The Finance Ministers of Canada and its provinces have announced
an agreement in principle to enhance the
Canada Pension Plan (CPP). As a result it is anticipated that the
province of Ontario will not proceed with the Ontario Retirement
Pension Plan (ORPP).
The enhanced CPP is expected to:
increase income replacement from one
quarter to one third of pensionable earnings;
increase the maximum income subject
to the CPP by 14%;
be phased in over a seven year period
beginning on January 1, 2019;
increase the Working Income Tax
Benefit to help low-income earners; and
provide a tax deduction (rather than
a tax credit) for the enhanced portion of the employee CPP
Once fully implemented in 2025, a Canadian with constant
earnings of $50,000 over their working life would receive a yearly
pension benefit of around $16,000 instead of the current benefit of
$12,000. Premiums for both employers and employees are anticipated
to increase by 1% (from the current 4.95%) of income between $3,500
and $54,900. The new upper earnings limit will be $82,700. Further
details will be known as the CPP enhancement is fine-tuned.
A change to the CPP requires the approval of the federal
government and at least seven provinces representing two thirds of
the population. All provinces except Quebec and Manitoba have
agreed in principle to the enhancement and those two provinces have
agreed to remain part of the discussion moving forward.
A joint Federal-Ontario news release indicates that the
agreement in principle must be approved by all signatories no later
than July 15, 2016. If that occurs, Ontario will not proceed with
The enhanced CPP starts one year later than the proposed ORPP
and will be phased in more gradually. The CPP premium increases
will be less than those contemplated by the ORPP but unlike the
ORPP, the plan will be portable from province to province and will
not be subject to the exemptions and exclusions previously adopted
for the ORPP.
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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