OTTAWA — In two and a half years, Canadians will gradually start paying more premiums into the Canada Pension Plan.
In several decades, supporters say the "historic" CPP deal reached Monday between Ottawa and most provinces will boost retirement security for future generations.
But by policy-making standards, the agreement-in-principle — an unlikely outcome just a few months ago — happened in the blink of an eye.
Even the federal finance minister, a pension expert, had given himself until the end of the year to finish up negotiations.
Instead, the provinces are now being asked to finalize an agreement by July 15 that will eventually increase contributions and retirement benefits through the public plan.
Following weeks of talks and an all-day meeting in Vancouver on Monday, finance ministers emerged with the agreement-in-principle.
Even provinces such as Saskatchewan and British Columbia, which had expressed concerns about the timing of CPP reform, had signed on. Only Manitoba and Quebec declined to agree to the terms.
The agreement came together as pollsters pointed to overwhelming popular support for public pension reform amid concerns about the adequacy of retirement savings.
The federal Liberals ran on platform to upgrade the public pension system, as did their Ontario cousins. The result also means Ontario will abandon its project to go it alone with its own pension plan.
How did this all happen so quickly?
Sources familiar with the talks said doubters had concerns about the potential economic impact of boosting the CPP, even at the late stages of negotiations.
They said Ottawa made a major push in the final days and hours, which helped secure enough country-wide support to expand the CPP. To make the change, they needed consent of a minimum of seven provinces representing at least two-thirds of Canada's population.
The sources also suggested Prime Minister Justin Trudeau himself was involved in the extra effort.
On top of that, Ontario, which had been moving forward its more-ambitious pension plan proposal, backed away from its earlier demands that CPP reform should be just as robust.
Ontario Finance Minister Charles Sousa said in an interview Monday after the announcement that the swift agreement was driven by several factors.
Sousa said all of his counterparts agreed there were "undersaving issues." He also said that Ontario's proposed pension plan — and its parameters — gave ministers around the table an example to examine.
And some provinces, especially those hit hard by the commodity-price shock, were looking for only a gradual implementation due to the fragile economy, Sousa added.
The agreement Monday states the CPP premium increases on workers and employees will only start to be phased in on Jan. 1, 2019. Ontario's increase was set to begin in 2018.
British Columbia Finance Minister Michael de Jong said the deal was reached in part because of compromises and the desire to maintain a single, portable CPP across Canada.
"We think this strikes the right balance in that regard," de Jong told reporters after the announcement.
The deal, however, wasn't embraced by everyone.
Federal Finance Minister Bill Morneau said Manitoba needed more time to examine the deal since its government was only a few weeks old.
"This comes very fast and hard for them," Morneau said of Manitoba, whose finance minister wasn't present for the news conference.
Quebec refused to sign the deal out of concern a broad-based premium increase would have a negative impact of low-income earners, the province's finance minister said in an interview.
The province operates its own sister program of the CPP — the Quebec Pension Plan. Quebec can adjust the QPP as it likes, but it has typically followed the CPP.
Quebec Finance Minister Carlos Leitao said in an interview he will raise QPP premiums according to the CPP deal. He said would also phase them in over the same period.
But unlike the broader-based CPP reform agreement, he said Quebec would only raise premiums on income earned above $27,500.
That's why Quebec didn't sign the agreement-in-principle, Leitao said.
"Those people already have a hard time saving, so their disposable income is pretty tight — and I think by taking the decision that we took, we will avoid an unfair tax on them and also on their employers," he said.
"As we know, payroll taxes tend to be the most economically inefficient taxes."
To help offset the effect on low-income earners of increased CPP premiums, Ottawa said would it enhance the federal Working Income Tax Benefit and provide a tax deduction.
Critics of CPP expansion have also said it would squeeze workers and employers by imposing additional contributions — and hurt the economy.
Dan Kelly, the president of the Canadian Federation of Independent Business, warned that the CPP expansion is "pretty devastating" for small businesses.
"The big question I ask myself is what was the size of the federal cheques that were written to some of these provinces to get them to the table?" Kelly said.
Others were thrilled by the announcement.
The head of an organization that has been campaigning for CPP reform for years said Monday's deal would create the first benefits increase for the plan since it was created in 1966.
"It's really historic — I never thought this moment would come," said Hassan Yussuff, president of the Canadian Labour Congress.
A QUICK LOOK AT CHANGES COMING TO CANADA PENSION PLAN, AND CANADIAN WALLETS
OTTAWA — Here are the forthcoming changes to the Canada Pension Plan agreed to Monday by the federal government and most of the provinces and territories:
— Increasing the income replacement rate to one-third from one-quarter, meaning the maximum CPP benefit will be about $17,478 instead of about $13,000.
— Increasing premiums on employers and employees by one per cent, meaning an extra $408 a year coming off paycheques.
— Increased premiums will be phased in over seven years, starting in 2019.
