Mr. Speaker, I will be splitting my time with the member for Winnipeg South.
Our government is committed to strengthening the backbone of the economy, the middle class, and those working hard to join it. It is with this commitment that our government has delivered on a number of platform promises that were made to hard-working Canadians.
I am proud to stand and speak to Bill C-26, an act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act. This legislation would strengthen Canada's pension system and was a key promise we made to ensure a secure and dignified retirement for all Canadians. I congratulate the Minister of Finance, who delivered on this commitment by working in close collaboration and common purpose with our provincial and territorial partners.
It must be noted that provincial leaders of every major political party, Liberal, New Democratic, and Conservative, worked diligently on coming to this historic agreement that would benefit generations of Canadians, including my two young children, Natalia and Eliana.
What is at stake is simple. We must strengthen our pension system to reflect the realities that exist today and ensure a dignified and secure retirement for all Canadians.
To start our discussion on the proposed legislation, I believe it is best to review Canada's retirement system as it stands today and why a strengthened CPP is required to address trends that are leaving so many Canadians unprepared for their post-work years. Today's multi-pillared system includes old age security and the guaranteed income supplement, which are paid out of general government revenues and act as a basic income floor for low and middle-income Canadians. The CPP and QPP are funded through mandatory employer-employee contributions, and, in the 1990s, the CPP shifted from a pay-as-you-go system to a pre-funded platform. Finally, we have private workplace pensions and discretionary individual savings, including tax-free savings accounts and registered retirement savings plans.
Despite this multi-pillared approach to the retirement system, a number of trends are emerging that are leaving millions of Canadians unprepared for retirement and potentially facing a material drop in their standard of living.
Extensive analysis conducted by the finance department found that around one-quarter of families nearing retirement, approximately 1.1 million families, are facing a drop in their standard of living. Furthermore, it is estimated that as many as five million Canadians do not have access to a workplace savings arrangement, and many of these middle-class Canadians are at a greater risk of under-saving for retirement. We must act to ensure that all Canadians have a secure and dignified retirement.
In addition, younger Canadians today face circumstances not faced by prior generations in terms of saving for their retirement. Canadians now entering the workforce will face the prospect of changing jobs several times in their lifetime, and a portable pension plan that facilitates job mobility is now a necessity in this changing job market.
Since the 1970s, we have seen a material decline in the overall participation in private sector registered pension plans, as well as an ongoing shift from defined benefit to defined contribution plans. Statistics Canada estimates that total private sector workplace registered pension plan coverage has declined from 35% to levels now approaching 20%. Frankly, fewer private sector companies are offering workplace pension plans, and many companies have closed or wound up their defined benefit pension plans.
Defined contribution plans are not in their exact nature true pension plans, as they expose individuals to investment risk and swings in the beneficiary's pension plan assets, and a subsequent shortfall in pension savings. Also, a low interest rate environment, which influences the present value of liabilities and has placed cash flow demands on companies to maintain solvency ratios, combined with, frankly, unfavourable accounting rules on pensions, has hastened the move by many companies away from defined benefit pensions.
Our government, in collaboration with the provinces, has taken a carefully targeted approach with this legislation to address the issues I have laid out while striking the important balance between short-term economic considerations and long-term economic gains.
What does an enhanced or stronger CPP mean for Canadians? Quite simply, it means a secure and dignified retirement for millions of Canadians. It means that individuals retiring can worry less about making ends meet and more about spending time with their loved ones, including grandchildren.
Once fully in place, this CPP enhancement would increase the maximum CPP retirement benefit of approximately $13,000 by up to 50%. In today's dollar terms, the proposed enhanced CPP represents an increase of nearly $7,000, to a maximum benefit of nearly $20,000.
The enhancement in this legislation would do 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 individuals making $50,000 today over their working lifetime would receive approximately $16,000 per year in retirement instead of the roughly $12,000 today. Second, it would increase by 14% the maximum income range, to approximately $82,700, so that those who earn more would receive more in retirement.
Enacting these changes with Bill C-26 would result, as estimated by the Department of Finance, in a reduction of families at risk of not having adequate retirement savings by one-quarter, from approximately 24% to 18%, when we consider all pillars of the retirement income system.
To ensure that these things are affordable, we would phase them in over seven years, starting in 2019 through to 2025, so the impact is minimal and gradual. As noted by David Dodge, former governor of the Bank of Canada, “The fundamental challenge [facing decision-makers] is how to provide for adequate retirement income for the future population of elderly people without imposing an undue burden of taxation on the working population and the business sector.”
We have struck this right balance. For example, an individual with earnings of $50,000 will contribute about $6 more a month in 2019, and by the end of the seven-year phase-in period, contributions for that individual would be about $40 per month. Additionally, and this is very important, we would ensure that low-income Canadians would not be financially burdened as a result of the extra contributions. We would enhance the working income tax benefit to roughly offset incremental CPP contributions with little to no change in disposable income, while still securing higher retirement income for low-income Canadians.
A strong CPP will be good for Canadians, and will also be beneficial to the Canadian economy overall. As estimated by the Department of Finance, greater CPP benefits would increase spending by retirees, providing for a boost to economic output. It is estimated that GDP would increase slightly, from 0.05% to 0.09%, and employment levels are projected to be permanently higher, by approximately 6,000 to 11,000 jobs, based on 2015 levels of employment. In addition, higher aggregate saving rates through enhancing CPP would increase the amount of capital available for investment.
The Canada pension plan is a solid program, and actuarially sound. It is fully funded for future generations. The most recent report noted that 5.3 million Canadians received approximately $38.7 billion in payments while contributions totalled nearly $45 billion. It cannot be understated just what advantages the CPP offers. The CPP as a retirement vehicle for Canadians is, in my view, a model for the world. These advantages include that CPP provides a secure, predictable, and stable benefit. Canadians will not outlive their savings, and benefits are not subject to shocks. CPP benefits are fully indexed to prices, so inflation will not reduce the value of a pension. CPP is fully portable, and it fills the gap of a decline in workplace pensions. Overall, CPP is an efficient way to save.
Finally, the CPP Investment Board operates at arm's length from the government, with a mandate to invest CPP funds in the best interests of plan members. It is a model that is independent, transparent, and accountable. It is well regarded around the world for its impressive record of investment performance and management excellence, with a 10-year annualized rate of return of 6.8%.
In closing, Bill C-26 is the next step forward in ensuring that all Canadians retire in a secure and dignified manner. I ask my colleagues to join with me in advancing this important piece of legislation that was brought forward in a collaborative approach between the provinces and the federal government.