Mr. Speaker, I am proud to rise to speak to this important issue today.
New Democrats were first to fight on behalf of an enhanced Canada pension plan in this century, launching a multi-faceted plan that would have ensured retirement security for Canadians back in 2009. While we are supporting the current level of enhancements, we nevertheless understand that for many retirees it will be inadequate. That is why we will continue to fight on behalf of all present and future retirees so that they can retire with the dignity we believe they deserve.
Canadian retirement income, and in particular enhancement to CPP, is one of the defining issues of a generation. Juxtaposed with the precarious work issue, we know Canadians are facing a retirement income crisis that must be addressed. The enhanced CPP would benefit a new generation of workers entering the workforce, but it would not alleviate the retirement income crisis of those who approach retirement.
An expansion of the CPP is the right way to modernize the retirement income system for the 21st century. The CPP is universal, providing pension benefits to all workers earning more than $3,500 throughout their working life. The pension benefits follow us from job to job and for periods of self-employment as well. These attributes are important, given that this is a generation of workers who are more likely to change jobs many times over their working lives and less likely to have a workplace pension plan. Add to the mix the proliferation of low-paying, precarious jobs, along with increasingly high student loans, and we begin to see that there is a real structural impediment to saving for retirement.
Given the urgency of this situation, it has always been difficult to listen with a straight face to the Conservatives declare that the CPP enhancement is a tax. A tax that pays us back later, is it? I do not think so. Like all real pensions, the CPP is a deferred wage. It is income that will be received later, and tax will be paid on that income later, by the way. It is disingenuous to continue referring to this enhancement to the CPP as if it were a negative, as if it did not matter that people would be in a better position to retire with financial security in the future.
Also, increasing the CPP now is a great way to diminish future reliance on the taxpayer-funded guaranteed income supplement, so this enhancement would actually be good for the taxpayer. Increasing CPP is largely a no-brainer as the plan performs very well and its administration costs are kept low. Low operating costs mean more of the money Canadians contribute through their CPP premiums gets invested, which means higher returns, which means more money for retirement incomes. The high administration fees charged by the retirement plans sold by the financial industry eat into future savings. In fact, an extra fee of 1% can cut into lifetime savings by as much as 25%. The typical fee charged for mutual funds in Canada, 2.3% for example, can slash returns in half.
The CPP was created to be a universal pension program, meaning it belongs to everyone. Everyone pays into it when he or she works and everyone gets a pension from the CPP when he or she retires, fair and simple. The CPP provides a lifetime benefit that maintains its value over time as it is indexed. There is no need for people to fear that they will outlive their retirement savings or that those savings will be reduced by inflation as they age.
Currently, the CPP covers earnings capped at $54,900. For earnings up to the cap, the CPP aims to replace about 25% of the income. Therefore, the maximum pension comes in at about $1,092 per month, or $13,100 per year. Contributions are 4.9% for each the employer and the employee up to the same cap. The expanded CPP would be a new and separate tier. This tier would be added on top of the existing CPP. The new CPP tier would do two things, phased in over the next years to 2025.
First, it would take the replacement rate up to 33.3% from the current 25%. Second, it would expand the upper earnings cap from today's $54,900 to $82,700.
To pay for the increase in benefits, contributions for employers and employees would increase. This increase would be phased in between 2019 and 2025. There would be two tiers for the increase between 2019 and 2025. For those earning less than the yearly pensionable maximum earnings, which is currently $54,900 and would be adjusted each year, it would increase slowly to rise to an additional 1%. Those workers and employers would then be paying at a rate of 5.95%, up from 4.95%. In real numbers, this would mean that a person whose rate was set at the maximum would pay an additional $43 a month, as would the employer.
The Liberals claim that the maximum benefit under the enhanced plan would rise by 50%. Well, this is creative mathematics, as they get that number by using a faulty comparison. In fact, the maximum benefit would rise by 33%. The maximum a person can receive is now $13,110. That number is based on the maximum earnings that can be used to determine benefits, which is $54,000. Under the new plan, that person will receive $18,117, and that is in 2016 dollars, or a 33% increase.
The high cost of housing and drugs, the looming issue of the clawback of the GIS, and the indexing of pensions come immediately to mind as areas we need to act on quickly. Canadians from coast to coast to coast agree.
We are witnessing and experiencing the untenable pressure our seniors must bear. More must be done, because all of our seniors deserve to live with dignity. We need immediate action to help those seniors and seniors on the cusp of retirement who will not benefit from these changes.
Let us build on the momentum of this agreement and take the next steps to improve long-term retirement security for today's workers. Social justice advocates, including the labour movement, have done a tremendous job in laying the groundwork for this agreement. I am so proud of the work they do in my riding to advance our social conscience.
It is in that vein that I raise a profound concern about how the enhanced CPP contributions will be managed and invested. The Canadian Pension Plan Investment Board must diligently examine its areas of investment, including resource extraction in developing countries. The Norwegian pension plan investment board, for example, withdrew from all such portfolios because of human rights concerns.
As Canadians, we need to stand up to cavalier attitudes that suggest that this is how business is done. We must begin to think of the human consequences of our activities around the world, and where businesses behave in a predatory and exploitative fashion, I believe we should withdraw our investments in those areas forthwith. Canada has a social responsibility for our seniors and a responsibility to ensure the corporate social responsibility of Canadian companies in other countries, as well.
In closing, I would like to say again that the proposed changes to the CPP are welcome. They are expected by Canadians who have high expectations of our government. However, they are also an inadequate response to the retirement plight of working Canadians. For a government that prides itself on legislation that is fact based, it must go back and examine the facts.
In a society such as Canada's, where retirement security is built on the premise that employer-provided workplace pensions perform a significant portion of retirement security, along with personal savings and public pensions, it should be clear that the present system is broken and will not be fixed by the changes to the Canada pension plan alone that are being debated here today.