Mr. Speaker, today it is my privilege to begin debate on Bill C-2, legislation that will secure the Canada pension plan for Canadians now and in the future.
This legislation will enact the joint federal-provincial agreement reached last February. It reflects a consensus for change and a shared commitment to ensure that the CPP is there, that it is sustainable and affordable for today's working Canadians and for our children.
As joint stewards of the Canada pension plan, the federal government and the provinces are squarely facing up to our collective responsibilities to deal now with an issue facing us down the road when the baby boom generation starts to retire.
In his February 1995 report, the chief actuary clearly showed that without modifications to the Canada pension plan, the CPP fund would be exhausted by 2015 and that contribution rates would have to soar to over 14 percent to cover the rapid growth in cost.
In public consultations held in every province and territory across this country last year, Canadians told their governments they want to be able to count on their CPP pensions. They told us they want the CPP fixed now and they want it fixed right. They did not want it privatized and they certainly did not want it scrapped. They told us to do this in a way that does not pass on an insupportable cost burden to younger generations.
A full report on the consultations was made public last year and Canadians were clear. They told their governments to preserve the CPP by strengthening its financing, by improving its investment practices and by moderating the growing costs of benefits.
The changes reflect just that. This legislation demonstrates that we are acting decisively to fulfil our commitment to secure this pillar of Canada's retirement income system.
What have we done to strengthen the plan's financing? When CPP was introduced in 1966 it was financed essentially on a pay as you go basis.
At that time, the prospects of rapid growth and real wages and labour force participation promised that the CPP could be sustained and remain affordable.
With low interest rates there was little value to be gained from building up large reserve funds. The pay as you go system made sense given these circumstances. Since then, the slowdown in wage and workforce growth and higher real interest rates have completely changed the circumstances in which the CPP must be financed.
The pay as you go financing is no longer fair and no longer appropriate. Building up a larger fund, or what has been recently called and referred to as fuller funding, and earning a higher rate of return through investment in the market are now necessary to help pay for the rapidly growing costs that will occur once the baby boomers begin to retire.
Accordingly, we have made a fundamental change in the financing of the Canada pension plan. The CPP will move from pay as you go financing with a small contingency reserve to fuller funding to build a substantially larger reserve fund.
The fund will grow in value from about two years of benefits currently to about four to five years of benefits. To do this beginning this year we will start accelerating the pace of contribution rate increases beyond what is currently legislated so that people begin to cover the cost of their own benefits and stop passing increasing shortfalls on to the next generation.
CPP contribution rates will increase in steps over the next six years until 2003, from the current legislated rate of 5.85 percent to 9.9 percent of contributory earnings, and then will remain there steady.
This 9.9 percent rate is projected to be sufficient to sustain the CPP with no further rate increases. It will pay for an individual's own benefits plus the unfunded liability. It is the fairest way to honour our commitments. The costs of pensions will be spread evenly and fairly across generations.
In 1997 the combined contribution rate for employees will increase from 5.85 percent of covered earnings to 6 percent. The increase for a worker at the average range will total no more than $24.
We have all read the papers and watched the news so let me take this opportunity to address some of these erroneous headlines and some erroneous statements by some hon. members, some that I heard a few moments ago.
They claim that this is the biggest tax grab in history and that CPP rates will jump by 73 percent. We hear it here and I would ask that the hon. members would come very soon to provide the accurate information Canadians are asking for.
This is not a tax grab. Contributions to the Canada pension plan are a component of Canadians savings toward pensions.
I know it is difficult for members of the opposition to understand that. They go into a separate fund, not government revenues, and because of recent changes the Canadian people have suggested will now be invested like other pension plans.
Let us get the facts straight. Contributions will rise 73 percent over the next six years to 9.9 percent but they will not rise to the 14.2 percent that the chief actuary indicated would be necessary if we did not fix the Canada pension plan.
This 9.9 percent rate is also substantially lower than the Reform Party proposal to replace the CPP by a system of mandatory RRSPs. Under the Reform proposal, the next generation or two of Canadians would have to pay twice, once for their own pensions and again for pensions of those who are already retired.
Yes, 9.9 percent is a real cost and no one denies it. By paying that cost now we will save ourselves and our children from larger, more expensive hikes in the future. By moving now, premiums will not have to exceed 9.9 percent.
Under the existing legislation CPP contribution rates are already slated to go beyond 9.9 percent. They are scheduled to reach 10.1 percent in 2016.
