moved that Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, be read the second time and referred to a committee.
Madam Speaker, as hon. members know, a stronger Canada pension plan was a key part of the promise we made to Canadians when we promised to help the middle class and those working hard to join it.
On June 20 in Vancouver, we delivered. Canada's governments agreed to enhance the Canada pension plan to give Canadians a more generous public pension that will help them retire in dignity. I would like to think that we showed everyone just how well our country can work when our governments work together, even in the face of tough challenges. We worked through our differences, never wavering on our commitment to the people we serve. In doing so, we proved that collaboration around the federal-provincial-territorial tables can deliver results.
I would like to thank each and every one of my provincial and territorial counterparts for the hard work, diligence, foresight, and principled co-operation they displayed in reaching this historic agreement on behalf of Canadians.
Now that all nine CPP-participating provinces have fully confirmed their support for implementing the Vancouver agreement, we have the obligation to carefully consider the legislation before us today, which will help make this agreement a reality. We must do so with the full understanding of what is at stake: no less than the opportunity to provide future generations of Canadians with a more generous public pension in their retirement years.
A secure and dignified retirement is certainly a top priority for hard-working Canadians. We know that middle-class Canadians are working harder than ever, and many of them are worried about not having saved enough by the time they retire.
The more time we spend knocking on doors, holding forums, and talking to people in the course of our work, the clearer that becomes. We also know that young Canadians in particular, few of whom can expect to have jobs that offer a workplace pension plan, find it challenging to save enough money for retirement.
Toronto high school students aired these concerns during an open forum with me earlier this month. Their concerns are legitimate. In-depth studies by the Department of Finance and provincial governments show that one-quarter of families approaching retirement, 1.1 million families, expect their standard of living to drop significantly in retirement.
Middle-class families without workplace pension plans are at higher risk of not saving enough for retirement. One-third of those families are at risk.
Canada's finance ministers agreed with this conclusion in working towards our agreed upon enhancement to the CPP. We have developed a carefully targeted approach, which is reflected in the legislation we have before us today. Taken together, it is a comprehensive package that will increase CPP benefits while striking an appropriate balance between short-term economic considerations and longer-term gains.
What does a stronger CPP mean for Canadians?
First and foremost, it means there will be more money from the CPP waiting for Canadians when they retire. This means that they will be able to focus on the things that matter, like spending time with their family rather than worrying about making ends meet.
Once fully in place, the CPP enhancement will increase the maximum CPP retirement benefit by about 50%. The current maximum benefit is $13,110. In today's dollar terms, the enhanced CPP represents an increase of nearly $7,000, to a maximum benefit of nearly $20,000.
The enhancement we agreed upon does two things to make this happen for contributors. First, it will increase the share of annual earnings received during retirement, from one-quarter to one-third. This means that an individual making $50,000 a year in today's dollars over their working life will receive about $16,000 per year in retirement, instead of roughly $12,000 today. Second, it will increase by 14% the maximum income range covered by the CPP so that those who earn more will receive more in retirement.
The positive impact of these changes will be significant. They will meaningfully reduce the share of families at risk of not saving enough for retirement, as well as the degree of under-saving. The Department of Finance has estimated that strengthening the CPP will reduce the share of families at risk of not having adequate retirement savings by about one-quarter, from 24% to 18%, when considering income from the three pillars of the retirement income system and savings from other financial and non-financial assets.
A stronger CPP is also the right tool at the right time to improve the retirement income security of younger workers. It is an opportunity for today's hard-working Canadians to give their children, their grandchildren, and future generations a more secure retirement.
The Department of Finance has concluded that retiring in comfort will be even more a challenge for these future generations. That is, in part, because they are expected to live longer than previous generations. Also, if current trends continue, younger Canadians will be less likely than previous generations to work in jobs with retirement benefits that are paid for by their employers, and if the current low interest rate environment persists, their savings may also grow more slowly than previous generations.
In the face of these challenges, our government decided to do what Canadians do best when faced with a problem: we worked together. We worked with the provinces and territories and agreed to strengthen the Canada pension plan so that there will be more money waiting for future generations of Canadians when they retire.
However, that is not all. The legislation we are debating today also includes enrichments to CPP disability and survivor benefits. For most Canadians, all of these increased CPP benefits will come from only a 1% increase in contribution rates.
