News Release Archive

The federal and provincial governments have announced a new
agreement on how to pay for the Canada Pension Plan (CPP).

Nova Scotia Finance Minister Bill Gillis said, "All Canadians can
rest more easily today because of the new Canada Pension Plan
agreement." Many people had become worried that the Canada
Pension Plan would not be there for them when they retired. The
plan was running out of money because of relatively generous
benefits and low contributions. Today's announcement means that
the CPP has been put on the path to a secure future and all
Canadians can once again count on the CPP as part of their future
financial security."

The changes announced today will see CPP deductions by individual
Canadian workers increase by about two percentage points over the
next six years. The contribution rates will rise in stages to
4.95 per cent of eligible earnings, as of the year 2003.
Employers will make a matching contribution for a total rate of
9.9 per cent. The increases will come more rapidly than earlier
planned, but this means they will not have to go as high, the
minister said. The original plan called for matching employer,
employee contributions which would have had to rise to over 14
per cent by the year 2030.

The reforms do not affect current benefits, or the benefits for
anyone who reaches age 65 by the end of this year. The benefits
under the Canada Pension Plan will remain fully indexed for
inflation and the age requirements for retirement are also

The agreement also has several other key reforms. Mr. Gillis
said, "I am particularly encouraged by the decision to have a
more diversified investment strategy. In Nova Scotia this kind of
approach has helped us secure the future of our provincial
pension plans. We expect investments in marketable stocks and
bonds will help the Canada Pension Plan achieve a higher rate of
return, and thus reduce the need for even higher contribution
rates." Currently, the Canada Pension Plan invests all of the
contributions in non-marketable provincial bonds. This strategy
offers the plan a relatively low rate of return and has
contributed to the funding shortfall problem, the minister said.

Other measures include tightening the administration for
disability benefits, a reduction in the death benefit and
stronger rules for disability and combined pension benefits. As
well, calculation of retirement pensions will be based upon a
five year average of the year's maximum pensionable earnings,
instead of the current three year average, for new pensioners and
the yearly basic exemption will be frozen.

Mr. Gillis said, "We are particularly pleased to ensure that the
death benefit remains an integral part of the Canada Pension
Plan. In Nova Scotia, this lump sum payment is used by many
families to help defray the costs of a funeral. Although the
amount has been reduced in order to help secure the financial
viability of the plan, the amount remaining is still

The current maximum is $3,580. In future, the maximum death
benefit will be six months of retirement benefit with a cap of
$2,500. "There was tremendous pressure on the provinces to
eliminate this benefit entirely, but we resisted and managed to
maintain this important element of  assistance to Nova Scotia
families, especially for those with low incomes," he said.

Another issue of concern to many small businesses is the way the
CPP is calculated. Currently, there is an exemption for payments
on incomes below a certain level. One proposal would have seen
this yearly basic exemption eliminated.

"That would have increased payroll costs for many small
businesses with younger, part-time workers. Our government
supported the alternate solution which was to simply freeze the
exemption at the current level." The exemption will remain at


Contact: Bruce Cameron  902-424-8787

trp                     Feb. 14, 1997 - 2:25 p.m.