The chief actuary has shown that if we do not move fast the CPP will be bankrupt in 2015 and the rates will have to soar to 14.2 percent by 2030. That is a 240 percent increase. Only if we act responsibly now can we avoid bankruptcy and truly intolerable CPP rates later; a 73 percent increase now when a number of generations are sharing the burden or a 240 percent increase for our children's generation. I submit that we have made the right choice. Let us start paying our way. We owe it to our children and we owe it to our grandchildren.
Let me point out that the problems we are facing with our pension system are not unique to Canada. Many OECD countries are also making changes so that their pension systems are more sustainable. Some international organizations have recommended moving toward the increased funding of public plans and that is exactly what we are doing.
With this new fuller funding approach the CPP fund will grow substantially over the next two decades. A new investment policy therefore was necessary to improve the way CPP funds are invested and to secure the best possible return for plan members.
Up until now CPP contributions not needed to pay for benefits have been loaned mainly to the provinces at the federal government's interest rate on long term bonds. In this legislation, CPP funds will now be invested in a diversified portfolio of securities, prudently and at arm's length from government. This means that CPP funds could be invested in stocks, in bonds, including provincial bonds, and also in mortgages. Instead of being loaned in their entirety to the provinces, we are now in a position with the passing of this legislation to take our investment philosophy of the CPP and make it more market oriented. It is consistent with investment policies in most public and private pension plans in Canada.
Based on prudent assumptions the CPP can secure an average long run return of almost 4 percent a year above the rate of inflation. That compares with only 2.5 per cent assumed under the current policy by the chief actuary. These higher returns will be an important plus since members on this side of the House and on the other side clearly acknowledge that every dollar that is not earned in investment requires a contribution from Canadians. The higher returns will be an important plus since we know that working Canadians want to ensure that they contribute to a plan that provides an effective and efficient rate of return and is sustainable in the long run.
During the cross-Canada consultations Canadians told us they wanted the Canada pension plan to run like a private pension plan. Accordingly, the fund will be managed independently from government by a 12 member investment board. This investment board is accountable to Canadians and their governments through regular reports.
The board will be subject to investment rules similar to other public and private funds in Canada. Therefore the transparency for Canada pension plan of the future is that same transparency that is in private plans throughout the rest of Canada.
The foreign property limit for pension funds will strictly apply to the Canada pension plan, but there are some transitional issues that need to be addressed. To ensure the fund's smooth entry into the market, all of the board's domestic equity investments will be selected passively, mirroring broad market indices. This passive approach will be re-evaluated at the next Canada pension plan review scheduled to begin in 1999.
From now on—I am sure the members of the opposition will agree with this—whenever provincial governments borrow from the Canada pension plan they will pay the same rate of interest as they do on their market borrowings.
As a transitional measure reflecting historical arrangements, provinces will have the option of rolling over their existing CPP borrowings at maturity, and at market rates, for another 20-year term. For the first three years provinces will also have access to 50 percent of the new CPP funds that the board chooses to invest in bonds. But after this initial period new Canada pension plan funds offered to provinces at market rates will be in line with the proportion of provincial bonds held by pension funds in general. This will ensure that the funds invested in provincial securities is consistent with market practice.
In order to moderate rising CPP costs we have tightened the administration of benefits and changed the way some benefits are calculated. First, let me tell you what remains the same.
Anyone currently receiving Canada pension plan benefits, be it retirement pensions, disability benefits, or survivor benefits, can rest assured that they will not see these benefits affected in any way. All benefits, now and in the future, will remain fully indexed to inflation. The ages of early retirement, normal retirement, or late retirement all remain unchanged.
What has changed? Let me describe them.
Effective January 1, 1998 retirement pensions will be based on the average of the year's maximum pensionable earnings in the last five years prior to starting the pension. In the past they were based on a three-year average. The amount of the pension will continue to be dependent on how much and for how long a person contributes to the plan.
The administration of disability benefits will be further improved. The appeal process will be streamlined and the legislation will be applied more consistently.
The administration of disability benefits and the changes I have just proposed address concerns that have been raised about the rapidly escalating costs of the disability benefits.
To be eligible for disability benefits workers must show a greater attachment to the labour force. They must have made CPP contributions in four of the last six years prior to becoming disabled. At present a person needs to make as little as two CPP contributions during the course of the three years prior to applying and qualifying for disability benefits.
During the consultation there was discussion—and Canadians have provided guidance to the government—that disability benefits should be removed from the Canada pension plan. That is not what Canadians have told their governments over the consultation period. They have said the government must keep disability as a part of the Canada pension plan, but they did call for consistency across the board in the administration of disability benefits and that in fact is what this legislation is proposing.
