Mr. Speaker, the Canada pension plan, CPP, is a jointly managed federal-provincial-territorial plan. The federal government cannot unilaterally change the CPP. To come into effect, a change needs formal approval of at least two-thirds of the provinces with two-thirds of the population of Canada.
The reforms referenced were unanimously agreed to by all federal, provincial and territorial finance ministers on May 25, 2009 and followed the conclusion of the mandated 2007-2009 triennial review of the CPP. For more information, please visit http://www.fin.gc.ca/n08/09-051-eng.asp.
Collectively, the ministers unanimously agreed to modernize the CPP to better reflect the way Canadians live, work and retire. The alterations were intended to increase flexibility, modestly expand CPP coverage, and treat workers fairly regardless of the age they take their pension or how they choose to retire.
Once fully approved, the changes will come into effect starting in 2011 and 2012, and many of them will be implemented gradually, over a number of years. Specifically, the proposed changes include: removal of the work cessation test in 2012; an increase in the general low earnings dropout provision; a requirement, starting in 2012, for those who take their CPP before age 65 and work, as well as their employers, to contribute to the CPP; and gradual restoration of pension adjustments for early, between ages 60 and 64, and late, between ages 66 and 70, take-up of the CPP to their actuarially fair levels.
Under the reforms, access to a CPP pension as early as age 60 will not change. Rather, they will gradually restore adjustments to pensions taken before or after age 65 to their actuarially fair values. This change reflects that in most cases those taking up the CPP before age 65 will receive it for a longer period than someone taking it after 65, even though they paid contributions for a shorter time. Additionally, this change also reflects that in most cases someone taking up the CPP after 65 will receive it for a shorter period than someone taking it before 65, although they have paid contributions for a longer period.
Federal, provincial and territorial ministers of finance agreed to move these adjustments gradually, over a number of years, to their actuarially fair values. When fully implemented in 2016, the early pension will be adjusted downward by 0.6% per month for each month that the pension is taken before an individual’s 65th birthday. As a result, beginning in 2016, if an individual chooses to take up the CPP pension on his or her 60th birthday, he or she will receive 64% of the amount he or she would have received at age 65, compared to 70% currently.
The adjustment for pensions taken after turning 65 years of age will be fully implemented earlier, in 2013. When fully implemented in 2013, the late pension will be increased by 0.7% per month for each month that the pension is taken after age 65 up to the age of 70. As a result, if an individual chooses to take the pension at age 70, he or she will receive 142% of the amount he or she would have received at age 65, compared to 130% currently.
This change will not affect current CPP beneficiaries who took their pensions before or after age 65, nor will it affect those who apply for the CPP in 2010, unless those individuals return to work in 2012 or later. In that case, only the portion of CPP benefits based on earnings after 2012 will be affected by the new pension adjustments.
As required by the legislation, the Office of the Chief Actuary at the Office of the Superintendent of Financial Institutions prepared the 24th Actuarial Report on the CPP to show the effects of the aforementioned reforms on the long-term financial status of the CPP. For more information, please visit http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/oca/reports/CPP/cpp24_e.pdf. According to the aforementioned report, the reforms were deemed affordable within the current CPP contribution rate of 9.9% on earnings up to average wages.
Additionally, third party independent observers have reviewed and applauded the reforms as well. For example, an Edmonton Journal editorial noted the “welcome changes…will allow Canadians of a certain age to draw on their Canada Pension Plan benefits and still be allowed to work … the prospect that thousands will be able to discern a horizon when they can not only choose to be gainfully employed but also collect on a pension they paid into for years must come as some relief”. Finn Poschmann of the C.D. Howe Institute has remarked that the “adjustments mark an important sea change in government pension policy's approach to dealing with population aging and, in particular, making it easier for those people who want to work later in life to do so”.