— Increasing by 14 per cent to $82,700 the maximum amount of income subject to CPP.
— Expanding the refundable tax credit known as the federal working income tax benefit, to help low-income Canadians offset the increase in premiums.
— New portion of employee contributions to CPP will be tax deductible (not a tax credit).
FIVE THINGS TO KNOW ABOUT THE CANADA PENSION PLAN AND ITS EXPANSION
VANCOUVER — Finance Minister Bill Morneau met his provincial and territorial counterparts in Vancouver on Monday and reached an agreement with most of them to expand the Canada Pension Plan. Here are five things to know about CPP and the proposed deal:
1) The system is designed so that each generation of workers pays for its own retirement. That makes it different from two other income replacement programs for seniors and retirees: old age security (OAS) and the guaranteed income supplement (GIS). Those measures are covered through general tax revenues, meaning that workers today pay taxes to raise the incomes of poorer seniors.
2) CPP premiums have only been raised once in the last 20 years. In 1997, finance ministers agreed to a phased-in increase in premiums to ensure one generation of workers wasn't paying for another generation's retirement.
The argument today is that the CPP should pay more in benefits and help those who aren't saving enough for retirement. The argument against raising premiums is that it would hit workers' wallets at a time when governments keep saying the economy is fragile.
3) Under Monday's agreement, which would go into effect in 2019, an average Canadian worker earning about $55,000 will pay an additional $7 a month in 2019. That would increase to $34 a month by 2023. Once the plan is fully implemented, the maximum annual benefits will increase by about one-third to $17,478 from $13,110.
4) Not every province has to have the CPP. Quebec has its own version. Saskatchewan has its own pension plan, but the payments are voluntary, acting more like a RRSP. Along with Quebec, Manitoba didn't sign onto the deal on Monday.
5) Ontario had planned to launch its own pension plan if changes weren't made to CPP, but with Monday's agreement-in-principle Canada's most populous province said it will back away.
WYNNE SAYS NO CPP DEAL IF SHE HADN'T BEEN 'THORN IN THE SIDE' OF OTHER PREMIERS
TORONTO — Ontario Premier Kathleen Wynne took credit Tuesday for the agreement reached by the country's finance ministers to enhance the Canada Pension Plan.
It was Ontario's constant demand to ensure people have an adequate retirement income and it's decision to pass legislation creating a provincial pension plan that prevented the issue from languishing on the back burner, Wynne said.
"Quite frankly, I was a thorn in the side of many of my colleagues," she said. "I kept brining this up. I kept making it clear that we were moving ahead, and I kept making it clear that we all knew that there was a national problem."
Wynne said Ontario's preference was always for increased benefits under the CPP. She added that the province only decided to create its own plan when the previous federal Conservative government refused to consider anything that would increase premiums paid by employers.
Finance Minister Bill Morneau and his provincial colleagues — except Quebec and Manitoba — reached an agreement Monday to increase the maximum CPP benefit to about $17,478 a year from $13,000. Employers will pay increased CPP premiums of about $408 a year for each employee, who will pay matching amounts. The higher premiums phased in over seven years starting in 2019.
Ontario compromised by agreeing to benefits that would be about two-thirds of what Ontario workers would have received under the provincial plan. They also agreed to a one-year delay in starting the CPP changes.
"Had we not continued to work to implement the Ontario Retirement Pension Plan, had we not continued to put this issue on the table squarely with our colleagues across the country, I firmly believe that we would not be here today," she said.
"Ontario's determination has paid off."
Wynne said she got a sense about a month ago that there might be a way to reach a national deal to improve CPP benefits, but she said she kept pushing ahead with the Ontario plan anyway, even appointing a minister responsible for the ORPP just last week.
"It was very clear to me that we needed to have that minister in place to make it clear to the people of Ontario, and to the national discussion, that we were determined to move head on the ORPP because there was a 50-50 chance we were going to have to implement the ORPP," she said.
The premier couldn't say how much it would cost set up the corporation to administer the ORPP, or how much was spent preparing for the provincial plan that will no longer be needed.
"I feel very, very gratified that we're here today, but I'm under no illusions that we didn't have to make those investments in order to get here," she said. "It was absolutely worth the cost."
Wynne insisted there were also "offsetting benefits" to the CPP agreement. The premier said the plan will be less expensive to administer than a provincial one, and it will be seamless for businesses and portable for workers who move between provinces.
"All of those benefits really do contribute to the success of this moment and the success of this change," she said.
Ontario Progressive Conservatives said they're pleased the province is scrapping the ORPP in favour of an enhanced CPP, but called for a full report on the cost to prepare the provincial pension plan and set up its administration corporation.
"There are serious questions regarding the substantial unnecessary costs of the Wynne Liberals proceeding with the ORPP," said PC critic Julia Munro. "We have seen this government appoint Liberal insiders, who will be paid thousands of dollars in severance, and continue to spend millions of dollars on advertisements in its push for the ORPP."
