Vol. 151, No. 6 — March 22, 2017

Registration

SI/2017-19 March 22, 2017

AN ACT TO AMEND THE CANADA PENSION PLAN
CANADA PENSION PLAN INVESTMENT BOARD ACT
INCOME TAX ACT
CANADA PENSION PLAN

Order Fixing the Day after the Day on which this Order is made as the Day on which Part 1 of An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act Comes into Force

P.C. 2017-178 March 2, 2017

Whereas subsection 65(2) of An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, chapter 14 of the Statutes of Canada, 2016, provides that Part 1 of that Act comes into force, in accordance with subsection 114(4) (see footnote a) of the Canada Pension Plan (see footnote b), on a day to be fixed by order of the Governor in Council;

Whereas subsection 114(4) (see footnote c) of the Canada Pension Plan (see footnote d) provides that where any enactment of Parliament contains any provision that alters, or the effect of which is to alter, either directly or indirectly and either immediately or in the future, matters referred to in that subsection, the provision shall come into force only on a day to be fixed by order of the Governor in Council, which order may not be made and shall not in any case have any force or effect unless the lieutenant governor in council of each of at least two thirds of the included provinces, having in the aggregate not less than two thirds of the population of all of the included provinces, has signified the consent of that province to the enactment;

Whereas Part 1 of An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, chapter 14 of the Statutes of Canada, 2016, contains provisions that alter, or have the effect of altering, either directly or indirectly and either immediately or in the future, one or more of the matters referred to in any of paragraphs 114(4)(a) to (e) (see footnote e) of the Canada Pension Plan (see footnote f) and provisions that amend the Canada Pension Plan Investment Board Act (see footnote g);

And whereas the lieutenant governor in council of each of at least two thirds of the included provinces, having in the aggregate not less than two thirds of the population of all the included provinces, has signified the consent of that province to the enactment;

Therefore, His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 65(2) of An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, chapter 14 of the Statutes of Canada, 2016, and subsection 114(4) (see footnote h) of the Canada Pension Plan (see footnote i), fixes the day after the day on which this Order is made as the day on which Part 1 of An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act comes into force.

EXPLANATORY NOTE

(This note is not part of the Order.)

Proposal

To bring into force Part 1 of An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act (the Act).

Objectives

Background

The Government of Canada committed to working with provinces and territories, workers, employers and retiree organizations to enhance the CPP. On June 20, 2016, Canada’s Finance Ministers reached a historic agreement in principle to enhance the CPP.

Bill C-26, which received royal assent on December 15, 2016, amends the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act in a manner consistent with the agreement reached by Canada’s Finance Ministers.

The Act consists of two parts. Part 1 amends the Canada Pension Plan to

Part 1 makes consequential amendments to the Canada Pension Plan Investment Board Act so that the additional CPP assets may be managed by the Canada Pension Plan Investment Board.

Part 2, which comes into force on January 1, 2019, makes amendments to the Income Tax Act to increase the working income tax benefit as a means of offsetting incremental CPP contributions for eligible low-income workers and to provide a deduction for the additional employee contributions to avoid increasing the after-tax cost of savings for Canadians.

Federal legislation governing the Canada Pension Plan requires that an enactment that has the effect of altering benefits, contributions, management and operation of the Plan, and/or the Canada Pension Plan Investment Board Act, requires that seven provinces representing two thirds of the population provide formal consent through the issuing of orders in council. Given that the changes outlined in Part 1 of the Act meet these criteria, formal provincial consent is required. The Act also requires that a federal order in council be issued to bring the legislation into force.

Implications

The CPP enhancement will be fully funded, which means that individuals will receive higher benefits paid for by increased contributions. This will ensure that each generation pays for its own benefits. Each year of contributing to the enhanced CPP will allow workers to accrue partial additional benefits.

Although all contributors to the enhanced CPP will see higher benefits as a result of the enhancement, younger workers will see the greatest increase in benefits. Full enhanced CPP benefits will be available after 40 years of making contributions. Partial benefits will be available sooner and will be based on years of contribution. While all working Canadians who contribute to the enhancement will benefit, the CPP enhancement is designed to target middle-income Canadians. The CPP enhancement increases the maximum level of earnings replacement provided by the CPP from one quarter of eligible earnings to one third and extends the range of eligible earnings by 14%. These changes will increase the maximum CPP retirement pension by about 50%. Benefits for workers who become disabled and for spouses of contributors who pass away will also be increased based on contributions. (see footnote 3)

To pay for the additional benefits, the combined employer/employee contribution rate will be increased by two percentage points across the current earnings range and will be set at 8% across the extended earnings range. To ease the adjustment to higher contribution rates, the CPP enhancement will be introduced over a seven-year gradual phase-in starting in 2019.

The CPP enhancement is well suited to address the challenges facing Canadian workers. The CPP enhancement helps fill the gap left by declining workplace pension coverage, and is portable across jobs and provinces, which helps promote labour mobility. The defined benefit, which is payable for life, protects against outliving your savings and the indexation of benefits protects against inflation risk. Finally, the CPP asset manager, the Canada Pension Plan Investment Board, can capitalize on long investment horizons and economies of scale to achieve a good rate of return.

As required by legislation, the Chief Actuary published a report assessing the sustainability of the enhanced portion of the Plan in light of the changes contained in Bill C-26. The 28th CPP Actuarial Report confirmed that the CPP enhancement is sustainable at the legislative contribution rates over the long term.

Consultation

Pursuant to subsection 114(4) of the Canada Pension Plan, the legislative amendments in Part 1 of the Act require the formal consent of at least two thirds of provinces, representing at least two thirds of the population, in order to come into effect. The necessary formal consent from provinces has been obtained.

Departmental contact

Michael Garrard
Chief
Income Security Section
Social Policy Division
Department of Finance