Canada agrees pension reforms
Canada’s finance ministers have agreed to a plan to change the country’s pension system, which will see maximum annual benefits rise by a third to $17,478.
The plan, which will see those earning $55,000 a year paying an additional $7 a year towards pensions in 2019, and a possible $34 by 2023, was not however approved by the provinces of Quebec and Manitoba.
One of the main reasons behind the need for improvements to the current Canada Pension Plan (CPP) is that it does not allow each generation to pay for its own retirement, instead leaving working generations to fund the pensions of those now retired. Another reason to amend the plan is the current belief that many households are not saving enough towards their own retirements. It is thought that many middle-income earners (some believe this falls in the threshold of $55,00–$77,000; others believe the upper limit is $100,000) either do not have adequate workplace pension schemes available to them, or are not saving enough money.
Quebec, one of Canada’s ten provinces, has not signed up to the plan. Canadian finance minister Bill Morneau said that: “The Quebec pension plan is a different vehicle. The costs are different than the Canadian Pension Plan. The idea that more analysis is required is something that we completely understood around the table.”
Manitoba, the other province that did not sign up to the agreements, had more political reasons for rejecting the new plan: “Manitoba is a brand new government. They’ve been in power for four weeks, so they were a productive voice around the table, a voice of continued interest in working together, but of course this comes pretty fast and hard for them.”
In his IZA World of Labor article Redesigning pension systems, Marek Góra says: “Governments need to make pension systems more transparent and make adjustments to reduce the burden on workers, returning pension systems to a social role.” Meanwhile, in her article, Laura Hospido notes that: “Rising life expectancy and the growing fiscal insolvency of public pension systems have prompted many developed countries to raise the pension entitlement age. The success of such policies depends on the responsiveness of individuals to such changes.”
Related articles:
Redesigning pension systems by Marek Góra
Pension reform and couples’ joint retirement decisions by Laura Hospido
Pensions, informality, and the emerging middle class by Angel Melguizo