Mr. Speaker, I am pleased to be able to participate in the debate today on such an important issue for Canadians.
In recent years, as hon. members may know, a number of social, economic and demographic trends have developed, such as declining birth rates, increased life expectancy and lower than anticipated growth in productivity and wages, which, if unaddressed, could challenge the sustainability of Canada's public pension system.
This is why we committed ourselves to strengthening Canada's public pension system. The legislation that we are debating, Bill C-2, will enact the joint federal-provincial agreement reached last February to change the Canada pension plan, or CPP as it is known. It is legislation that will place the Canada pension plan on a solid financial footing.
The first point that I would like to make is that whatever the circumstances, CPP will be there for Canadians when they need it. In fact the very reason we are making changes now is to ensure that it is there in the future.
In his February 1995 report, the chief actuary clearly showed that without modification to the Canada pension plan, the CPP fund would be exhausted by the year 2015 and that contribution rates would have had to soar to over 14% to cover the rapid growth in cost. That would be a 240% increase.
It is only through responsible action now that we can avoid bankruptcy and truly intolerable CPP rates later, an increase now with a number of generations sharing the burden or an increase later for our children's generation.
Before moving to make changes to CPP, we held extensive consultations with Canadians. During 33 sessions held in 18 cities throughout Canada, more than 270 formal presentations were made to allow the government to find out what Canadians thought should happen to their plan. Canadians had no reservations in their expectations. They wanted the plan preserved, its financing strengthened and its investment practices improved. We have done that.
I would like to take a moment to tell my constituents what remains the same under CPP legislation and how the plan is being preserved. 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.
Anyone currently receiving Canada pension plan benefits 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 try to describe the changes today. 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. To be eligible for disability benefits workers must have made Canada pension plan contributions in four of the last six years prior to becoming disabled. Presently a person needs to make Canada pension contributions in two of the three years previous or five of the last ten years in order to be eligible to apply and qualify for disability benefits.
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. However, changes will limit the extent to which these benefits can be added together.
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 together.
Through enacting the legislation after careful consideration with Canadians the government 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. Due to our plan some 75% of the reduction has been made on the financing side and only 25% on the benefit side.
The CPP will continue to be affordable. Canada pension plan contribution rates will increase in steps to 9.9% by 2003 or 4.95% for each employer and employee and then remain unchanged instead of reaching the 14.2% projected by the chief actuary for the year 2030.
The Canada pension plan will move from pay as you go financing to fuller funding to build a much larger reserve fund. It will grow in value from two years of benefits currently to about four or five years of benefits. It should be noted that the yearly basic exemption, the first $3,500 of earnings on which no contributions are paid, will be maintained and frozen.
Without these changes future generations would have to pay 14.2% for the same benefits we are currently paying only 5.85% for.
Until now CPP contributions not needed to pay for benefits have been lent mainly to the provinces at the federal government's interest rate on long term bonds. Under this new legislation Canada pension plan funds will now be invested in a diversified portfolio of securities prudently and at arm's length from government.
This means that Canada pension plan funds will be invested in stocks, bonds including provincial bonds, and mortgages. Instead of being lent in their entirety to the provinces we are now in the position with the passing of the legislation to make the investment philosophy of the Canada pension plan more market oriented. This is consistent with investment policies in most public and private pension plans in Canada.
Based on prudent assumptions the Canada pension plan can secure an average long run return of almost 4% a year above the rate of inflation. That compares with only 2.5% assumed under the current policy of the chief actuary. As well, from now on whenever provincial governments borrow from the Canada pension plan they will pay the same rate of interest that they pay on their market borrowings. That is making smart use of public money.
During cross-Canada consultations Canadians told us they wanted the Canada pension plan to run like a private pension plan. In response we have provided that the fund will be managed independently from government by a 12 member investment board. The 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 plans of the future is the same transparency in private plans throughout the rest of Canada.
It should be noted that 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. Canadians will have the opportunity to see year to year the retirement future their contributions are building.
Last February in the House of Commons the Minister of Finance tabled the first draft of Canada pension plan legislation, in case the member for Calgary West was unaware. 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 support 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.
Finally I would like to take this opportunity to answer some of the critics of these changes. There are some who advocate scrapping CPP and moving to a privatized system with mandatory retirement savings plans. I believe they do not understand two things.
First and foremost, Canadians want the Canada pension plan to remain. Canadians want a public pension plan that is available to everyone.
Second, the Canada pension plan provides protection not available through private RRSPs such as disability benefits and survivor and death benefits.
The Canada pension plan is part of our public pension plan system along with old age security and guaranteed income supplement. Together these three pillars ensure that all our eggs are not in the same basket. The changes reflect the long held Liberal values of providing stability for and protecting those in need.
It was a Liberal government that introduced the Canada pension plan over 30 years ago in 1966, and now this Liberal government is making the necessary changes to ensure the future of the Canada pension plan for all Canadians. This allows all Canadians to prepare for their future together.