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Ottawa, February 14, 1997
1997-010

Draft Legislation to Amend the Canada Pension Plan Tabled

Related documents (Canada Pension Plan WWW site):

• Securing the Canada Pension Plan: Agreement on Proposed Changes to the CPP.
• Canada Pension Plan Investment Board Act (Adobe Acrobat Version - 603,741 bytes).

Finance Minister Paul Martin today tabled draft legislation on proposed changes to the Canada Pension Plan (CPP). The changes to secure the CPP are supported by the federal government, the provinces of Newfoundland, Nova Scotia, New Brunswick, Prince Edward Island, Quebec, Ontario, Manitoba and Alberta, as well as the Northwest Territories. These proposed changes will ensure that the CPP will be there for future generations.

"We believe that Canadians should be able to count on their CPP benefits and that is why we worked so hard to make sure that they can." said Mr. Martin. "Canadians can rest assured that the pension system as they know it can be counted on by them and by future generations."

The proposed changes are the result of the statutory review of the CPP which the federal and provincial governments -- as joint stewards of the plan -- undertook more than a year ago. The changes reflect what was said during public consultations on the CPP held across the country last spring. Canadians asked their governments to preserve the plan, strengthen its financing, improve its investment practices, and reduce costs.

"The options we have considered in the course of our review required tough choices," Minister Martin noted. "But we have come up with a strong and balanced package that will ensure the CPP is there when Canadians need it. And we've done it in a way that has left intact some very important features of the CPP."

• All retired pensioners or anyone over age 65 as of December 31, 1997 will not be affected. Anyone currently receiving CPP disability benefits, survivor benefits or combined benefits will also not be affected.

• All benefits under the CPP will remain fully indexed to inflation.

• The ages of retirement -- early, normal or late -- remain unchanged.

The most important proposed changes are as follows:

Fuller Funding

• The Canada Pension Plan will move from pay-as-you-go financing to fuller funding to build a much larger reserve fund. The fund will grow in value from about two years of benefits currently, to about five years of benefits.

• Contribution rates will rise over the next six years to 9.9 per cent of contributory earnings and then remain steady, instead of eventually rising to 14.2 per cent as projected.

• The year's basic exemption -- the first $3,500 of earnings on which no contributions are paid -- will be maintained and frozen.

A New Investment Policy

• The reserve fund that will build up will be invested prudently in a diversified portfolio of securities, at arm's length from governments, to get higher returns. This will help pay for benefits for future generations.

Changes to Benefits and their Administration

• The formula for calculating retirement pensions will be based on the average of maximum pensionable earnings in the last five years, instead of the last three. Five years is the most common way of calculating pension benefits in private sector pension plans.

• Administration of disability benefits will be improved. To be eligible for disability benefits, workers must have made contributions in four of the last six years. Retirement pensions for disability beneficiaries will be based on maximum pensionable earnings at the time the disability occurs, and then indexed to age 65 by prices.

• Rules for combining survivor and disability benefits, and survivor and retirement benefits, will be changed.

• The death benefit will be equal to six months of retirement benefits, up to a maximum of $2,500.

Stewardship and Accountability

• Accountability to Canadians will be strengthened. Canadians will receive annual reports on their CPP pensions as soon as possible.

• Federal-provincial reviews will be required every three years, rather than every five years.

The new measures will become law once legislation to amend the Canada Pension Plan is passed by Parliament, and supporting orders in council are approved by two-thirds of the provinces representing two-thirds of the population. Even though British Columbia and Saskatchewan have not joined the consensus, the changes will apply to Canadians in those provinces once they are legislated. With the exception of an increase in the contribution rate for 1997, the proposed changes will come into effect in 1998.

The CPP was established in 1966 to provide all members of the paid labour force in Canada and their families with a base on which to build their retirement income, as well as benefits in the event of serious disability or death. The plan covers all employees and self-employed persons between the ages of 18 and 70 with annual earnings over $3,500, except residents of Quebec who are covered by the Quebec Pension Plan. Both plans are financed by contributions from workers and their employers, and interest on accumulated plan reserves.

Attached is a chart comparing the existing CPP with the proposed changes.

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For further information:

• All retired CPP pensioners or anyone over 65 as of December 31, 1997 are not affected by the proposed changes. Anyone currently receiving CPP disability benefits, survivor benefits, or combined benefits, is also not affected.

• All benefits under the CPP will remain fully indexed to inflation.

• The ages of retirement - early, normal, or late - remain unchanged.

Comparison of Existing CPP and New CPP Proposals

• All retired CPP pensioners or anyone over 65 as of December 31, 1997 are not affected by the proposed changes. Anyone currently receiving CPP disability benefits, survivor benefits, or combined benefits is also not affected.

• All benefits under the CPP will remain fully indexed to inflation.

• The ages of retirement - early, normal or late - remain unchanged.