CPP changes on the way
Proposed contribution rates to rise for both employers and employees

by Nancy Gardiner
Northern News Services

NNSL (Oct 20/97) - Amending legislation before the House of Commons to increase Canada Pension Plan rates has passed second reading and is due for review by the finance committee. Changes are expected to be legislated this year.

Without the changes, the CPP fund would be depleted by 2015, according to the plan's chief actuary.

As a result, contribution rates will be accelerated -- paid for by workers and their employers.

When will people start noticing the changes?

When they go to file their 1997 tax returns. The 1997 payments are retroactive to the first of the year.

"The table changes were announced in February to be retroactive to Jan. 1, 1997. It would have been chaos system-wide to have everybody pay the correct amount," says Hal Hanes, chief of the social policy division with the federal Department of Finance.

The maximum extra cost for that calendar year to employees will be $24, which would be matched by their employers. Employers will file T-4 reconciliations at tax filing time.

By 1998, the table of changes should be instituted, so that employees and employers pay CPP when pay cheques are issued.

In addition to increasing employer-employee rates, there are plans to improve the rate of return on the CPP fund by investing it prudently in a diversified portfolio of securities at arms length from the government, according to the federal government.

The government also agreed to slow the growth of costs by tightening administration of benefits and changing the way some are calculated.

Contributions are levied on earnings between $3,500 and $35,800.

Public consultations were held on the CPP last year in Whitehorse and Yellowknife, as well as across Canada, and the NWT is affected by the proposed changes, says Nancy Lawand, a spokesperson with the CPP programs division. The province of Quebec operates a parallel plan to the CPP and it recently announced comparable changes to the CPP.

Federal and provincial ministers agreed on an approach to assure the long-term survival of the CPP. Federal-provincial agreement on changes was reached last February.

The reason the changes are necessary are varied. An aging populations, with retiring of baby boomers exacerbates the problem, says Hanes. But there's also the fact that the contribution rate was never high enough when it was first established in 1966 by the Pearson government. The economics and demographics have not come out to be what was envisioned.

"Now there's 11 to 12 per cent of Canadians over the age of 65. By 2030, that will drop to 3 or 4 per cent over the age of 65 when the baby boomers are out of the retirement population," explains Hanes.