Mr. Speaker, I apologize. It is because of the emotion about the good work my colleague, the Minister of Finance, is doing.
As the minister recently highlighted in the fall economic statement, this government is putting the middle class first. For example, we are investing an additional $81 billion in public transit, green and social infrastructure, and transportation infrastructure that supports trade and rural and northern communities to bring Canadians good jobs, a cleaner environment, and thriving communities for years to come.
We are doing this because we believe that Canadians have what it takes to succeed, and our government is willing and able to act to create a better future for our children and grandchildren. That is exactly what we are doing by enhancing the Canada pension plan.
We know that middle-class Canadians are working harder than ever, and many of them are worried that they will not be able to save enough money for their retirement. Here is the big question: how widespread is this problem and how can we help Canadians to do better?
The Department of Finance has examined whether families nearing retirement are adequately prepared for retirement. About one in four families approaching retirement, which is 1.1 million families in our country, are at risk of not saving enough to maintain their standard of living in retirement. The risk is highest for middle-income families. Families without workplace pension plans are at an even greater risk of under-saving for retirement. A third of these families are at risk.
Economic conditions since the global recession of 2008 pose particular difficulty for younger Canadians. They are facing the challenge of securing adequate retirement savings at a time when fewer can expect to work in jobs that will include a workplace pension plan.
An extended period of low interest rates could mean that young workers will have to deal with a lower return on their retirement savings. That means that they may need to save even more money than previous generations to have the same standard of living when they retire. In addition, because younger generations are more likely to be in debt than previous generations, they are more exposed to a wide range of risks, from financial market volatility to fluctuations in housing prices. Given these factors, younger generations will have to rely more heavily on their personal retirement savings. Furthermore, increased life expectancy increases the risk that members of younger generations will exhaust what money they managed to save for retirement before the end of their lives.
Given these circumstances, we have a simple yet critical responsibility. We need to act now if we want Canadians to have a secure and dignified retirement.
This is why we are proposing to enhance the Canada pension plan, or as we commonly refer to it, the CPP.
On June 20, Canada's finance ministers reached a historic agreement to make meaningful changes to the CPP that would put more money in the pockets of Canadians after they retire. The CPP enhancement would increase the retirement benefits people will receive. Enhanced benefits would accumulate gradually over time as individuals paid into the enhanced CPP.
Young Canadians just entering the workforce would see the largest increase in benefits. The real question, therefore, is what that means for today's young people and for future generations.
As my fellow members know, the CPP is currently designed to replace one-quarter of income, up to the average industrial wage in retirement. The changes we are proposing would increase that percentage to one-third. This means that a person making $50,000 a year over a 40-year career would receive about $16,000 per year in retirement instead of $12,000. That is $4,000 more each year right into the people's pockets. Even a more modest earner, one averaging $35,000 a year, would receive almost $3,000 a year above the $8,500 provided by the current CPP. In addition, the enhancement would increase the maximum level of earnings that are replaced by the CPP by about 14%. This would further increase the CPP benefits for those who earn above the average wage at any point in their working years.
To fund these enhanced benefits, annual CPP contributions would increase modestly over seven years, starting in 2019. Right now, for example, people earning about $50,000 a year contribute around $2,300 to the CPP per year, or $190 a month. With the enhancement, those people would contribute an additional $70 per year, or $6 a month, starting in 2019. By the end of the seven-year phase-in period in 2025, their contributions would amount to an additional $475 per year, or $40 per month. As members can see, those are modest increases for very significant enhanced benefits.
Helping people achieve a secure retirement with adequate income is among the key elements of long-term economic and social sustainability.
That is what Canada has been doing for a long time. Our retirement income system is widely recognized as being among the best in the world. It offers a combination of public pension plans and voluntary private savings mechanisms enabling people to save for retirement.
The Canada pension plan is one of the cornerstones of the system, and the 28th actuarial report on the Canada pension plan, prepared by the chief actuary, confirms that the CPP will be viable in the long term.
Our system also includes the old age security program, which offers significant income support to Canadian seniors. We recently restored the age of eligibility for old age security to 65 to improve the lives of seniors, particularly vulnerable, low-income individuals, many of whom are single retired women. According to our calculations, if we had not rolled back the policy, 100,000 Canadians aged 65 or 66 would have slipped into poverty, thereby increasing the poverty rate among seniors from 6% to 17%.
In addition to restoring the age of eligibility for old age security, we increased the guaranteed income supplement, which provides additional support to vulnerable, low-income seniors. This measure will significantly improve the financial security of about 900,000 seniors and will lift 13,000 of them out of poverty.
In addition to these income sources, Canadians can save through voluntary tax-assisted private savings plans, whether it is registered pension plans, pooled registered pension plans, registered retirement savings plans, or tax-free savings accounts.
While so far we have been discussing retirement benefits, it is important to note that the CPP also provides supplementary benefits, including the disability pension and the survivor's pension, which would also increase as a result of this enhancement.
The disability pension is a monthly benefit provided to people who have made sufficient CPP contributions and whose disability prevents them from working at any job on a regular basis. By increasing the amount of this benefit, the enhancement would provide greater security for working-age Canadians.
The survivor's pension is a monthly benefit provided to the surviving spouse of a deceased CPP contributor. By increasing the amount of the survivor's pension, the enhancement would provide more financial security to widows and widowers and further strengthen our retirement income system.
