Mr. Speaker, Canada is a country built upon optimism, often in the face of seemingly insurmountable challenges. However, the promise of a better life has been eroded in recent decades and the reality is that many middle-class Canadians have had their confidence shaken.
While our economy continues to grow, middle-class Canadians are struggling. Many Canadians are working harder and longer as the cost of living continues to rise. Middle-class families do not feel they are getting ahead. It is time to recapture the hope and optimism for the future that existed in previous generations.
We must embrace the spirit of those early founders and build upon their legacy by providing the same opportunities for advancement and mobility that they once unlocked. We need to take the next steps to help Canada harness the tremendous growth potential that we have in our great country.
A strong economy starts with a strong middle class. Canadians understand this and so do we. That is why building an economy that works for middle-class Canadians and their families is our top priority.
A strengthened middle class means hard-working Canadians can look forward to a good standard of living and better prospects for their children. When the middle class thrives, we all thrive.
Investments are needed today that will strengthen and grow the middle class. We know Canadians, and in particular younger Canadians, are concerned about whether they will be able to enjoy a secure and dignified retirement. That is why our government committed to working with all provinces and territories to enhance the CPP to ensure that future generations of Canadians could count on a stronger public pension system in their retirement years.
In June, the Minister of Finance met in Vancouver with provincial and territorial finance ministers and they reached an agreement to strengthen the Canada pension plan.
First, the agreed upon plan will increase the share of their annual eligible earnings Canadians will receive in retirement through CPP from one-quarter to one-third. For example, if they make $50,000 per year over their working life, they will receive under this agreement about $16,000 per year in retirement instead of $12,000.
Second, it will increase the point at which this new one-third replacement rate maxes out by 14% in 2025. For most Canadians, these significant increases in the Canada pension plan retirement benefit will come from only a 1% increase in their premium.
For those higher income Canadians with earnings above the current maximum pensionable earnings level, a separate contribution rate of about 4% will be introduced, starting in 2024, that will provide them with the opportunity to save at a rate more in line with their higher income.
The agreement will also provide a tax deduction for employees' new Canada pension plan contributions. Providing a tax deduction, as opposed to a tax credit, will avoid new Canada pension contributions increasing the cost of saving for Canadians.
Under this agreement, increases to the working income tax benefit to roughly offset incremental CPP enhancements will mean eligible low-income workers see little to no change in their household budget, while still ensuring these workers see higher benefits in retirement.
In addition, we have ensured that the proposed changes are affordable for business by introducing a long and gradual phase-in starting in 2019, which will allow more time for business to adjust. This is the responsible way to ensure that business and workers have time to adjust to the additional contribution associated with the enhanced program.
The moderate and phased-in approach agreed upon by Canada's finance ministers will have a net positive impact in the long term and that is what is important about our plan. Saving for retirement has always been a challenge and unfortunately those numbers are not improving.
In 1977, 43% of Canadians were covered by a secured defined benefit workplace pension. By 2012, that figure had fallen to 27%. The situation in the private sector is even more stark, with the level of defined benefit coverage down to a mere 11%. This means that only a few Canadians with workplace pension plans will retire with the security of knowing exactly how much retirement income they will be getting each month. Everyone else's workplace pension is dependent on market performance. That was why it was so important for our government to work with the provinces to enhance the CPP.
The CPP enhancement is about helping today's young people and future generations of Canadians, and it complements a solid set of voluntary private retirement savings options available to Canadians through tax-assisted vehicles, such as the registered pension plans, registered retirement savings plans, pooled registered pension plans, and tax-free savings accounts.
In addition to our co-operation to enhance the CPP, our government is working with our provincial partners to support low costs for Canadian financial consumers who choose to make PRPPs a part of their retirement savings plans through our recent multilateral agreement on PRPP.
By making these changes, we wanted to complement private savings and pensions in a way that would make our retirement savings system even healthier and more effective.
These changes to the CPP are about hope and optimism. They are about middle-class Canadians, and those working hard to join them. They are about taking a fundamentally new approach and charting a new course for Canada. We are ensuring that investments needed to support the economy will lead to long-term growth that strengthens the middle class.
Canadians are the real drivers of change, and their voices will continue to guide the government as we work together to build the Canada of the 21st century.