Canada Pension Plan deal with provinces faster, easier than expected

In two and a half years, Canadians will gradually start paying more premiums into the Canada Pension Plan. By policy-making standards, the agreement-in-principle — an unlikely outcome just a few months ago — happened in the blink of an eye.

Deal that once seemed unlikely now expected to be finalized by July 15

Federal Finance Minister Bill Morneau, centre, and Ontario Finance Minister Charles Sousa, left, exceeded expectations Monday in negotiating a deal between eight provinces and the federal government to enhance the Canada Pension Plan. (Jonathan Hayward/Canadian Press)

Higher Canada Pension Plan premiums are still more than two years off, and the ensuing benefits — meant to accrue to future generations — still several decades away.

All of which makes it rather ironic that the "historic" CPP deal reached Monday between Ottawa and most, but not all, of the provinces and territories came together in a relative blink of an eye — by policy-making standards, at least.

Even federal Finance Minister Bill Morneau, himself a pension expert, had expected it to take until the end of the year for negotiations to wrap up.

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 an 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?

Federal Finance Minister Bill Morneau, centre front, was hoping to reach a deal on CPP enhancement with his provincial counterparts before the end of the year. (Jonathan Hayward/Canadian Press)

'Undersaving issues'

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 the consent of a minimum of seven provinces representing at least two-thirds of Canada's population.

The sources also said Prime Minister Justin Trudeau himself was personally involved in the 11th-hour effort. Ontario was also a central player in the lobbying drive.

Canada's most populous province has long pushed for an enhanced CPP, going so far as to propose its own, more ambitious pension plan. Indeed, Ontario repeatedly warned it would go it alone on pension reform, if necessary.

On Tuesday, Premier Kathleen Wynne gave her government credit for its role in the CPP deal.

"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."

To get there, Ontario eased concerns of some provinces by backing down from its earlier requests that CPP reform be just as robust as its own proposal and that it be gradually introduced starting in 2018.

The agreement states the CPP premium increases on workers and employees will only start to be phased in on Jan. 1, 2019.

The Premier of Ontario is more optimistic than she was even a couple of weeks ago that a deal to beef up the Canada Pension Plan can be reached. 6:50

Saskatchewan's finance minister said his province signed on out of fear that the alternative would be something worse.

"I think we played a constructive role knowing full well that, had we not gone along with it, something would have been imposed upon us that maybe was less palatable," said Finance Minister Kevin Doherty, who less than a week ago had opposed any changes because it could further damage the struggling provincial economy.

The CPP deal, however, wasn't signed by everyone.

Manitoba not ready, Quebec out

Manitoba Premier Brian Pallister said the CPP agreement does not address the need for people to manage their own retirement savings.

"I guess what I'm talking about is making sure we don't lose sight of individual responsibility in the hoopla around debating the CPP augmentation here," said Pallister, who worked for decades in insurance and financial planning.

He also said Manitoba abstained from the vote in part because his government was only two months old. The province is, however, still studying the issue.

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 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 he would also phase them in over the same period.

Quebec Finance Minister Carlos Leitao said that as a result of the Canada Pension Plan enhancements, Quebec's pension plan would also be adjusting its premiums. Quebec continues to have its own plan. (Jacques Boissinot/Canadian Press)

But unlike the broader-based CPP reform agreement, he said Quebec would only raise premiums on income earned above $27,500.

"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."

To help offset the effect on low-income earners of increased CPP premiums, Ottawa said would it enhance the federal working income tax benefit — but it did not immediately indicate by how much.

It also said it would provide a tax deduction — instead of a tax credit — on the increased CPP contributions by employees.

Provinces bought off?

Critics of CPP expansion warn that imposing additional contributions will squeeze workers and employers — 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?"

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.