When disability benefits are converted into retirement pensions at age 65 in the future, they will be based on the year's maximum pensionable earnings at the time of disablement with subsequent price indexing rather than on the YMPE at age 65. This measure is consistent with how other CPP benefits are calculated and will apply only to people not yet age 65.
The rules for combining the survivor and disability benefits and the survivor and retirement benefits will be largely the same as those in existence before 1987. Changes will limit the extent to which these benefits can be added together.
As part of the CPP consultations and review there were discussions about eliminating the death benefit. The death benefit will continue to be equal to six months of retirement benefits, but up to a maximum of $2,500 rather than the current $3,580. The option to eliminate the death benefit was rejected by the federal and provincial governments. There are those who would purport to eliminate that benefit.
We listened to Canadians, we ensured fairness and balance in the review of the Canada pension plan and the legislation that is being put forward. I submit that the changes I have outlined propose moderate and balanced changes. We have minimized the impact of these changes on vulnerable Canadians. There is no one group that has been singled out or forced to shoulder an undue burden.
During the national consultations on the CPP, Canadians told their governments to go easy on changes to the benefits. There are those who would gut the benefits. That is not what Canadians have told us.
We have reduced the contribution rate to 9.9 percent from 14.2 percent. There are those in the House who would argue that 9.9 percent is too high. They are arguing in a vacuum. The chief actuary who has the responsibility of reviewing the Canada pension plan has clearly stated that we need to act now to ensure that the plan remains sustainable and affordable for future generations. We could sit back and do nothing and watch the premiums escalate as per the legislative timetable until we get to a point where we would experience a 240 percent increase. That is not tolerable. That is certainly not what the government is prepared to do for future generations.
We will ensure that the Canada pension plan is there for future generations, that it is there at an affordable premium and that the benefits are guaranteed for those future generations. The result is that some 75 percent of the reduction has been made on the financing side and only 25 percent is on the benefit side.
I am quite positive the members in this House are very aware that consultation on the Canada pension plan has been ongoing for well over a year. Canadians have had input. They have given guidance to the government on this legislation. They have said very clearly to fix the Canada pension plan, ensure that it is sustainable and ensure that you do not gut the benefits at all costs.
What has been done? We have reflected on what Canadians have said. We have put forward legislation which breaks down like this: 75 percent is on the financing side and 25 percent is on the benefit side.
We are also acting to improve the stewardship of the Canada pension plan and to enhance public accountability. Once again Canadians have been consulted and Canadians have spoken.
Members across the way always talk about the transparency and the accountability that is required in legislation. I look forward to the interventions of the official opposition and other parties. I hope they will point to the fact that this legislation had input from Canadians. This legislation speaks to public accountability and transparency. It is what Canadians have asked for and it is what Canadians are getting. Let me make it perfectly clear that members of the government are determined that the Canada pension plan will not be put at risk again.
The changes in the legislation have been put forward so that Canadians do not have to suffer the uncertainty which has been purported by opposition members. Canadians will not have to ask the question “Will the Canada pension plan be there for me?” The Canada pension plan will be there for members of the House, for young people, for young workers, for my children, for my children's children.
The changes reflect what Canadians have asked for. We have not made those changes for the sake of making changes. We have made them to sustain the plan to ensure it will be there for future generations.
Let us talk about the accountability and transparency which will be part of the new legislation.
Canadians will start to receive regular statements on the pensions they are earning. We intend to provide annual statements to all contributors as soon as it is feasible. Canadians will receive an annual statement which will show how the Canada pension plan is progressing.
Federal-provincial reviews will take place every three years, instead of every five. In fact, 1999 will be the beginning of the next set of consultations and review. The point of this change is to ensure that the Canada pension plan will be closely scrutinized. Canadians will have an opportunity to continue to monitor what is going on with their Canada pension plan.
The Canada pension plan investment board will provide quarterly financial statements and annual reports on the performance of the fund. I am sure that when the members of the official opposition speak they will point to this change and note that it is reflective of what Canadians have said and that it is a positive change.
Let me say this slowly. It is what Canadians have said. The CPP investment board will provide quarterly financial statements. It will hold public meetings at least every two years in each participating province: transparency and accountability. Members of the opposition, members of Parliament and Canadians at large will have opportunity to speak at those public meetings.
Annual reports will provide a more complete information package and will explain how administrative problems are being addressed. As with all plans, public and private plans, there are always administrative challenges. The annual report will list the challenge and state how the challenge is being dealt with: again transparency and accountability.
