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Ottawa, December 9, 1996
1996-094
1997 Canada Pension Plan Contribution Rate Confirmed
Related document:
Following public consultations, federal and provincial finance ministers have been discussing how to make the Canada Pension Plan sustainable, fair and affordable for future generations by strengthening its financing and reducing escalating costs. Discussions are continuing but governments have not yet reached an agreement.
In view of these continuing discussions, it was confirmed today that effective January 1, 1997 the CPP contribution rate will automatically increase to 5.85 per cent of contributory earnings, as set out in the 25-year schedule of contribution rates that was legislated in 1991 following federal-provincial agreement. (Details are in the attached backgrounder.)
Even if an agreement were to be reached now, there is not enough time left before the year's end to have the agreement in effect for January 1. Making the announcement of the 1997 contribution rate now gives employers time to prepare their payroll systems for the new rate.
An agreement may be reached soon. If that is the case, there may be a further increase in the CPP contribution rate during the course of 1997 in order to prevent further deterioration of the CPP fund while changes are being put in place. To avoid any dislocation to payroll systems, any further rate increase agreed upon for 1997 would be collected when 1997 tax returns are filed.
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For further information:
Réal Bouchard
Social Policy Division
Department of Finance
(613) 996-0533
Backgrounder
The Canada Pension Plan
CPP Contribution Rate
The 1997 rate is a .25 percentage point increase over the 1996 rate of 5.6 per cent. CPP contributions are based on a percentage of earnings between a basic exemption and the maximum pensionable earnings which corresponds approximately to the average wage. Contributions are shared equally by employees and their employers. The self-employed pay the combined amount.
In dollar terms, employees and their employers will each contribute a maximum of $945 on average earnings in 1997 compared to $893 each this year. This is the result of the increase in the contribution rate and the increase in the maximum pensionable earnings to $35,800 in 1997 from $35,400 in 1996. (Under the CPP legislation, the level of maximum pensionable earnings increases each year at the same rate of growth as average wages in the economy.)
The CPP Review
As joint stewards of the CPP, the federal and provincial governments must review the plan every five years. The latest review began a year ago and included public consultations.
On October 4, the federal, provincial and territorial governments released guiding principles on changes to the CPP to serve as the framework for an agreement. The principles reflect what Canadians said about preserving the CPP during nation-wide consultations held last spring by both levels of government.
The principles include: the CPP is a key pillar of Canada's retirement income system that is worth saving; contribution rates should not rise beyond above 10 per cent (shared equally by employees and employers); administration costs must be tightened; and a new investment policy is needed. In addition, solutions must be fair across generations and between men and women.
An agreement on changes to the CPP must have the support of the federal government and two-thirds of the provinces with two-thirds of the population. Legislation to amend the CPP Act must be passed by Parliament and the requisite number of provinces must pass orders in council.
The CPP was established in 1966 to provide all members of the 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 employment earnings, except residents of Quebec. (The Quebec Pension Plan is a separate plan legislated by the Province of Quebec.) The plan is financed by compulsory contributions from workers and their employers and interest on accumulated plan reserves.
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