On October 29th Finance Minister Dwight Duncan released the discussion paper Securing our Retirement Future: Consulting with Ontarians on Canada’s Retirement Income System. Comments and feedback are requested before November 30, 2010 via firstname.lastname@example.org.
Possible areas for reform discussed are expanding the CPP and pension innovation.
Three main approaches to expanding the CPP are explained.
- Increase the replacement rate: Increasing the maximum replacement rate from the current 25% to a higher rate, such as 35%, would benefit all CPP contributors.
- Increase the earnings ceiling: Currently, workers cannot earn CPP entitlements on earnings above $47,200. The earnings ceiling could be raised by, for example, 1.5 times to $70,800, or be doubled to $94,400. This approach would benefit contributors whose annual earnings are higher than the YMPE at least some of the time, including those who had relatively low earnings early in their careers but whose wages rose later in life. In 2007, 5.2 million workers, or 37 % of all workers, had earnings above the YMPE. Of full-time workers aged 45 and over, the portion with earnings over the YMPE is nearly half.
- Increase both the replacement rate and the earnings ceiling: This approach would benefit all CPP contributors. It should be noted that 90 per cent of all CPP contributors have career average earnings of $64,200/year or less, while 50% have career average earnings of $25,500/year or less, including periods of low or no earnings
CPP DISCUSSION QUESTIONS
- Do you favour a modest expansion of the CPP? If so, do you preferan increase to the replacement rate, an increase of the earnings ceiling, or both?
- What do you believe is an appropriate replacement rate for the CPP?
- What is an appropriate earnings ceiling?
- What do you believe is a reasonable increase in CPP contributions to
secure enhanced benefits?
- Do you believe a single fund for an expanded CPP is appropriate?
Should there be more than one fund? If so, should they be managed by the public or private sectors, or both?
- Do you think you would accumulate less private savings for retirement if the CPP was expanded? If so, would you prefer to save through higher CPP contributions or your own investment choices?
- What are your views about the implementation issues raised in this paper?
Three approaches are set out for consideration:
- New types of pension or retirement savings plan arrangements. For example, a central proposal under discussion by governments is eliminating the current federal ITA requirement that only allows for pension plans in an employer-employee relationship. Eliminating this employment relationship requirement could make pensiontype arrangements available to millions of Canadians who do not currently have pension coverage, especially to employers and employees of small and medium-sized businesses, and the self-employed.
- Changing the treatment of group RRSPs; and
- Potential for establishing single-employer target benefit plans.
PENSION INNOVATION DISCUSSION QUESTIONS
- What measures do you think could be taken to help ensure that plans administered by financial institutions are operated in the interests of pension plan members? What measures might be required to adapt such plans for the circumstances of self-employed members?
- Are there any measures that could help ensure that cost efficiencies
are achieved and that members benefit from lower fees?
- Should members be able to voluntarily opt in or be enrolled automatically and have the ability to opt out?
- Should contributions to Group RRSPs be treated the same as contributions to RPPs?
- Should the single-employer target benefit model be available to organizations that do not have unions or union-like organizations, and that the employer be allowed to administer the plan, without a joint employer-employee governance structure?