Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology
Issue No. 13 - Evidence - December 7, 2016 (First Meeting)
OTTAWA, Wednesday, December 7, 2016
The Standing Senate Committee on Social Affairs, Science and Technology, to which was referred Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act, met this day at 2:17 p.m. to study the bill.
Senator Kelvin Kenneth Ogilvie (Chair) in the chair.
[Translation]
The Chair: Welcome to the Standing Senate Committee on Social Affairs, Science and Technology.
[English]
I am Kelvin Ogilvie from Nova Scotia, chair of the committee. I will ask my colleagues to introduce themselves, starting on my left.
Senator Eggleton: Art Eggleton, senator from Toronto, deputy chair of the committee.
Senator Marshall: Elizabeth Marshall, senator from Newfoundland and Labrador.
Senator Nancy Ruth: I'm Nancy Ruth. Hal Jackman is my brother.
Senator Frum: Linda Frum, Ontario.
[Translation]
Senator Petitclerc: Chantal Petitclerc, senator from Grandville, Quebec.
[English]
Senator Doyle: Norman Doyle, Newfoundland.
Senator Dean: Tony Dean, just arrived, from Ontario.
Senator Raine: Nancy Greene Raine, from British Columbia.
Senator Stewart Olsen: Carolyn Stewart Olsen, from New Brunswick.
Senator Seidman: Judith Seidman, from Montreal, Quebec.
The Chair: Thank you very much, colleagues.
For the viewing audience, I will note that we are here today to start our study of Bill C-26, An act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act.
The federal Minister of Finance and the provincial governments have indicated that they reached general agreement to the proposed changes as of July 7, 2016. All signatory provinces have confirmed their approval of the agreement in principle.
On October 6, 2016, the federal Minister of Finance introduced Bill C-26, which would implement the agreed changes. The proposed amendments to the Canada Pension Plan and the Canada Pension Plan Investment Board Act would come into force on a day to be fixed by the Governor-in-Council, subject to the agreement of two thirds of the provinces, representing at least two thirds of their combined populations. The proposed amendments to the Income Tax Act would come into force in the 2019 taxation year.
Honourable senators, we have the great privilege today to welcome the Honourable Bill Morneau, the Minister of Finance.
Welcome, minister. We are delighted to have you here to open our discussions on this bill. With you at the table, we have, from the Department of Finance, Glenn Purves, General Director, Federal-Provincial Relations and Social Policy Branch; and from the Office of the Superintendent of Financial Institutions of Canada, Jean-Claude Ménard, who is Chief Actuary.
I will inform my colleagues that we have a host of officials in the audience who are prepared to be called forward should their specific expertise be required.
We will start the process by inviting the minister to make a presentation to us. Following his remarks, I will open up the floor to questions from my colleagues.
Hon. Bill Morneau, P.C., M.P., Minister of Finance: Thank you. It's actually an honour for me to be here. I'm not often able to come where I can find someone who I would aspire to be as good a skier as they are or somebody who is my MP and my mayor or somebody who led the public service in my province, so it's particularly good to be here today.
I'd like to thank you, Mr. Chair, and all of you for having me. It's my pleasure to appear before you today to speak about the Canada Pension Plan and how we'd like to strength that plan.
From the floor of the House of Commons to the long tables of the Finance Committee, I've had many opportunities now to speak about the need to help middle-class families to get ahead and to count on a secure retirement.
A year ago, you'll remember we made a commitment to Canadians to strengthen the Canada Pension Plan. In June of last year, we struck an historic agreement with the provinces to do just that. The bill before the committee today will implement that agreement and help millions of workers, especially in the next generation, to spend more time with their grandchildren rather than worrying about the rent.
[Translation]
The harsh reality is that one in four families approaching retirement, or 1.1 million families, are at risk of not saving enough. Even though these families are working harder than ever, it's increasingly difficult for them to achieve their goal of a safe retirement.
[English]
The simple reality is that too many people don't feel confident that they will be able to retire in dignity. We've seen a range of factors come into play that is influencing this development. We've seen the ongoing decline in workplace pension coverage. There was a time when a robust private retirement pension plan was part and parcel of many Canadians' employment compensation, whether you worked in a bank or on an automobile assembly line. We've already seen the share of private sector employers covered by such plans drop from over 35 per cent in 1977 to less than 25 per cent in 2012.
