Amendments to the Canada Pension Plan to be phased in from 2011 to - PowerPoint PPT Presentation

Now and Tomorrow Excellence in Everything We Do Amendments to the Canada Pension Plan to be phased in from 2011 to 2016 Technical Presentation Last updated in May 2011 This document contains information on the Canada Pension Plan (CPP). In case of dispute, the wording and provisions of the Canada Pension Plan and Regulations prevail.

About this presentation  The following presentation is intended to describe the changes which are currently being implemented to the Canada Pension Plan (CPP) at are currently being implemented to the Canada Pension Plan (CPP) at a technical level.  This presentation is primarily directed at financial planners and other individuals well-versed in the current CPP provisions individuals well versed in the current CPP provisions.  This presentation is intended to demonstrate the impacts of these changes, and how they interact, in order to assist in making decisions about when to begin benefits in retirement.  This presentation is separated in 3 main sections: – Pages 3 to 17: General information about the C-51 Changes – Pages 18 to 47: Example case studies – Pages 48 to 59: CPP Retirement Benefit and Post-Retirement Benefit Calculations tables  This presentation was created for information purposes only. Individuals should base their decisions on their personal situations Individuals should base their decisions on their personal situations. 2

Outline of presentation  Modernizing the Plan to adapt to societal trends  Four changes Four changes  Choices depend on individual wants and needs  Summary of effective dates  Sources of additional information  Examples of the new legislation’s application  Annex: Calculation tables and formulas  Annex: Calculation tables and formulas 3

CPP is adapting to societal trends p g  The CPP provides partial income replacement in the case of retirement, p p p disability, and death.  Canadians are living longer and healthier lives, and this is creating greater opportunities for employment later in life Retirement is a process that often opportunities for employment later in life. Retirement is a process that often occurs in stages, rather than as a one-time event.  Changes to the CPP will ensure that the Plan remains actuarially fair and g y financially sustainable and that it responds to the evolving needs of Canada’s aging population and to changes in the economy and labour market.  These amendments will be implemented gradually from 2011 to 2016 These amendments will be implemented gradually from 2011 to 2016.  Changes to the Plan may affect how and when contributors choose to retire from work and when they decide to apply for a CPP retirement pension. y pp y p 4

Summary of amendments to the CPP y Amendment 2 Amendment 1 Amendment 1 Allow CPP retirement pension recipients Restore the adjustment factors to who work to make contributions to their actuarially fair levels for a new Post-Retirement Benefit.* retirement pensions taken before p and after age 65. Amendment 4 Amendment 3 Enhance the general drop-out Eliminate the requirement to stop provision to exclude up to an additional provision to exclude up to an additional working or decrease earnings in order working or decrease earnings in order year of low earnings from the benefit to qualify for a reduced CPP calculation. retirement pension. * Those who receive a retirement pension from the Quebec Pension Plan and work in 5 Canada outside Quebec will be required to pay CPP contributions.

Rebalancing the adjustment factors for early and late retirement pensions is required… for early and late retirement pensions is required Rationale: Amendment 1 Amendment 1  The adjustment factors ensure that the effect Restore the adjustment on the Plan is the same over time regardless factors to their actuarially of when individuals choose to begin their fair levels for retirement pension. pensions taken before and after age 65.  Adj Adjustment factors reflect length of time a person is expected to receive t t f t fl t l th f ti i t d t i benefits (i.e. longer for early retirees / shorter for late retirees).   Adjustment rate had been left unchanged since 1987 despite changes in life Adjustment rate had been left unchanged since 1987, despite changes in life expectancy. 6

… to restore actuarial fairness. Comparison between 1987 and new actuarial adjustment factors 145 New factors stment (%) 1987 factors 125 105 105 Actuarial Adjus 85 65 A 45 60 61 62 63 64 65 66 67 68 69 70 Age of benefit take-up g p 1987 Factors (Maximum): New Factors (Maximum at maturity): Age 60 : reduced by 30% Age 60 : reduced by 30% Age 60 : reduced by 36% (2016) Age 60 : reduced by 36% (2016) Age 70 : increased by 30% Age 70 : increased by 42% (2013) 7

