The agreement is not finalized, and the provinces have been given until July 15, to sign off on it. (Photo credit: REUTERS)
Yesterday, federal, provincial and territorial governments, except Quebec and Manitoba, announced they had agreed to a deal that is supposed to “strengthen the Canada Pension Plan for future generations of Canadians.”
The agreement is not finalized, and the provinces have been given until July 15, to sign off on it.
What does the agreement entail?
According to the deal, a Canadian worker who earns approximately $55,000 would contribute $7 more to CPP deductions from his or her income. This increase in contributions starts taking effect in 2019 and would see the gradual increase in CPP deductions to $34 by 2023.
In return, yearly benefits will increase by approximately one-third.
That works out to an increase of $4,000 per year in pension benefits for a Canadian worker earning $50,000 — benefits for this worker would increase to roughly $16,000 per year from about $12,000.
Why did the governments agree to this deal?
Not only did the federal Liberals make expanding the CPP a campaign promise but Ontario threatened to go ahead with its own pension plan if the federal government stalled on its plan.
This also marks the first time since the pension plan was introduced in 1966 that pension benefits are slated to increase, which means CPP has not kept up with the cost of living. That leaves many seniors struggling with small pensions.
Will this agreement help struggling seniors?
If the agreement is approved by July 15 that means the plan will “eventually increase contributions and retirement benefits through the public plan.”
This is problematic. As benefits have not been raised until now, a person who is currently receiving CPP is only entitled to a maximum of $1,100 per month. The average senior is only eligible for $550 per month.
That places some seniors currently receiving pension benefits below the poverty line even if they receive old-age pension and other government supplements, unless they have other income, such as benefits from a workplace pension plan, a job, or significant savings.
However, despite some problems with the plan, many seniors have embraced the planned CPP expansion. “Our members and seniors across the country will welcome this historic agreement to increase the CPP. This is for our children and grandchildren and will help them save for their future. . .” says Herb John, president of the National Pensioners Federation.
The Canadian Labour Congress, too, welcomed the news of the CPP expansion, calling it “historic,” as it has campaigned for years to have the CPP reformed.
Better late than never.