Canadians could see an expansion of the C$188.9 billion (US$180.6 billion) Canada Pension Plan, Ottawa, under a proposal being discussed by federal and provincial officials.
The proposal was put forth by Wes Sheridan, finance minister of Prince Edward Island, and is supported by the Ontario provincial government — with Ontario Premier Kathleen Wynne suggesting Ontario would consider creating its own supplemental plan if the federal government won't broaden the CPP.
On Nov. 1, provincial finance ministers agreed on a set of principles to expand the CPP, including full funding of any enhancements, improving retirement incomes of middle-income earners and protecting lower-income workers. They also said they would continue to press the Ottawa government for CPP expansion.
Despite the agreement, the CPP expansion proposal is still in the formative stages, said Ian Markham, Toronto-based senior consulting actuary at Towers Watson. In general, however, the proposal would increase the formula for CPP participant benefits to 30% of a participant's average wage from the current 25%.
“In theory, (the CPP) would enhance the benefits,” Mr. Markham said.
The proposal is one of two to enhance Canadians' retirement savings. A proposal for employers to offer a pooled retirement plan was approved by the federal government in 2011 but still requires approval from each of Canada's provinces. Under Canadian law, two-thirds of the provinces representing two-thirds of the Canadian population must approve the changes.
The proposals stem from discussions that began in 2010 when a federal government white paper showed there was a need to “modernize the pension system in Canada,” said Karen Tarbox, senior retirement consultant at Towers Watson & Co., Toronto. “The intent is to expand coverage to more Canadians and to target middle-income Canadians.
“The concern is that in the future, people won't save enough for retirement, so (the government is) looking for higher levels of pension benefits,” Ms. Tarbox said. “Ultimately, (the government wants) to encourage higher levels of savings for retirement.”
“But the devil is in the details,” Mr. Markham added, with issues such as whether higher-paid participants would get higher replacement ratios and the potential for “intergenerational inequality” where younger participants could foot the bill for retiree benefits.
“Questions involve who would contribute and how much,” he said. “There's no panacea for this.”