Today, those families without a workplace pension plan are at particular risk of under-saving for their retirement. It's estimated that 33 per cent of such families may be at risk of under-saving for retirement compared to 17 per cent of families who have workplace pension plan assets.
What's more, even those with access to private retirement savings plans are facing challenges. This is in part because of the reliability of those private pension plans that continue to be offered by employers. That reliability has diminished as a result of the ongoing shift away from solid and predictable defined benefit pension plans in favour of defined contribution models.
These are precisely the reasons that I and provincial leaders gathered together to talk about this. That day in Vancouver last June, working in close collaboration and in common purpose, Canada's federal and provincial governments came to an agreement that will enhance the Canada Pension Plan to give Canadians a more generous public pension and help them to retire in dignity. Leaders from across Canada came to the table with the concerns that their constituents had shared with them. In my estimation, it was truly federalism at its best.
Mr. Chair, we're now in the home stretch and I'm more determined than ever to see those benefits help Canadians. I'm pleased to be able to be here today with you to invite the senators here to consider everything we stand to gain in this bill.
First, it will increase the share of annual earnings received during retirement from one quarter to one third. This means that an individual making $50,000 a year in today's dollars over their working life will receive about $16,000 per year in retirement instead of roughly $12,000 today.
Once fully in place, the Canada Pension Plan enhancement will increase the maximum Canada Pension Plan retirement benefit by about 50 per cent. The current maximum benefit is $13,110. In today's dollar terms, the enhanced Canada Pension Plan represents an increase of nearly $7,000 to a maximum benefit of nearly $20,000.
What's more, this legislation and the agreement it enacts will give individuals and their employers ample time to adjust to this modest increase by implementing it gradually, starting in 2019.
[Translation]
The Canada Pension Plan is a good fit for Canada's changing job market. It helps to fill the gap left by declining workplace pension coverage, and it's portable across jobs and provinces, which promotes labour mobility.
[English]
This agreement also reflects important considerations for the economy and for job creation. According to our analysis, increased CPP retirement benefits will boost demand and increase savings overall. This will boost economic output and make more money available for investment.
My department estimates that gross domestic product would actually increase by between 0.05 to 0.09 per cent over the long term.
Employment levels are also projected to be permanently higher by between 0.03 and 0.06 per cent, equivalent to about 6,000 to 11,000 jobs based on 2015 levels of employment.
By providing more money from the CPP to Canadians when they retire, it will meaningfully reduce the share of families at risk of not saving enough for retirement as well as the degree of under-saving.
If this legislation is passed as it stands, and once the plan is fully mature, we expect to reduce the share of families at risk of not having adequate retirement savings by about one quarter, from 24 per cent down to 18 per cent. Simply put, there will be more money available for Canadians when they retire.
[Translation]
Mr. Chair, is it any surprise that a large majority of Canadians, or 75 per cent, support a Canada Pension Plan enhancement, which will give their children, their grandchildren and future generations better financial security upon retirement?
[English]
Honourable senators, I thank you once again for allowing me the opportunity to address you today. I'd like to take the opportunity to thank our partners as well across the country for their participation.
I'd be happy to answer the questions that you might have.
The Chair: Thank you very much, minister.
For my colleagues, I will remind you that there will be one question per round, per senator, and that there are no supplemental questions. If you have a supplemental question, you will have to save it for the next round.
Because of the nature of this session dealing with a government bill, the first question will go to the sponsor of the bill and the second question to the critic for the bill.
Senator Dean.
Senator Dean: Minister, thanks very much. Let me take this opportunity to thank officials of the Department of Finance and other departments that have provided us earlier briefings and some terrific information.
Minister, it's evident that you worked hard together with your colleagues from across the country to reach consensus in June of this year on CPP improvements. It's also evident that those discussions involved a considerable degree of compromise — collaboration but also compromise. Could you tell us a little bit about the concerns that were raised about the approach to CPP reform and the drivers of the discussion that led to compromise in those talks?
Mr. Morneau: I'd be pleased to. Thank you for the question.
Going back to the discussion, just to acknowledge your question, you don't get to a conclusion where nine provinces out of nine that are the sponsoring provinces agree without having some considerable dialogue and discussion and, yes, some agreement where we can all work together to get to a conclusion.
