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Canadian Ministers Agree To Pension Plan Expansion

by Mike Godfrey,, Washington

22 June 2016

Canada's federal, provincial, and territorial finance ministers have reached an agreement in principle to enhance the Canada Pension Plan (CPP).

According to the agreement in principle, from January 1, 2019, the income replacement portion of the CPP will increase from one quarter to one third of pensionable earnings. This will mean that, at maturity, an individual with CAD50,000 (USD39,149) in constant earnings throughout their working life would receive a yearly pension benefit of around CAD16,000, instead of the CAD12,000 they would receive under the current system. The maximum amount of income subject to CPP will rise by 14 percent. This is projected to be equal to roughly CAD82,700 in 2025.

Federal Prime Minister Justin Trudeau said that his Government will take three measures to ensure that these reforms are affordable for businesses and individuals. The changes will be gradually phased in from January 2019, to allow businesses more time to adjust. In addition, the federal Working Income Tax Benefit will be enhanced, as a means of offsetting the impact of increased contributions on low-income workers.

Finally, the Government will propose a tax deduction – instead of a tax credit – for employee contributions associated with the enhanced portion of CPP. The aim is to avoid increasing the after-tax cost of saving.

The agreement in principle includes British Columbia, Alberta, Saskatchewan, Ontario, Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador. Quebec and Manitoba have agreed to remain part of the discussions going forward. Trudeau said that the diversity of views expressed during the six-month negotiation period has "led us to an agreement in principle that is in the best interest of all Canadians."

TAGS: individuals | tax | business | pensions | interest | employees | retirement | tax credits | Canada | tax breaks | Work

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