The enhancements to the Canada Pension Plan are problematic and incomplete and won’t do much to improve the retirement income prospects of low-income employees, according to a new study by the Institute for Research on Public Policy.
The study, authored by pension consultant Bob Baldwin and statistician Richard Shillington, does acknowledge that the Liberal government has made important changes to Canada’s retirement income system, including restoring the age of eligibility for old-age security and the guaranteed income supplement to 65; increasing the GIS top-up payment for single seniors; and agreeing with the provinces to enhance CPP benefits. However, it points out that the way these changes interact with each other and with the tax system is problematic.
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In particular, they suggest “the CPP increase will be of little value to low-income earners, because most of it will be taxed back through income taxes and reductions in other social benefits, which are income-tested.” But Baldwin and Shillington also note the CPP enhancements will have a positive fiscal impact over the longer term, by reducing spending on the guaranteed income supplement and other programs and increasing federal and provincial tax revenues.
The study calls for a full review of overlapping tax rates and clawbacks, which it says undermine the usefulness of pre-retirement saving for low-income earners and staying in the workforce for older workers.
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The study also says the enhanced CPP fails to take into account the impact of demographic and labour market changes on Canada’s retirement income system. The authors suggest the reforms don’t take into account the implications of an aging population and they question whether age should remain the main factor for establishing eligibility for government retirement programs in light of increased longevity, delayed retirement and younger people starting work later on.
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“After the latest round of changes to the retirement income system, much unfinished business remains,” the authors conclude. “Given the complex interactions involved and the significant policy challenges that lay ahead, what is required is a more comprehensive and forward-looking approach to pension reform.”