The starting point for us was thinking about the big picture. The first and most important issue was that the federal government and the provinces around the table really came to an agreement that there's a real challenge that while we've been very successful over the last generation in alleviating senior poverty, there is still more that can be done. In fact, importantly, it's going to be more challenging for people in the future, based on declining workplace pension plan coverage. There was a consensus around that issue as the starting point for our dialogue. That enabled us to get to something that made sense.
But there were important areas of discussion that got us to the final agreement. One that would be worth pointing out is that we all shared a concern that we shouldn't put in place an agreement to enhance the Canada Pension Plan unless we had confidence that it was going to improve the outcomes of those who really needed a better outcome and not put any increased burden on especially the most vulnerable.
So one challenge that we were presented with was that as we considered increasing the Canada Pension Plan, we wanted to make sure that the least well-to-do Canadians who, because of our current situation around the Guaranteed Income Supplement and Old Age Security, would not be any worse off. That was a discussion that animated us around the table.
We came forward as a federal government with an increase in the Working Income Tax Benefit so that we could ensure that the most vulnerable would be no worse off. In fact, we expect them to be better off through the increase in the Canada Pension Plan. So that was an important initiative that got people to agree that, yes, we were helping the people we wanted to help.
The second and also important issue was we thought about how to bring forth the enhancement while recognizing that as we asked individuals and companies to save more, that would be something that would be important to do over time so that they weren't faced with a quick increase in savings. In particular, in provinces like Alberta, Saskatchewan, and Newfoundland and Labrador, which are going through challenging economic times, they wanted to make sure that the money we were going to be putting into the Canada Pension Plan was put in gradually in such a way that it wouldn't impact either the employees or the employers in an immediate way.
That got us to the conclusion, first, that we would start on January 1, 2019, to give people an adjustment period; and, second, that we would do it over an eight-year period to ensure that people had ample time — both individuals and employers — to prepare for the increased savings.
I think that fairly describes the discussions in the room. I want to say there was a very positive and forward-looking point of view in the room. We were all proud that we did something that is often hard for politicians; namely, thinking about what the outcomes are going to be for the generation that's not sitting at the table. That was what made us feel so good about what we achieved.
Senator Stewart Olsen: Thank you, minister, for being here, and thank you to your officials as well.
Canadians are unaware of the distinction I think between the CPP and the additional CPP account, or CPP 2. That raises a number of questions about the transparency of this piece of legislation and the investment risk it implies, especially when we have someone like Mark Machin, President and CEO of the CPP Investment Board, suggesting they're hopeful that they will be able to invest in Canadian infrastructure when your government rolls out the Canadian infrastructure bank.
The new CPP 2 benefits are supposedly fully funded, which means Canadians are going to rely on their contributions and the returns from the funds that are invested in their names to make sure they will receive the benefits they've been promised.
Minister, Canadians won't see the full benefits until the 2050s, but your government will begin taking their money and investing it through the CPP Investment Board much sooner than that.
Is it your intention through CPP 2 to transfer pensioners' money to your infrastructure commitments?
Mr. Morneau: Thank you for the question. There are two parts to the question, the way I see it.
First, with respect to the enhanced Canada Pension Plan that we're moving forward on with your hopeful support, we've identified, as you mentioned, two parts to what will be the Canada Pension Plan in the future: the core Canada Pension Plan and then the enhanced part of the Canada Pension Plan. They will be considered separately. The Chief Actuary provides reports on the funding of the core Canada Pension Plan, which as you might know, he's reported as being on sound financial footing for at least the next 75 years.
The second enhanced portion of the Canada Pension Plan is to be fully funded. So we expect the benefits from that enhanced Canada Pension Plan to come from the funding that will be put in place from the employer and the employee contributions. That's how the funding will happen.
The second part of the question: The responsibility for investing that money will be that of the Canada Pension Plan Investment Board. When they go about their investment of either the core or the secondary part of the Canada Pension Plan, they seek to get returns that are appropriate for the liabilities that they're trying to cover. Obviously, they consider the different nature of different investment classes as part and parcel of their investment responsibility.
It will be up to them to decide what investment opportunities they choose to go into. I presume they will do that in a similar fashion as they've done in the past, but it's not my direct responsibility to tell them what to do. I expect they will be prudent in their approach to doing that, as they have been in the past. It's been a very successful and well- respected investment vehicle for Canadians, and one that's chosen to invest in equities and long-term yield-producing vehicles as well as in infrastructure.
