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In January 1998, Parliament enacted Bill C-2 which amended the Canada Pension Plan. Securing the future of Canada's retirement income system is a key priority for the Government of Canada and Canadians alike. When the Canada Pension Plan was introduced in 1966, the face of Canada's population was entirely different than it is today. A quickly growing seniors' population, a generation soon to retire, and a rapidly shifting economy has meant that changes to the Canada Pension Plan were essential to maintaining an affordable, sustainable, and fair system for everyone. To guarantee that the Canada Pension Plan will be there for Canadians in the future, the Government of Canada has put in place a strong and balanced package of changes to strengthen the Plan's financing, improve the investment practices, and moderate growth in costs. Although the Government of Canada administers the Canada Pension Plan, changes to the Plan cannot be made without the agreement of 2/3 of the provinces with 2/3 of the population. This ensures that the Canada Pension Plan is there for Canadians today and tomorrow -- not just for workers when they retire, but also for Canadian workers and their families should they become disabled or die. These changes maintain the Canada Pension Plan Fund, to keep future contribution rates down, and to strengthen Canada's retirement income system. Following are answers to frequently asked questions about the changes and what they mean to Canada Pension Plan contributors and beneficiaries.
What did not change?
As a current beneficiary, did the amount of my cheque change? No. Benefits already being paid when the legislation was passed were not reduced. However, if you were a beneficiary and you apply for or have your benefit converted to another Canada Pension Plan benefit after December 31, 1997, the new benefit is subject to the legislative changes. What are the highlights of the changes to the Canada Pension Plan? Funding and financing
New Investment Policy (effective April 1, 1998)
Benefits and their Administration
Stewardship and Accountability
Can my application be considered under the old rules? Most of the changes took effect January 1, 1998. Some changes, however, will depend on the date of the key event. For example, whether the old or new rules apply to a death benefit depends on when the contributor dies, not when the application is received. Whether the old or new rules apply to a retirement pension will depend on when the applicant reaches age 65, or whether the benefit was being paid as of December 31, 1997. For a disability benefit, it will depend on when the person is deemed to have become disabled under Canada Pension Plan legislation. Why are these changes necessary? Why must Canada Pension Plan contribution rates go up so much? The Government of Canada and the provinces, as joint stewards of the Canada Pension Plan, believe that all reasonable steps should be taken to ensure that the Canada Pension Plan is sustainable, affordable and fair to all generations now and in the future. The Chief Actuary of the Canada Pension Plan indicated that if no changes were made to the Canada Pension Plan and the way it was financed, our children and grandchildren would be required to pay more than 14.2% of contributory earnings (shared equally between employer and employee) in the year 2030 for the same pensions we are paying 7.8% for today. You cannot opt out. Canada Pension Plan is more than just a retirement plan. It also provides some protection in the event of disability and death. In order to protect all Canadian workers and their families, compulsory coverage is necessary. Pooling the costs of benefits across the entire workforce provides workers and self-employed persons and their families with some affordable coverage that would not otherwise be available. The combined rate for employees and employers under the changes will rise to a maximum of 9.9% in 2003. Remember also that you do not pay any contributions on the first $3,500 of earnings nor on earnings above $38,300 (in 2001). If I work for different employers during the year, can I still contribute to the Canada Pension Plan? Yes. The Canada Pension Plan is fully portable no matter how often you change jobs or where you work in Canada. Every employer is required to collect Canada Pension Plan contributions from each employee, and your contribution record is updated annually. The Canada Pension Plan administration keeps an account of all your contributions to the plan, regardless of how many employers you work for during your career, or where in Canada you work. Note that your contribution ceiling, or yearly maximum pensionable earnings ($38,300 in 2001), remains the same no matter how many employers you have during the year. How do the changes make the Canada Pension Plan more sustainable, affordable and fair to Canadians?
Will the Canada Pension Plan be there for me when I retire?
