming. Everyone knows that. There are going to be more seniors. In fact today we have five workers for every pensioner. By the time we get to the peak we will only have three workers taking care of one pensioner. We see that these are natural things that have nothing to do with anybody's whim or whimsy. It just happens to be the demographics of Canada.
The Canada pension plan was planned to have a rate of somewhere around 5.5 percent but we have had changes. The low birth rates that we have had in Canada and people living longer have added another 2.6 percent. We also have had slower growth in our worker output, lower interest rates in the sixties and even though it has risen in the seventies and eighties to around 6 percent it was very low in the early years. That has added an additional burden of about 2.2 percent. We have also enriched benefits for Canadians by indexing the Canada pension plan in 1975 and also providing survivor benefits in 1975.
Who could deny the disability benefits that are applicable? There are more claimants now and the claimants are for longer periods of time than ever was anticipated. That has also added about 1.5 percent. All of these things have contributed to put pressure on the Canada pension plan system so that now is the time for us to deal with it.
Parliamentarians are not deciding what we should do and why. There were public consultations and they happen every five years. There were some 33 sessions of public consultations between April 15 and June 10 right across Canada.
People had all kinds of very interesting input. I would like to highlight for members what the results of those consultations were. First, the consensus was that the CPP system was worth saving. That is very important.
Second, they said that the CPP should remain as a program that is not for redistribution of income but rather universal and available to all. Therefore, it is not going to be income tested.
Third, they said that it has to be fair across the generations and between men and women.
Fourth, they said that it had to be affordable and sustainable for those future generations.
Fifth, they asked that the administration be tightened up to make sure that it is efficient and that the 1 percent cost of administration is kept at that level or lower.
Sixth, they do not want ancillary benefits to jeopardize the principal benefit, being the pension income.
Seventh, they recommended that any future enhancements or enrichments of the CPP program must be fully funded.
These are just some of the results of the cross Canada consultations that took place involving the federal government, the provincial governments and the territories. These are the results of consultations with Canadians.
What is before the House are important recommendations for improvements and changes to the plan to make sure that it is fair and equitable among generations, that it is sustainable and that we do the right thing.
The amendments to the act do not affect all present retirees as well as those on disability or who have survivor benefits. Their pensions will remain indexed. The ages for retirement will remain unchanged, despite the fact that there were rumours of the retirement age rising two, three, four or five years. There is no change in retirement age.
We are going to move to a fuller funding. It will not be fully funded but there will be more funding than we have had in the past. Instead of just two years of reserve, there will be up to five years.
We are also going to create the investment board. That means that we will have professionals who are going to manage that fund to make sure we get a competitive return with other investors in the marketplace.
The contributions will rise over the next six years to 9.9 percent. It will be on a gradual basis, not in one shot. It will be on a gradual basis because that is the Canadian way. We want Canadians to have a chance.
Again, I want to assure all seniors who have always been the targets of the unscrupulous and those who would take advantage of seniors because they may not understand what is happening. I want them to know, on behalf of all parliamentarians here, that based on the consultations we have had across Canada we are here to act on behalf of the best interests of all seniors, of all youth and everyone in between.