Regarding the question around the Canada infrastructure bank we're putting in place, that approach is intended to find a way to ensure that pension funds and institutional investors have the opportunity to invest in Canada infrastructure. Should the Canada Pension Plan Investment Board decide to invest there, it would be as an investor like any other investor, whether it be a domestic Canadian pension fund or an international fund.
So that's not something that we are seeking or instigating; rather, we're just going to create the approach that will enable for investment in infrastructure that we hope, over time, will make a difference on our Canadian productive capacity by having more and better infrastructure for Canadians.
Senator Eggleton: Minister, first of all, congratulations. It's not every day that a federal minister can get agreement with his counterparts of the provinces and bring forward an important piece of legislation for Canadians such as you've done here. So good on you.
Mr. Morneau: The hard question always comes after.
Senator Eggleton: Now, the statistics. You've indicated that, yes, we're going from a benefit level from a quarter to a third and a 50 per cent increase, ultimately, when you combine the two plans, but you're saying that it will take 40 years to get there. It's great news for young people starting out that this is coming further down the road when they get ready to retire, but there are already people facing a squeeze. As you quite well pointed out, workplace pension plans are diminishing. They are going from defined benefit to defined contribution. There are lower interest rates that people have on their savings investments. All of these and other factors are making it more difficult for people to save. Plus there is the debt people have, and the squeeze on their pocket book makes it difficult to put extra money away. So the squeeze is being felt now and will be felt for a number of years ahead. What is this going to do for people within the 40- year time span before you get to that ultimate goal of a full payout?
Mr. Morneau: Well, that's a good question. Thank you for that question. I think it will be important for us to step back and talk about our overall approach to dealing with retirement security and challenges that Canadians face in their older years.
We could start by acknowledging that what we put in place in the 1960s has been very effective at reducing insecurity among retirees. The start-off of the Canada Pension Plan and the development of that over time, the changes in the Old Age Security and the Guaranteed Income Supplement have made a very material difference.
In fact, we have significant challenges that remain in retirement, but our level of poverty in retirement in this country is significantly less than the level of poverty among working age people. That's not to say we shouldn't remain focused on that.
We took an approach that was three pronged. We started with an increase in the top-up for the Guaranteed Income Supplement, recognizing that among the seniors that are in the most challenging situation right now are elderly single seniors, in many cases women. That was one the first things we did in our Budget 2016, increasing that by up to $943. That's going to make a significant change for a very large number of the seniors who are in a difficult situation, and that's immediate.
We changed the age of eligibility for Old Age Security. Of course, as you know, Old Age Security is particularly important for lower-income up to middle-income Canadians, and then it gets means tested away. It had previously been moved up to 67. We put it at 65, which will ensure that especially middle-income Canadians find that there when they're in need of retirement income. Finally, there is the increase in the Canada Pension Plan.
We're not arguing that we should not be continuing to look at how we can ensure that Canadians are in a positive situation irrespective of what age and stage they're at, but we think we've made some important impacts on elderly security today in the medium term and of course in the longer term for the next generation with the CPP enhancement.
Senator Frum: Minister, you mentioned in your remarks that the mandated CPP increases and the corresponding payroll taxes won't begin until 2019 and they will be rolled out over eight years. You said in your remarks that this will help people prepare for increased savings. If increased savings are such a good thing, why do people need to be prepared? Why delay it so long? Why aren't we beginning right away?
Mr. Morneau: Thank you for the question. I think maybe the best way to answer is through the question that Senator Dean asked, and that is, what were the things that you had to consider as you came up with an agreement that would make sense for the whole country?
We wanted to consider how we can put this in place in a way that ensured that the advantages, which we understand are going to be over the long term, would not be overwhelmed by people's inability to start the savings right away. To a great extent, it was because of that.
We said that in order for organizations to be prepared and capable to make the contributions, we should give them some time. In order for organizations, in particular in parts of the country where they're facing some pretty big economic challenges, we wanted to give them time in order to prepare for that. That got us to the starting point of 1,119. Folding it in over time meant that the increases for individuals and for employers could be done in a fashion to would allow them to plan and would allow them do it while they do their business planning over time.
That was the conclusion we got to in our aspiration of making a really important long-term difference. We recognized that we could do this in a way that provided the most opportunity over the long term while not impacting organizations negatively in the short and medium term.