Children's BenefitsHow do the changes affect Canada Pension Plan children's benefits? Under the1998 changes, there is no impact on children's benefits, either for current beneficiaries or future beneficiaries. Combined BenefitsHow do the changes affect the way Canada Pension Plan benefits are combined? The method for calculating combined benefits changed. Under the changes, the combined survivor/retirement benefits are lower for many new beneficiaries. As well, the changes mean lower combined survivor/disability benefits for all new beneficiaries. Death BenefitHave the changes affected the Canada Pension Plan death benefit? The death benefit changed from the former amount of six times the monthly retirement pension of the deceased contributor to a maximum of $3,580 (in 1997), to six times the contributor's monthly retirement pension up to a maximum of $2,500 and is frozen at that level. This change applies to deaths after December 31, 1997. Disability BenefitsHow did the changes affect disability benefits? Eligibility for disability benefits, in addition to meeting medical requirements, now requires contributions in four of the last six years on earnings that are at least 10% of the year's maximum pensionable earnings ($38,300 in 2001). As well, for those receiving disability benefits at age 65, instead of calculating the retirement pension based on the year's maximum pensionable earnings at the time of retirement, the calculation is now based on the year's maximum pensionable earnings at the time of disablement and indexed to age 65. Benefits will continue to be fully indexed to prices and can be augmented at age 65 by the Old Age Security/Guaranteed Income Supplement. The former contributory requirements applied to anyone who was considered to be disabled before the end of 1997. The new contributory requirements of four out of the last six years for a disability benefit apply to persons who are determined to have become disabled in 1998 or later. Are persons with disabilities being targeted by these cuts? No. These measures are part of a balanced package of changes to ensure that Canada Pension Plan is affordable and sustainable for future generations. The Canada Pension Plan will continue to provide disability benefits that are fully price indexed. The measures will enable the Canada Pension Plan to continue to provide disability benefits in a fair, consistent and responsible manner while controlling costs. In fact, the long-term impact of the benefit changes will be shared among retirees, survivors or estates, and persons with disabilities. Will Canada Pension Plan disability beneficiaries receive less money at age 65 when their disability benefit converts to a retirement pension? After December 31, 1997, for those receiving a disability benefit at the time of conversion to a retirement pension at age 65, retirement pension calculations will be based on the year's maximum pensionable earnings at the time of disablement rather than at the time of retirement. This could result in a lower Canada Pension Plan retirement pension than under the previous provisions. However, recipients will also be eligible for Old Age Security, which will augment their incomes. Improved Administration of Disability BenefitsWhat improvements were made to the administration of disability benefits? The adjudication, appeals and reassessment processes have been strengthened to ensure benefits are paid only to those who continue to be disabled. New guidelines issued in 1995 stress the use of medical factors and rule out the use of socio-economic factors in assessing disability. The new guidelines have also helped adjudicators make very difficult and complex decisions. Improved client communications stress the rights and responsibilities of those receiving benefits to inform the Canada Pension Plan administration when their medical condition changes. Incentives to return to work have also been introduced, and a vocational rehabilitation program has become a regular part of Canada Pension Plan disability operations. Retirement PensionsHow did the changes affect retirement pensions? First, some key aspects of the retirement pension are not affected:
Only one aspect of the Canada Pension Plan retirement pension changed. The plan now uses a five-year average for adjusting previous earnings to make them comparable with current wages, instead of the previous three-year average. The calculation formula is otherwise unchanged. The amount of the pension still depends on how much, and for how long, a person has contributed to the plan and at what age he/she chooses to start receiving it. For example: If the five year average were used in 1997, the average monthly pension of $383.49 in June 1997 would have been reduced to $377.13, only $6.36 less per month. The maximum pension of $736.81 per month would be reduced by $12.23. This change did not apply to retirement pensions being paid as of December 31, 1997. How is a Canada Pension Plan retirement pension calculated? A retirement pension is calculated using a complex formula that takes into account how much and for how long you contributed to the plan between age 18 and age 70 or the start of a retirement benefit. The formula protects your benefit by making some adjustments before calculating your pension.
As a rough rule, your Canada Pension Plan retirement pension will equal about 25% of your average monthly pensionable earnings over your working life, after upward adjustment to reflect current wage levels. If a contributor retires at age 55 and applies for an early retirement pension at age 60, which five years of earnings are used to determine the pension amount? The method many private pensions use to calculate a benefit is quite different from how the Canada Pension Plan calculates benefits. For a private pension, the pension benefit is often based on the number of years worked and an average of your best or last five years of earnings. For the Canada Pension Plan, it is not the contributions in the last five years that determine your benefit but all contributions and related pensionable earnings during your working life (referred to as your contributory period). Your contributory period starts at age 18 or in 1966, whichever comes later, and ends when you start collecting a Canada Pension Plan retirement pension or reach the age of 70. The amount of the pension will depend on how much, and for how long you have contributed to the plan and the age you choose to receive it. Survivor BenefitsDo the changes affect survivor benefits? Survivor benefits being paid in 1998 were not changed. However, should the survivor beneficiary qualify for a second benefit at some time in the future, the maximum combined amount payable through the two benefits would be calculated using new combined benefits rules, which may result in a lower overall combined benefit. Future survivor benefits are affected by the change to the retirement benefit calculation, since survivor benefits are based on a calculation of the deceased spouse or common-law partner's retirement benefit. Do you need additional information? If you need more information about the Canada Pension Plan, please call free of charge 1 800 277-9914. If you have a hearing or speech impairment and you use a TDD/ TTY device please call 1 800 255-4786. |
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