A suite of additional features planned for the Canada Pension Plan will mean an extra $900 million in costs by 2050, Canada’s chief actuary is estimating.
Earlier this week, chief actuary Jean-Claude Ménard released a new report on the state of the Canada Pension Plan in light of additions agreed to by Canada’s finance ministers late last year. Since the ministers agreed to the suite of changes in December, the federal government has moved to implement them through its budget legislation, Bill C-74. The latest document on the CPP is a supplement to the chief actuary’s two earlier reports on the state of the public pension plan as at Dec. 31, 2015.
The changes addressed in the new report are in addition to the 2016 deal to enhance the CPP more generally by raising contributions by a combined two per cent by 2025, boosting the income replacement rate provided by the plan and introducing a new earnings threshold for pension coverage. They include removing the reductions in survivor benefits for people who neither have a disability nor have dependent children and who became survivors before age 45, introducing child-rearing and disability drop-in provisions to the enhanced component of the CPP and making the death benefit a flat $2,500 for all eligible deceased contributors. Under the current framework, the death benefit is equal to six months of the deceased contributor’s CPP pension at age 65, up to a maximum of $2,500.
On the issue of survivor benefits, the report predicts the removal of the age restriction and benefit reductions related to it will affect 40,000 people in 2019. By 2050, the change will increase survivor benefits related to the base CPP by $170 million. That’s in addition to the $38 million in added survivor benefit expenditures in 2050 related to the overall enhancement to the CPP, which the government is phasing in starting next year.
When it comes to the death benefit, the change to a flat amount will mean increased payments to the estates of about 29,000 contributors in 2019, resulting in added expenditures of $21 million that year.
Overall, the report predicts the 2017 agreement will boost expenditures on the base CPP by $230 million in 2050 and by $679 million on the enhanced component. The added amount for the enhanced component rises quite quickly, to about $8 billion, by 2090. While the projections for 2050 total more than $900 million, the report notes the amounts represent a small share of CPP expenses: 0.1 per cent for the base component and 2.4 per cent for the enhancement. It also projects the current legislated contribution rates are sufficient to finance the projected expenditures over the long term.