Senator Seidman: Thank you very much, minister, for being with us.
In your remarks and in the briefing notes that we had from your department, it was said that the two-year notification period and then the seven-year phase-in of the contributions gives businesses time to adjust, greatly mitigating the near-term impacts on GDP and employment. How are small businesses going to adjust? How are they going to deal with this? And what is the impact that you foresaw on the economy?
Mr. Morneau: Thank you.
We did economic analysis — and I'll allow Glenn to talk after if you'd like a more detailed understanding of how we did that — on the impacts of the changes and the increased savings. I'll just repeat that it is increased savings that are going into the system. We wanted to make sure this was going to have a positive impact over the long term. After all, this is a long-term issue we're trying to deal with. It's going to have a positive impact on people over the long term because they'll find themselves in a better situation. We were pleased that our economic review showed that there would be long-term positive impacts.
With respect to how small business, or any business for that matter, is going to deal with this change, we expect they'll deal with it by planning and that having the long transition time with a very gradual implementation will enable them, in the same way that they would plan for compensation changes over time, to think about how that can be done while continuing on their path to business success.
Our expectation is that for those businesses, over time they will find themselves in a better position and that having employees that are more secure and that have a greater expectation of security in retirement will not only improve their ability to be effective employees but also improve the possibility for tenure in their employment relationships that will have broader positive impacts on the economy. That was the research we did.
I don't know, Glenn, if there's anything to add.
Glenn Purves, General Director, Federal-Provincial Relations and Social Policy Branch, Department of Finance Canada: Not much to add, only that the model we used to do this is very similar to the type of model that the Bank of Canada as well as the IMF uses. In terms of results, it comes out closely to where the Conference Board of Canada has come out with similar research on other plans.
Senator Marshall: Minister, thank you for being here. My question is on the investment policies of the investment board. Specifically, does the Department of Finance provide direction or advice to the investment board regarding its investment policies?
Mr. Morneau: No.
Senator Raine: In your opening comments, you said "once the plan is fully mature.'' Can you explain to me what exactly that means? When do you think the plan will be fully mature?
Mr. Morneau: I want to clarify, because I think there are two ways of thinking about "fully mature. "Fully mature'' in the sense of when we have the full contribution from the employees and the employers is one way of thinking about "fully mature.'' So that would be at 2025 when those contributions would be fully mature.
The other way to think about it is that from an individual standpoint, "fully mature'' is when they've had 40 years of contributing to their pension. So that would be "fully mature'' from an individual standpoint, when the full value of the benefit would be realized.
Senator Nancy Ruth: Minister, I want to ask about the dropout provision. I couldn't find any reference to it in the act, but that may be because I couldn't see it. I want to know if it's correct that Bill C-26 does not apply the existing dropout provision in the CPP for child-rearing years and disability in the new retirement benefits. If it's here in the act, can you tell me where? If it's not in the act, can you tell me why not?
Mr. Morneau: I can tell you that it's not in the act. In our negotiations around the Canada Pension Plan enhancement, we're very much recognizing that we want to improve the plan for all Canadians.
We recognize that those Canadians who are in the most vulnerable position are those without pension plan coverage or those over the long term not likely to have pension plan coverage. If you think about that, that's disproportionately a group that includes women and includes people that have fallen out of private pension plans.
In trying to achieve the maximum benefit possible for the broadest cross-section of people, recognizing that we had some agreements around the amount of increased premiums we wanted to get to, we got to a conclusion of the enhancement that we did.
I've stated publicly that once we get past this initial improvement, we will continue to look for additional ways that we can improve the Canada Pension Plan and additional ways we can improve the enhancement to the Canada Pension Plan. I will bring forward to the provincial finance ministers in December the dropout provisions for women and people with disabilities in a continuing effort to improve the plan for people that are in a more difficult situation.
[Translation]
Senator Petitclerc: My question is very similar to Senator Nancy Ruth's question. Like many people, I was a little surprised to learn that, to some extent, the people overlooked in this plan were the women or men who decided to leave the labour market to raise their children, as well as persons with disabilities. I know you already responded in part to this question. However, I'd like you to elaborate further to help me understand the source of this oversight or deficiency in the plan and your vision and game plan to resolve the situation.
