Finance Canada Releases Proposed Pension Changes

At a time when individuals are concerned, and justifiably so, about planning for their retirement and the income sources they can rely on, a major revamp of the Canadian Pension Plan is being considered.  Based on two recent news releases, the question being asked by many is: Are Canadians able to rely on the public pension plan provided by the government, or should they be saving for their golden years through their own retirement savings plans?<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com🏢office" />

A June 1st article in the Globe & Mail regarding Canadian retirement savings plans states that private-sector pension coverage was available for only 23.7% of employees in 2006, down from 30.5% in 1991.  This almost 7% drop in private pension plan availability means that individuals will be looking to the government to provide some form of retirement pension income to top up their own RRSP's.

An information paper was released by the Department of Finance at the end of May containing some recommendations for changes to the current Canada Pension Plan. As joint stewards, and as part of a regular three year review process, Federal, Provincial and Territorial Ministers announced that the current Canada Pension Plan is sound but are suggesting some changes be made to the plan.  Changes have been recommended in order to provide greater flexibility for workers planning on retirement, or for those who would like to continue to work and beef up their pensions.

Some of the recommended changes that will improve flexibility and pension coverage for beneficiaries in the Canada Pension Plan are:

∑         Eliminating the work cessation test

∑         Increasing the number of low-earnings drop out years

∑         Allowing them to continue to work and make CPP contributions

The CPP was established in the mid 1960's to provide working Canadians with some basic income for retirement, and was intended to replace up to 25 percent of the pre-retirement employment earnings (up to certain maximums). In 2009 the maximum pensionable earnings amount was $46,300, and the current maximum annual retirement pension amount is $10,905.