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CAUT Bulletin Archives

March 1997

Martin Announces Changes to CPP

Some of CAUT's proposals to the CPP consultations are to be implemented: CPP to remain as a public pension plan, that it move towards becoming a partlially-funded plan, that it expand its investment s

Finance Minister Paul Martin has introduced proposals that significantly alter the Canada Pension Plan (CPP). In introducing the proposals on Feb. 14, just days prior to the release of his 1997 Federal Budget, Martin said that the proposed changes were made to ensure that the CPP is affordable to future generations and can be sustained in the face of an aging population, increasing longevity and the retirement of the baby boom generation.

Under the proposals, all retired CPP pensioners or anyone over 65 as of Dec. 31, 1997 will not be affected by the changes. The same will apply for anyone currently receiving CPP disability benefits, survivor benefits, or combined benefits.

CAUT was pleased to note that several of its recommendations, outlined in its May 1996 brief to the CPP Consultations, were included in the proposed amendments. CAUT recommended that the CPP remain as a public pension plan, that it move towards becoming a partially-funded plan, that it expand its investment strategy, and that contribution rates be increased at a less aggressive pace than those originally proposed, to reach a maximum of approximately 10 per cent in 10 years time. These recommendations were included in Martin’s Feb. 14 proposals.

Currently, retirement pensions are based on the average of the last 3 years’ yearly maximum pensionable earnings prior to the commencement of benefits. This will increase to 5 years bringing the CPP more in line with most private pension plans. The change will be phased in over 2 years.

Benefits will continue fully indexed to inflation and the retirement ages remain unchanged. However, the proposals include reductions in the maximum death benefit, tougher administration of disability benefits and new rules for determination of combined pensions.

The proposed changes will mean higher costs for academic staff and their employers over the next several years. In 1997, a university professor earning over $35,800 will pay $969.00 compared to $944.78 under the current rates. That small increase in cost will likely be offset by the reduction in Employment Insurance premiums during 1997, which drops by $19.76 for anyone earning over $39,000 per year. By the year 2003, the same professor will be paying $1,598.85 in CPP contributions (assuming no change in the exemption), or $646 more per year — a cost which must be matched by the university employer. However, following the release of the federal budget, Martin alluded to the fact that the government will consider further reductions in Employment Insurance rates or possibly a tax rate reduction in future years to offset the rises in CPP premiums.

Although many have viewed the increase in CPP contributions as simply being a veiled tax grab by the Liberal government, CAUT believes that the increased contributions levels are in the country’s best interests to ensure a socially secure and fairly compensated work force in the years to come.