Mr. Morneau: I don't have much to add. It's not an oversight for us. It was our decision to plan for the largest increase or the best enhancement possible by raising the premium levels. We always thought it was more substantial for those who aren't currently contributing to a private pension plan. It's substantial for a large part of the population, but more specifically for women. As things stand, the Canada Pension Plan enhancement will benefit women more than men. That's a fact.
However, as I said, in the future we'll pursue our goal of having a program that works for all Canadians. Also, when it comes to the provisions you mentioned, we'll consult the provincial finance ministers to determine how we can plan for a second enhancement.
[English]
Senator Stewart Olsen: I still have questions about the two separate funds. In the past 10 years, the CPP Investment Board has beaten its benchmark in six years, but underperformed in four of the past 10 years. They've acknowledged that the benchmark might be a bit misleading. It's less risky than the fund's portfolio and with adjustment for the risk, it may have actually underperformed.
Now I'm thinking with the new enhanced plan, you're actually asking Canadians to take more risk with their pensions. Would it be easier to have them save for themselves and enhance ways for people to save their own money?
Mr. Morneau: Thank you again for the question. You're very good at two-part questions. Maybe I can deal with the second part first. The second part of your question is: Would Canadians be better off to save on their own?
I would hope that Canadians will manage their own retirement as best they can in a way that meets up to their family's challenges, but while that's a hope, it's not a strategy. The results that we see today and the results that are clearly coming out tomorrow are that people are not actually likely to save enough for their retirement in many situations.
As mentioned in my opening remarks, the evidence is pretty clear that many Canadians today and an increasing number tomorrow will find themselves in a situation in which they have not saved enough for retirement, presenting them and their families with a challenge that we would like to, if we can, avoid.
So the challenge we faced was how to do that in a way that was targeted at those most likely to have the challenge. As we mentioned, we put in the Working Income Tax Benefit for those who are already in a situation where they are likely to be covered by the Guaranteed Income Supplement and OAS to the extent that it will be consistent with their earning situation pre-retirement. We carefully covered for that. Similarly, those that are in the highest income brackets, we didn't see it as a responsibility to encourage them to save more. It was those in the middle that we were most worried about and those that were most targeted. We've aimed to be judicious, and that's why we came to a consensus with the nine provinces and the federal government.
To the second issue around the Canada Pension Plan Investment Board, we looked at the board and the Chief Actuary looks at those results as well. Over a long period of time, this has been a successful investment vehicle for Canada.
When I travel around the world now in this responsibility I have on behalf of Canadians, we have people around the world looking at the success of the Canada Pension Plan Investment Board and indeed some other significant pension investors in the public sector in Canada as a model for how success can be generated on behalf of citizens.
I can't verify myself the numbers you presented. In six years they were in one stage and in four years they were in another stage. That is to be expected in any pension plan, because there is variability over individual years, but the expectation is that over a long period of time you will see success. In fact, that is what the Canada Pension Plan has shown for Canadians. Over a long period of time, it is able to be successful. As identified by the Chief Actuary, that will be an expectation provided for Canadians up to the goals we've set out in the pension plan.
Senator Eggleton: Thank you for answering my first question, particularly noting the improvements that you've made in the GIS and going back to age 65. I think those are all solid provisions, but remember also there are middle income people that are risking lowering their standard of living. In 40 years, they may need more in between.
I was going to ask you about this dropout provision that affects women and the disabled. But I just echo the remarks of Senator Petitclerc.
There are two funds, one for the current plan and one for the additional plan. What are the advantages and disadvantages of doing it that way? I would have thought you would be better off having it pooled together in terms of investment. I agree a good investment is done, but what are the advantages and disadvantages of two separate funds?
Mr. Morneau: First of all, I will deal with one part of your question, which was, "Aren't there advantages to invest in them together?'' The way that the Canada Pension Plan will invest these monies will, of course, be up to them, but I don't expect that the constraint of having two separate parts, Canada Pension Plan 1, if you want to call it that, and Canada Pension Plan 2, will actually provide them with any investment challenges. I would defer to the President of the Canada Pension Plan Investment Board to absolutely confirm that, but it would be my expectation that they would be not constrained in terms of their investment because of those two separate parts and that they could attribute a portion of any investment to one and to the other. So I wouldn't see that as a significant challenge.