We are making sure to give individuals and their employers plenty of time to adjust to the modest increase, making sure that it is small, gradual, and starting in 2019. For example, an individual with earnings of $54,900 will contribute about $6 more a month in 2019. By the end of the seven-year phase-in period, contributions for that individual would be about $43 more per month. Furthermore, because new employees' CPP contributions will be tax deductible, as opposed to being eligible for a tax credit, Canadians will not experience an increase in tax with registered retirement savings plan or employee pension plan contributions, which are deductible and are reduced in response to this increase in CPP contributions.
Today's legislation, as agreed upon with the provinces, will also ensure that low-income Canadians are not financially burdened as a result of the extra contributions. It will do so by enhancing the working income tax benefit to roughly offset incremental CPP contributions, leaving eligible low-income Canadians with little to no change in disposal income while still securing higher retirement income for them. Taken together, these tax measures will account for $970 million in federal fiscal support in 2021-22.
Under the circumstances, it is clear that an enhanced Canada pension plan will help all Canadians, which will in turn help Canada's economy as a whole. With higher retirement benefits flowing from an enhanced CPP, retirees will have more money to spend on things such as healthy food, transportation, and housing costs. The knock-on effect of that? New jobs and a stronger middle class.
As I noted earlier, the Department of Finance undertook extensive research on the impact of a strengthened CPP. This analysis included a rigorous study of the potential economic impacts of the various enhancement scenarios being discussed with the provinces.
Our research found that over the long term, greater CPP benefits will boost demand and increase savings overall. This will boost economic output and make more money available for investment. As a result, it is estimated that gross domestic product will increase by between 0.05% to 0.09% over the long term. Employment levels are also projected to be permanently higher, by about 0.03% to 0.06%, equivalent to about 6,000 to 11,000 jobs based on 2015 levels of employment.
We can see from all of these facts that a stronger CPP would be good for Canadians and good for the overall economy. This should come as no surprise, since the CPP is a good and solid program. For over 50 years, the CPP has been helping to ensure that all workers in Canada have a minimum level of financial security in retirement. The most recent statistics tell us that 5.2 million people in Canada received $37.3 billion in benefits from the CPP.
According to a report by the Conference Board of Canada, poverty rates among Canadian seniors have fallen by 25% over the past four decades, dropping from 36.9% in 1976 to 12.3% in 2010. The Conference Board of Canada concluded that this significant reduction can be largely attributed to the implementation of the CPP and, in Quebec, the QPP.
The CPP Investment Board is similarly well-regarded around the world for its impressive record of investment performance and management excellence. The CPPIB operates at arm's-length from governments, with a mandate to invest CPP funds in the best interests of plan members. It has been acclaimed by international bodies such as the World Bank as the model of an independent, transparent, and accountable public pension fund management organization.
As the manager of a large fund program with millions of contributors, the CPP Investment Board is able to take advantage of economies of scale to deliver strong net returns. Over the past 10 years, the CPPIB has delivered a 10-year average nominal rate of return of 6.8% on existing CPP assets. This is above the 6.1% nominal rate of return identified by the chief actuary of Canada as necessary to ensure the sustainability of the Canada Pension Plan.
With this rock solid investment structure as its foundation, the CPP provides a safe, secure, and predictable benefit, which means that Canadians can worry less about outliving their savings or having their savings impacted by significant market downturns. The recently released 27th actuarial report on the Canada pension plan concludes that the existing CPP is on a sustainable financial footing, at its current contribution rate of 9.9%, for at least the next 75 years.
Bill C-26 would make amendments to the Canada Pension Plan Investment Board Act to make the CPPIB the manager of the improved CPP. Now that Bill C-26 is before us for consideration in Parliament, the chief actuary will conduct an actuarial assessment of the enhancement to ensure that it is on a sustainable, long-term financial footing.
CPP benefits are also fully indexed to prices, which reduces the risk that inflation will gradually erode the purchasing power of retirement savings. As well, the CPP is a good fit for Canada's changing job market. It helps to fill the gap left by declining workplace pension coverage and it is portable across jobs and provinces, which promotes labour mobility and reflects how Canadians currently live, work, and retire. With the automatic collection of contributions for all workers, the CPP is a simple way to save for retirement. It also provides important income support through disability, death, survivor, children's, and post-retirement benefits for eligible contributors and their families.
By supporting today's legislation, parliamentarians will not only be boosting how much each Canadian will get from his or her CPP pension in the future, we will be making a great program even greater. With 75% of Canadians in support of a stronger CPP, members will be acting on one of the highest priorities of Canadians.
I am honoured to have been able to work with our provincial and territorial partners to make an enhanced Canada pension plan a reality for Canadians. I encourage my colleagues to share in this success by supporting Bill C-26.