Historic CPP Expansion Agreement Is Something To Celebrate

Well, it looks like cats can be herded after all. Canada's finance ministers actually agreed to increase the CPP -- albeit in principle until ratified by all the provincial governments.

Leading up to their meeting this weekend, it was a lot like that old TV show: To Tell the Truth. With all the posturing, it was hard to tell whether Federal Finance Minister Bill Morneau was reflecting reality when he said that he was close to a provincial consensus last December or whether his provincial counterparts were right to say it wasn't happening. And since they were still not on board on the eve of the meeting, the Communiqué today is a pleasant surprise. Even Saskatchewan is in.

Well played, everyone! Well played.

Savour the moment: This is the first public pension reform in a generation and will go a long way to improving retirement security for today's workforce, 11 million of whom have no workplace pension plan to help them save. Younger voters, given credit for the Trudeau election win, might not have known it at the time but this is for them!

And it's a material improvement on the status quo.

All Canadians at all income levels today benefit from the CPP safety net which pays a maximum $13,110 CPP annually and average of $7,974.84, neither of which is enough to live on without another source of income. Under the new deal, that would increase to $17,478. And for people earning more than $55,000, the maximum could increase to over $27,000.

At present, employers and employees each contribute 4.95 per cent of income between $3,500 and $54,900. Under the new deal, the upper income limit would increase to $82,700 by 2025. The current CPP replaces 25 per cent of earnings up to the current coverage ceiling of $54,900 -- a maximum $13,110 CPP benefit annually. The new plan will replace one-third of income up to $82,700 or a maximum of about $27,566. To be clear, this is not a doubling of benefits generally -- a person who stays within the current upper coverage limit of $54,900 would see their benefit increase to about $17,478.

To pay for the new benefit, premiums will increase by about one per cent once fully phased in or about $34 a month for someone earning $54,900. For the time being, contributions will start at $7 a month!

There has been a lot of heated debate about whether employers should be forced to pay higher contributions along with their employees to increase the CPP pensions -- the answer in 2016 is simply: "yes."

So much for the "job-killing payroll tax" argument. It, and the employers groups who argue that their employees should bear the increased premiums themselves if they want, are on the wrong side of history.

Monday's agreement should be sufficient to have Ontario suspend its plans to implement the ORPP which would have covered only Ontarians anyway. Ontario Premier Kathleen Wynne spent a heavy dose of political capital on her made-in-Ontario pension plan because for years the previous federal government vetoed any provincial consensus (not that there was any, mind you).

It didn't need to take so long and so much political hand wringing. Most people don't even notice the amount withheld from their pay cheques under the current CPP regime. In fact, 'round about now, many people are discerning that their pay cheques have jumped a little bit and wonder if they've gotten a raise they weren't told about -- because that's just what employers do! It's a real letdown when they find out that their CPP contributions are collected in the first half of the year and now they're paid up -- hence the jump in their take home pay.

The higher goal is to allow all Canadians the dignity of having funded their own pensions rather than relying on tax-funded income support.

In the latest of several similar polls, three in four Canadians support a CPP increase and are prepared to pay higher premiums for higher benefits. The dollar amounts at play are certainly not apocryphal.

So kudos to the federal government for reminding everyone in the room that they need to act now -- the stalling tactics were getting old. And kudos to the Ontario Government for putting some water in their wine. Well, not much since this plan is at least the two-thirds that Premier Wynne said she needed to drop her ORPP.

Also welcome is the inclusion of the lower income groups and helping them pay for the increased premiums. Some had argued that the increased CPP should apply only at incomes above $27,500 because this lower income group cannot afford the higher premiums and may lose out on GIS payments later when they receive higher CPP payouts. The announcement includes increasing the Working Income Tax Benefit to help people offset the increased CPP premiums. They could also increase the exempt income to calculate GIS payments.

The higher goal is to allow all Canadians the dignity of having funded their own pensions rather than relying on tax-funded income support. Most people do not stay on low incomes during their entire career and there are straightforward ways to mitigate the problems for the minority who remain in persistent low income.

At the other end of the spectrum are people who make more than the $54,900 now covered by the CPP. The new deal proposes to cover up to $82,700 of income. Groups in the business of providing workplace savings plans can't be blamed for targeting that business opportunity for their own products so now they have to move up the income scale a bit. But even they acknowledged the need for a CPP increase to help those earning over $27,500.

This may have been too many numbers and dollar signs as we slip under the first summer solstice full moon in decades. But given the historic agreement on CPP, let's call it a blue moon!