As we think about how the fund will operate over time, I expect it will be able to produce positive results for Canadians. Our view was that we wanted to show Canadians quite clearly that the second part, the enhanced part, was fully funded so that there would be absolute clarity on that so that there wouldn't be any perceived intergenerational transfers that were certainly part and parcel of the original Canada Pension Plan for what were then good reasons. So that was a part of our consideration. We think it's the right conclusion and one that enhances confidence in the program.
Senator Frum: Minister, in your opening remarks you mentioned that 75 per cent of Canadians approve of boosting the CPP. I want to ask you how that squares with an August 2016 poll done by the Canadian Federation of Independent Business and IPSOS. It showed that 70 per cent of employed Canadians oppose a CPP hike and that 83 per cent of employed Canadians do not support a CPP expansion if it means that employers will cut their wages over the seven-year implementation period.
The same poll shows that Canadians prefer RRSPs and TFSAs, which your government cut the allowable contributions towards, over non-voluntary CPP increases, which, by your own department's projections, will be a drag on our economy until the year 2035, this being year 2016.
Mr. Morneau: Certainly I'm not in a position to debate individual poll results. What I can say is that our goal is to ensure that we follow through on dealing with the very real challenge that those Canadians who aren't saving enough are going to find themselves in in future.
The public policy approach of using the Canada Pension Plan as the vehicle to do that is an efficient one. It's well understood by Canadians. It's one that we can do, as mentioned, in a way that preserves intergenerational fairness, and it will result in a continuation of what I see as a true Canadian success story, dealing with elderly poverty in a way that ensures that we can be treating the older people in our society the way that they would hope to be treated. That's something that's happened over the last two generations, and I see this as really standing on the shoulders of people who made really good decisions a couple of generations ago and ensuring that march towards successful retirement for Canadians.
Senator Seidman: If I might, minister, go back to the question I asked earlier about small businesses, I appreciate that you look forward to a period of adjustment and things working out well for them and their employees in the future. Clearly you do expect, though, there to be some impact early on. So what would you expect those negative consequences to be for small businesses and, of course, for larger ones that might be impacted? Their international competitiveness, for example, could be impacted.
Mr. Morneau: We have done, with the provinces, what we think is a good job of implementing this enhancement to the Canada Pension Plan in a very gradual way. So our expectation is that large and small businesses will be able to plan for this change in their contributions to the Canada Pension Plan. We expect that employees will also be able to plan.
In the case where employers already have a pension plan in place, I expect that some of them will consider how they can best integrate those two plans in a way that improves the situation for employees, consistent with the need that those employees might have.
For those employers that don't currently have any sort of pension arrangement, it will likely produce gradual increases in their contribution to the Canada Pension Plan. I think that there will be multiple impacts.
But I will tell you, from a career working in pensions, that one of the advantages, most clearly, will be employees who are more confident in their retirement outcomes. That will produce, I expect, positive outcomes in terms of their employees' effectiveness. While we'll have to see the dynamic impacts of that change, I expect it could well produce positive outcomes for the employers as they look to attract and retain employees that are successful over time.
Our expectation, as said, is for long-term positive outcomes, and my personal expectation is that this will be positive in the short and medium terms as we see those positive effects within employer groups.
Senator Raine: Can I do a double barrel?
Mr. Morneau: Nobody else asks; they just do it.
Senator Raine: I'm very concerned about young people starting out. They are starting right now with increased student loan debts if they have been going to university, and costs are going up. Taxes are going up and jobs are less secure. My big concern is they are going to see their CPP deductions increase by $1,000 a year. This isn't going to happen right away, but five years down the road, they're going to start paying a lot more in terms of their deductions.
In the end, it doesn't seem to be that it gets them a whole lot in terms of benefits when they do retire. My big question is: How can the government be so sure that they can invest this fund of money and have a better return than an individual could working with the private sector and advisers through things like the Registered Retirement Savings Plan and the Tax-Free Savings Account? Right now, the money going into increased payroll deductions is going to be money that they can't invest themselves in their own savings plans. So where is the guarantee that the government can do it better than the private sector?
Mr. Morneau: This is an important question. We're animated by the same concern that you're bringing out, and that is, in fact, that young people in particular, people entering the workforce now and people that will be entering the workforce in the times to come, are going to find themselves in a situation where there is lower workforce pension plan participation. So, in fact, those people will be in a more vulnerable position than will the people who came before them.
