OTTAWA — In the past, the recurring theme at annual gatherings of Canadian finance ministers has been one of high-balling the expectations for pension reform and then low-balling the results, which usually didn’t amount to much anyway.
The issue now appears to finally be in play, with all but two provinces — Quebec and Manitoba — signing up for an enhanced Canada Pension Plan and Ontario agreeing to scrap its long-standing initiative to go it alone.
After years of coaxing by the federal government, the holdout provinces are now shifting towards Ottawa’s way of thinking, with movement coming the other way as well — especially from Ontario, which had been pushing for enhancements to CPP even as the province planned to launch its own retirement scheme, the Ontario Retirement Pension Plan.
“I really think it was Ontario’s push for the ORPP that probably moved the federal government to do something sooner rather than later,” said CIBC economist Royce Mendes, following the agreement by most provinces late Monday in Vancouver.
Ontario Finance Minister, Charles Sousa, “did say some of these plans were in the works before the meeting. So it didn’t all of a sudden come together at this meeting,” Mendes said.
“It had been in the works for a little bit longer than that,” he added. “It was surprising, though. I’ll say that.”
Ontario Premier Kathleen Wynne confirmed Tuesday that her government would scrap plans for its own pension scheme.
The agreement between Finance Minister Bill Morneau and his provincial counterparts will gradually expand CPP benefits between 2019 and 2023. During that time, Canadians who earn $55,000 or more annually will gradually increase their monthly CPP contributions, from an additional $7 per month in 2019 up to an additional $34 per month in 2023.
The Finance department has not released details about how CPP benefits will be increased during that time. However, Canadians who had constant annual income of around $50,000 will receive a pension benefit of about $16,000 each year under the final CPP expansion — up from $12,000 currently.
“After many years of discussions and a raft of proposals, it appears that the first major change to the structure of Canada Pension Plan since its establishment in 1965 is now upon us,” said Brian DePratto at TD Economics, who noted that many details of the planned changes have not yet been made public.
Even so, DePratto said the proposal represents a “significant, guaranteed enhancement to most Canadians’ retirement incomes.”
“A number of studies have identified a savings gap among middle-income Canadians, which these changes should help reduce. However, the increase in contribution rates will impact Canadians across the income spectrum,” he said.
“For those earning below the income cap, increased contribution rates will result in higher deductions — and lower take-home pay.”
Conservative finance critic Lisa Raitt also warned Tuesday that higher contribution rates “will have a devastating effect on hard-working middle-class families.”
“As a result of this decision, we know that many Canadian families will pay thousands more in taxes every year,” said Raitt said in a statement. “Despite Canadians’ concerns, the Liberal government is refusing to confirm exactly how much his CPP tax-hike will cost the middle-class.”