Canadians told us quite frankly to treat them like members of the pension plan. There is no denying that in the past Canadians have not been part of the changes to the Canada pension plan the way they will be in the future. We are doing exactly that. We are treating Canadians like members of the pension plan. The stewardship of the plan will be improved and public accountability will be strengthened.
There is no doubt Bill C-2 provides a strong and balanced package of changes that will restore the sustainability of the Canada pension plan and make it fairer and more affordable for future generations of Canadians. It will make it more affordable, sustainable and fairer not just for workers when they retire but equally for working Canadians and their families.
Without diminishing what we have achieved with the legislation I would like to point out some other ideas the federal and provincial governments will look at to ensure the structure of the Canada pension plan keeps up with changing times. It will evolve the way our society evolves. These particular issues were either beyond the scope of the latest CPP statutory review, or they may have been raised too late or after consultations were complete. It is our intention to examine these issues over the course of the next two years.
What are the issues? It is important to get them on record so that Canadians know the consultation with respect to the CPP is just beginning and will be ongoing. As issues come forward and develop the consultation and the input of Canadians will be reflected in future legislation.
Some issues are reviewing survivor benefits to make sure they reflect changing realities in the needs of today's families and considering the mandatory splitting of pension credits between spouses during marriage. This is very interesting. It looks at the work to retirement transition including the possibility of providing partial CPP pensions to Canadians wanting to make a gradual transition to retirement. These issues are coming from Canadians, issues they want dealt with in the Canadian pension plan.
We will continue to examine the way in which people are receiving retirement income and employment insurance benefits. I am sure members of the official opposition will appreciate, given the fact that most of them are from the beautiful province of British Columbia, the review of the British Columbia proposal, which was actually made after the CPP consultations were complete. The proposal is to extend CPP coverage up the income scale by raising the limit on pensionable earnings.
I emphasize and hope for concurrence from the official opposition that any change to the Canada pension plan that needs to be considered will only be considered so that an increase in the steady rate of 9.9 percent will not be required.
Let me go further than that and state that any future benefit improvements to the Canada pension plan will be fully funded. I will repeat this very slowly. They will be fully funded. It is what Canadians asked for and it is what we will do.
Last February in the House of Commons the Minister of Finance tabled the first draft of the CPP legislation. In response to the comments received, further refinements were made to the legislation and revised draft legislation was released in July for further comment.
The measures proposed in the bill today will become law once the legislation is passed by parliament and supporting orders in council are received from the provinces that are party to last February's agreement. This will permit the changes to take effect on January 1, 1998.
It is an important milestone for Canadians. The changes to the plan will allow every Canadian to feel confident about the Canada pension plan once again. I continue to repeat that because it is important for Canadians in the galleries, for Canadians watching on TV and for Canadians in our constituencies. I encourage members of the House to communicate the message that the Canada pension plan is here and will be here when Canadians need it.
Let me assure hon. members the changes contained in Bill C-2 tackle the problems facing the Canada pension plan. In order to accomplish this, federal and provincial governments consulted extensively with Canadians from coast to coast to coast. It is legislation that reflects what Canadians said during the consultations and it is legislation that will ensure the continuity of the Canada pension plan.
I would also like to add that the federal government is currently engaged in broad based dialogue with a number of groups on other aspects of Canada's retirement income system. Not only are we listening to Canadians but we are also acting to ensure that our policy reflects their concerns.
With respect to the broad based dialogue, as I have been out talking with constituents in my riding and with Canadians right across the country the one message that continues to come back as a result of their experience with the broad based consultation on the Canada pension plan is that they want a broad based dialogue on the pillars of the retirement income system.
They no longer want to see government reacting. They want to see government engaging Canadians with respect to the retirement income system. They want to see governments reflecting in their legislation what Canadians are saying through a consultation process. The first example is the Canada pension plan changes in Bill C-2 which is at second reading and will go to the Standing Committee on Finance.
Securing Canada's retirement income system is a priority. It is a priority for Canadians. It is a priority for all members of the House. It is a priority for members of the official opposition, members of other opposition parties and members of government.
Our approach was different. It was one where we consulted Canadians. We are taking a very balanced approach to ensure we are not just gutting the benefits for the sake of trying to achieve some objective out there that is sometimes reflected in the House. It is a priority of the government.
Let me say clearly to members of the opposition, to Canadians in the galleries and to Canadians watching TV that Canada's retirement income system remains at the top of the government's agenda.