News Release Archive
FINANCE--NEW AGREEMENT ON FUTURE OF CANADA PENSION PLAN ----------------------------------------------------------------- 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 unchanged. 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 substantial." 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 $3,500. -30- Contact: Bruce Cameron 902-424-8787 trp Feb. 14, 1997 - 2:25 p.m.