To amplify the challenge faced by young people, one of the things we are very concerned about is that the changing nature of the employment market presents them with real issues. So we're working to try to provide better long-term job opportunities for young people, but we do need to know, do need to understand, that at least some people will be faced with moving from job to job to job while we're trying to improve our economic outcome so that we can not only have more long-term jobs but also improve people's access to skills training and upgrading. That's a challenge, which will mean that even for those people that might get to a job that might have pension plan coverage, they may not be there long enough to have that pension plan coverage. So it is a real challenge.
Our concern is that those individuals might, in many cases, find themselves without pension plan coverage and without enough savings to actually cover their pension. Those are the facts. The facts of the case are that in many cases they aren't saving enough.
So we're not saying that the enhanced Canada Pension Plan will in any way remove the responsibility for people to save for themselves. They will, in many cases, still want to have significantly more than the 33 per cent of their earnings available for their retirement, so they'll need to save more. This will provide for them a base from which we can ensure that they are, in fact, saving enough.
We believe this is the right thing to do to cover those people who aren't saving enough, and in particular the young people who often aren't saving enough early enough so they're not getting the advantage of the compound results from that savings. It provides them with that base early on in their career.
I would remind you as well there are multiple other things we're doing to try and improve the situation for young Canadians. We've significantly increased student grants for the lowest and middle income Canadians by 50 per cent, from $1,200 to $1,800 a year for the low income Canadians and from $800 to $1,200 for middle income Canadians. Over and above that, we've made it such that they don't need to pay back their student loans until they have a full time job paying them $25,000 or more.
So there are multiple ways we're trying to go at this. One very important way is to enhance their Canada Pension Plan so that they'll have better retirement outcomes than they would otherwise.
The Chair: Minister, I note that 3:15 p.m. was the deadline. Would you have an extra five minutes?
Mr. Morneau: I don't. I really have to go.
The Chair: In that case, we will go to Senator Nancy Ruth.
Senator Nancy Ruth: Minister, quickly, I'm sure there's been a GBA Plus done on this bill because it's in a piece of legislation, and the PCO ordered you to do so. Could you submit it to the clerk?
Sir, you were kind enough to say that you would make the GBA Plus transparent in the budget. Does your commitment extend to all budget implementation bills going forward?
Mr. Morneau: I want to be sure before I commit to anything.
The twenty-eight actuarial report does have information on the gender impacts of both the core CPP and the enhanced CPP?
Jean-Claude Ménard, Chief Actuary, Office of the Chief Actuary, Office of the Superintendent of Financial Institutions Canada: True.
Mr. Morneau: That was easy.
Mr. Ménard: This is the twenty-eighth report, so this is the enhanced part, and this is twenty-seventh report on the base part. If you want to know something about the base part, you would look at this report, and for the enhanced part you would go to that report.
When you look at the financial projections, you will see that women will contribute about 45 per cent of the total contributions, and they will receive 50 per cent of benefits. They will receive more, but we at least have all the information by gender such that you could compare the impact on men and women. Is that enough?
Senator Nancy Ruth: What about disability and race and all that other stuff that's in GBA Plus? You can talk to me after.
Mr. Morneau: In the second issue and question around our budget, I was asked many, many questions during the time period during which we were preparing our budget about what we were going to do in our budget and how it's going to be done. That's an important question. Like so many of the other questions that I'm asked during the course of preparing the budget, I'm not yet prepared to answer it. But there will be an answer and it will be coming out in the course of our budget for you.
The Chair: Thank you, senator.
An Hon. Senator: [inaudible]
Mr. Morneau: Did I not make this budget? I'm sorry; I don't understand.
An Hon. Senator: [inaudible]
Mr. Morneau: If I did, I'm certainly not taking anything back, but I'm being careful about what I'm promising.
The Chair: We can check on that and follow-up.
Minister, we deeply appreciate your being here. I haven't asked you any questions, not because I don't think this is an important bill, but I have read it carefully and all the briefing notes. I believe my colleagues have asked important questions that have put on the record the issues on which people have concerns and uncertainties.
We understand that you can't guarantee anything in the long term, but we can base things on reasonable expectations. I think we've had a very good session with you today. I thank you for that. I thank your officials for being here with you, and I thank my colleagues for the preciseness of their questions in general.
(The committee adjourned.)