Hot! A proposal to strengthen the Canada Pension Plan: the 1.5 option

CaledonInst.org – Publications
December 2012.   Ken Battle, Sherri Torjman and Michael Mendelson,

Expanding the Canada Pension Plan is back on the table.  The federal and provincial finance ministers have been exploring several proposals for expanding the CPP in a paper prepared by their officials.

When the Canada and Quebec Pension Plans were created in the mid-1960s, they were deliberately designed to pay relatively modest benefits.  The reasoning was that the private tier of employer-sponsored pension plans and individual savings plans would play the lion’s share of the earnings replacement objective for middle-  and upper-income Canadians.  The Achilles heel of Canada’s retirement income system is that private pension and savings plans never grew sufficiently to properly serve the earnings replacement objective for many Canadians.

The Caledon Institute for several years has been proposing a ‘1.5’ solution for expanding the Canada Pension Plan in which the Year’s Maximum Pensionable Earnings would increase by 50 percent and the earnings replacement rate would also rise by 50 percent.  We would raise the Year’s Maximum Pensionable Earnings level from its current $50,100 to $75,150 – an increase of one-half.  The earnings replacement rate would go from 25 to 37.5 percent – also an increase of 50 percent.  As a result, the maximum CPP benefit would more than double, from $11,840 to $28,181.

Finance ministers are said to be discussing three main options for expanding the Canada Pension Plan.  The finance ministers’ third option is very close to Caledon’s 1.5 solution.

ISBN – 1-55382-572-1

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A copy of this publication is available in Microsoft Word format. Please contact the Caledon Institute for information.

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