Prudent Press


Pension reforms on the table for Canadians


Harper recently gave a speech on the health of the Canadian economy, and offered some advise for other countries to follow at the Davos financial international summit. The video of his full speech can be found here.

The summit housed more than 2,600 intellectual minds from the world’s top and emerging markets. The summit is held every year where the top financial powerbrokers gather to talk about the world’s most pressing financial obstacles. At the summit, Harper spoke with Jim Leech of the Ontario Teachers’ Pension Plan, CIBC chairman Charles Sirois,  and the CEOs of Desjardins Group and Barrick Gold. He called this group “the biggest job creators of the country” and said, “As you know, the economy is our No. 1 focus.

Harper has been pushing to stir confidence in corporate investors and has been hoping to stimulate growth. But he also had words of criticism for the corporate sector as well. “Broadly speaking, the Canadian business side of the economy is not as innovative as it needs to be,” said Harper.

Well this isn’t anything new. And even a study out by the Canadian Labour Congress (CLC) demonstrated, that many large corporations in Canada were hoarding money and financializing gains rather than enlisting in ways to create more jobs.

As this piece in the Star points out, Ottawa and the provinces have generously provided $5 billion or more a year in R&D tax breaks to 25,000 companies. According to him, the problem is that businesses aren’t putting in the same level of effort while Canada has, what he calls, “some of the most generous RD incentives in the world and [Canada’s] record of transforming knowledge into innovation is not great by international standards.” This presents a major challenge moving forward.

John Manley, president of the Canadian Council of Chief Executives was also present at Davos. He felt the Canadian economy was the best due to the nurturing corporate environment. He stated that large Canadian companies already do their fair share of making sure the benefits of business are spread equitably across Canada. “The real underlying malaise here is, the problems much of the world’s economy is having with growth. You know, you’re always going to have a problem with the distribution of wealth if you’re not creating it,” said John Manley. The federal government does its bit by promoting trade and investment, and making sure the government’s books are in order, Harper’s two-day trip to Davos is important because “for Canada it’s a chance to say, we have found solutions. It’s a positive message on investment, on international trade, on the importance of balanced finances. It’s a necessary message, and a message that Canada is well placed to deliver.”

Harper was also offering some morsels of wisdom for other nations to follow. He said,

As I look around the world, as I look particularly at developed countries, I ask whether the creation of economic growth, and therefore jobs, really is the number 1 policy priority everywhere? Or is it the case, that in the developed world, too many of us have, in fact, become complacent about our prosperity, taking our wealth as a given, assuming it is somehow the natural order of things, leaving us instead to focus primarily on our services and entitlements? Is it a coincidence that as the veil falls on the financial crisis, it reveals beneath it, not just too much bank debt, but too much sovereign debt, too much general willingness to have standards and benefits beyond our ability or even willingness to pay for them.


Harper also said Canada will conduct significant reform of the immigration system, using new Canadians to fill gaps in the labour force. “We will ensure that, while we respect our humanitarian obligations and family reunification objectives, we make our economic and labour force needs the central goal of our immigration efforts in the future,” he said.

Harper addressed Canada’s retirement system, saying the government will make the changes necessary to ensure it’s available now and for the next generation. “We have already taken steps to limit the growth of our health-care spending over that period. We must do the same for our retirement income system.” He said the system’s centrepiece, the Canada Pension Plan, is “fully funded, actuarially sound and does not need to be changed. For those elements of the system that are not funded, we will make the changes necessary to ensure sustainability for the next generation while not affecting current recipients.

He also said Canada’s “demographics also constitute a threat to the social programs and services that Canadians cherish.” For context, the number of Canadians over 65 is expected to rise to 9.3 million in 2030 from 4.7 million in 2010. Officials say, in turn, that the cost of old age security is pegged to rise to $108 billion a year in 2030 from $36 billion in 2010.

Since Harper announced the restructuring of pensions, there has been extensive coverage on the changes that are, and will be made to reform it. Courtesy of the CBC, the list includes the following:

Pension reforms effective 2012

1) First change involves payment rates. The way the current pension system is set, people can choose to take a CPP retirement pension as early as age 60. However, there is a catch – a 0.5 % reduction in the pension payout for each month before age 65 that someone begins receiving it. That translates to a retirement benefit that’s 30% less  age 60 than it would be if you waited until 65. But now for 2012, the penalty is going to rise to 0.52% per month, which is a 31.2% reduction for someone who starts receiving the retirement pension at age 60. This early reduction payment will continue to rise until 2016, after whne it will hit 0.6% per month, or a maximum 36% reduction for those who start receiving CPP payments at age 60 rather than waiting until they reach 65.

2) Those that wait until after 65 to collect CPP pension will receive a greater increase in their retirement benefit.

3) in 2012, the”general drop-out provision,” as it’s called, goes up to 16%. For someone eligible for CPP benefits in 2012, that will allow up to 7.5 years of the lowest earnings to be excluded from the calculations, boosting the retirement benefit paid. In 2014, the percentage will rise again to 17 per cent, which will allow up to eight years of low earnings to be dropped. These changes can benefit people who entered the workforce late, who were unemployed for a long time, or took time off to go back to school.

4) The work cessation rule test has been eliminated. This was a requirement before, that someone stop or drastically reduce the amount they earned during the two consecutive months before they began to receive a CPP retirement pension.

5) Post retirement benefits. Before 2012, if someone started receiving a CPP retirement pension early — say, at age 62 — they didn’t have to make any CPP contributions if they decided to collect payments but also keep working after age 62. Starting at this year, if you are under age 65 and continue to work while also drawing a retirement pension, you and your employer must make CPP contributions.

6) CPP benefits are always adjusted to reflect the rising cost of living. For 2012, the increase in benefits is 2.8 per cent. That will bring the maximum monthly CPP retirement pension to $986.67. Contribution rates are unchanged but since the yearly earnings maximum that the rate applies to is going up, the maximum annual contribution will rise by about $89 in 2012 to $2,306.70 for both employees and employers.

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  1. Pingback: Big businesses party profits,eat more cake with less investment and jobs: study findsPrudent Press

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