Proposed CPP Expansion Will Change Pension Landscape

June 23, 2016

On June 20, 2016, the federal and provincial Ministers of Finance announced an agreement in principle to enhance the Canada Pension Plan.  At the same time, Ontario Finance Minister Charles Sousa announced the Ontario Retirement Pension Plan will not proceed.

The agreement, which begins a seven-year phase-in on January 1, 2019, provides:

  • A gradual increase in the replacement rate from 25% to 33.3% between 2019 and 2023; and
  • An increase in the maximum amount of income subject to the CPP by 14%, which is projected to be equal to roughly $82,700 in 2025.

The announcement did not identify the contribution rate increases required to fund the increased benefit. However, federal Finance Minister Bill Morneau announced two measures intended to address the cost of the enhancement:

  • Enhancing the federal Working Income Tax Benefit as a means of offsetting the impact of increased contributions on low-income workers; and
  • Providing a tax deduction—instead of a tax credit—for employee contributions associated with the enhanced portion of CPP in order to avoid increasing the after-tax cost of saving for Canadians.

What does this mean for OMERS?

OMERS will continue to conduct analysis as more information about the agreement becomes available.

At this point, we know the following:

    1.  There will be no impact before 2019

    2.  Changes will be phased-in over seven years

    3.  The upper earnings limit of $82,700 will be phased-in over two years, 2024 and 2025

We will continue to update our members, employers, sponsors and other stakeholders as more details become available.