Gradual changes with post-65 factors introduced faster  Gradually increase pre-65 actuarial adjustment factors - 0.5% per month - 0.6% per month -0.52% -0.54% -0.56% -0.58% notice period 2016 2009 2012 2013 2014 2015  Increase post-65 actuarial adjustment factors: +0.57% +0.64% +0.5% per month p +0.7% per month p notice period notice period 2009 2011 2012 2013 8

Working beneficiaries allowed to gain additional CPP retirement income to gain additional CPP retirement income… Rationale:  Canadians are living longer and healthier lives and Canadians are living longer and healthier lives and A Amendment 2 d t 2 some are working later in life. Allow CPP retirement pension  Presently, working CPP beneficiaries between 60 recipients who work to make and 65 cannot contribute to the CPP. contributions to a new Post-  Th The CPP is changing to better recognize that CPP i h i t b tt i th t Retirement Benefit. retirement is a process that often occurs in stages. Starting in 2012, for individuals who work while receiving their CPP retirement pension:  Under age 65: contributions are mandatory for the pensioner and their employer.  Between 65 and 70: contributions are optional. If an individual chooses to contribute, their employer will have to contribute. p y Contributions made while receiving the CPP retirement pension will build up only Post- Retirement Benefits. These contributions do not create eligibility or increase the amount of other CPP benefits (e.g. retirement, survivor, disability). These contributions are not subject to a credit split upon separation, divorce or the end of a common-law relationship. 9

…with the new Post-Retirement Benefit!  The Post-Retirement Benefit (PRB) is a new benefit that is separate from other CPP benefits CPP benefits. Each year that an individual contributes will generate a new Each year that an individual contributes will generate a new PRB, which is payable the following year and will continue for the rest of the individual’s life.  PRBs are cumulative, with each year’s new benefit being added to previously PRBs are cumulative, with each year s new benefit being added to previously earned PRBs, even if the individual is already receiving the maximum CPP retirement pension.  As it is a separate benefit, PRB amounts are not subject to pension sharing.  A PRB becomes effective on January 1 of the year following CPP contributions toward the PRB. The PRB is indexed and subject to the actuarial adjustment based on the recipient’s age at that time.  Th The PRB amount can reach up to 1/40th of the annual maximum retirement PRB t h t 1/40th f th l i ti t pension ($288 per year or $24 monthly for 2011) 2011) for each year, adjusted for age. 10

Elimination of work cessation test Rationale: Amendment 3 Amendment 3  Retirement now tends to be a process Eliminate the requirement rather than a one-time event. to stop working or decrease earnings in order to qualify for g q y  Today, older workers may stop and restart a reduced CPP retirement working, reduce their hours of work, or pension. change the nature of their work.  Many want the flexibility to continue to work without interruption when they begin to receive their CPP retirement pension.  The elimination of the work cessation test avoids disruptions in the income of workers and in the human resources of employers.  It better reflects how Canadians choose to live, work and retire. 11

More years of low or zero earnings will be dropped from benefit calculation benefit calculation Rationale:  P People move in and out of the labour force for l i d t f th l b f f Amendment 4 A d t 4 a variety of reasons (e.g. school, layoffs, Enhance the general drop-out providing care, etc.). provision to exclude up to an  additional year of low earnings y g The CPP is changing to provide increased The CPP is changing to provide increased from the benefit calculation. pension protection for low-earning years and time spent outside the workforce.  The general drop out provision will increase from the current 15% of low The general drop-out provision will increase from the current 15% of low earnings to 16% in 2012 and 17% in 2014.  This will likely increase the benefit amount, helping those with gaps in contributions – for example, from involuntary periods out of the workforce.  This will help mitigate the effects of a greater benefit reduction for those who start receiving their CPP retirement pension before age 65 start receiving their CPP retirement pension before age 65.  It will also increase the average disability and survivor’s pension. 12