It is also important to note that CPP benefits are funded by the contributions of workers and employers and investments, rather than through tax revenues.
Employees contribute 4.95% of their earnings, up to $54,900. This dollar figure approximates the average industrial wage, and increases a little each year to reflect changes in wages.
Employers also contribute at the rate of 4.95%. Self-employed workers pay both halves of the contribution, or 9.9% of pensionable earnings.
However, to put the issue of affordability into perspective, our contribution rates in Canada are much lower than those in other countries with contributory public pension plans.
In fact, the CPP contribution rate is about half the average rate among 25 countries of the OECD, otherwise known as the Organisation for Economic Co-operation and Development, which have such plans.
This applies to employers here in Canada. The Canadian employer portion is less than half the average OECD employer rate, which was 11.2%, in 2012.
Employees in Canada also pay lower CPP contribution rates. The average employee rate is 8.4% in comparable OECD countries. Even on the world stage, our contributions are very much lower than what other people are paying in comparable countries with such plans.
I understand some people might be worried an enhanced CPP would change that. However, let me reassure Canadians who are watching at home, our contribution rates will still be much lower than the average.
In fact, even with the enhancement, CPP contribution rates would rank the fourth lowest among 25 OECD countries with contributory pension plans based on their 2012 contribution rates.
An enhanced CPP would still be one of the most affordable plans in the world. More importantly, it would further help Canadians achieve a safe and secure retirement.
I know some are concerned about the increased contributions, and what it would mean to their bottom line, to their paycheque. I am sure people at home watching us are concerned about that, so let me answer that.
We thought about this and designed a phased-in approach so that the modest increase in contributions would occur gradually over a seven-year implementation period.
We also thought about employers in designing the enhanced CPP. The slow phase-in of the CPP contribution increases was designed with the express purpose of minimizing their impact, and giving employers across our nation, as well as employees, time to adjust to these changes.
Let me talk about the working income tax benefit.
As I mentioned, the improvements we are proposing include a modest increase in contributions. We know that despite the long-term benefits of enhancing the Canada pension plan, some low-income workers might have a hard time making room in their budget for higher CPP contributions.
Our government is focused on developing policies and implementing programs based on fairness and on helping those less fortunate in our society. Enhancing the Canada pension plan aligns with that perspective and our government's approach.
To ensure that eligible low-income workers are not financially burdened as a result of the extra contributions, the Government of Canada will enhance the working income tax benefit, or WITB. The WITB is a refundable tax credit that supplements the earnings of low-income workers.
The proposed enhancement to the WITB is designed to provide additional benefits to eligible low-income workers in order to more or less offset their incremental CPP contributions.
Clearly, we are standing up for Canadians who need a little extra support.
Let me turn to the economic benefits.
Our analysis shows there are economic benefits flowing from this enhancement. Over the long-term, employment levels will be permanently higher, between 0.03% and 0.06%, in our country.
This is good news for everyone.
Most people do not know that the CPP fund is ranked as one of the 10 largest retirement funds in the world. Because of this and its long investment horizon, the Canada Pension Plan Investment Board is able to undertake investments, and form partnerships that are beyond the scope of other investment managers.
It has achieved an enviable record of strong returns on behalf of the contributors and beneficiaries of the CPP. Over the long-term, greater CPP benefits will boost demand and increase overall savings in our country. This will in turn boost our economic output, and make more money available for investment.
We are estimating that Canada's gross domestic product will increase between 0.05% to 0.09% over the long-term as a result of the CPP enhancement. The enhancement will not only provide retirement security for more Canadians, it will create jobs and have a positive, long-term impact on the Canadian economy.
Let me turn to sustainability.
We are helping Canadians save more for a secure retirement by relying more on the Canada pension plan, which is a solid and viable financial vehicle. We are ensuring that the CPP increases will be entirely dedicated to increasing the benefits Canadians will receive.
As hon. members will recall, last month, the current chief actuary of Canada said in his latest report that at the current contribution rate the Canada pension plan is on a sustainable financial footing for at least the next 75 years. Canadians can rest assured that the financial foundation of the Canada pension plan expansion will be as solid as a rock.
As we know, the Canada Pension Plan Investment Board, or CPPIB, always invests in public and private assets for the long term, for people who will be retiring over the coming decades.
On June 30, 2016, the Canada pension plan fund stood at more than $287 billion, which is quite something. Obviously, this is a very solid foundation for the future.
In closing, the expanded Canada pension plan is a good tool used at the right time to improve the retirement income security of today's workers, especially our young workers. Improving the retirement income security of Canadians through the Canada pension plan presents various other benefits in addition to the economic ones I pointed out. The CPP provides secure and predictable benefits for life, which means that Canadians can worry less about exhausting their savings or having their savings affected by the vagaries of the market. Canada pension plan benefits are fully indexed to inflation, which reduces the risk of price hikes gradually eroding the purchasing power of retirement savings. The expansion also includes increased benefits for the families of Canadian workers in the event of death or disability.
The CPP is a good fit for Canada's changing job market.
I would like members to remember this is good for Canada. This is good for younger generations. This is good for all people who are going to retire 40 years from now and in the years to come.
All members in this House will talk to their children and grandchildren, and be proud of this day.