Amendments to the Canada Pension Plan to be phased in from 2011- 2016

1. Amendments to theCanada Pension Planto be phased in from 2011- 2016 March 2011

2. Outline of Presentation • The Canada Pension Plan • Modernizing the Plan • Four Key Amendments to the Plan • Things to Consider • Summary of Effective Dates

3. Canada Pension Plan (CPP) • The CPP provides contributors and their families with modest income replacement in the case of retirement, disability or death. • Contributions to the CPP may provide the following: • Retirement pension • Disability benefits • Survivor benefits • Amendments to the CPP will primarily impact the retirement pension.

4. Modernizing the Plan The Canada Pension Plan and Societal Trends • Canadians are living longer and healthier lives, and this is creating greater opportunities for employment later in life. • Changes to the Plan may affect how and when contributors choose to retire from work and when they decide to apply for a CPP retirement pension. • The amendments ensure that the Plan remains fair and secure as it responds to socio-demographic changes and labour market trends. • These amendments will be implemented gradually from 2011 to 2016.

5. Modernizing the Plan (cont’d) • Even with an aging society, the CPP is sustainable. The purpose of the CPP reform is three-fold: Participation • Allow pensioners to continue to contribute to the Plan with an additional CPP pension benefit Fairness • Return to cost neutrality for pension adjustments for pre- and post-age 65 retirees • Ensure CPP remains fair to all generations • Maintain Plan sustainability Flexibility • Provide more options to fit diverse circumstances • Allow retirement without work interruption

6. Amendment 1 Bring the adjustment factors, for retirement pensions taken before and after age 65, back to neutral values. Summary of Amendments Amendment 2 For workers receiving a CPP retirement pension*, contributions are required until age 65 and then voluntary until age 70 for additional pension benefit. Amendment 3 Eliminate the requirement to stop working or reduce earnings in order to qualify for a CPP retirement pension before age 65. Amendment 4 Enhance the general drop-out provision to exclude up to an additional year of low earnings from the benefit calculation. • * Those who receive a retirement pension from the Quebec Pension Plan and return to work are required to pay contributions.

7. Currently, there is a financial advantage for early retirees while late retirees are not adequately compensated for delaying their pensions. As Canadians will retire in record numbers over the coming years and given that life expectancy has increased from when the adjustments were set in 1987, it is crucial to correct the imbalance. The actuarial factor is the adjustment made to retirement benefits depending on whether a person retires before or after age 65. Effective Date: January 2011 Adjustment to the Actuarial Factor Amendment 1 Bring the adjustment factors for retirement pensions back to neutral values.

8. Current CPP Calculations • If a person retires before age 65, the actuarial factor lowers the retirement benefits (as they will be collecting benefits for a longer period of time). • If a person retires after age 65, the actuarial factor increases the retirement benefits (as they are expected to collect benefits for a shorter period of time). • 60-64: Reduced pension (- 0.5% per month before 65) • 65: Full pension • 65-70: Increased pension (+ 0.5% per month after 65)

9. Making pre and post-age 65 Adjustment Factors Neutral • Legislative change:The adjustment factors will make the CPP more neutral so early retirees do not benefit more from the CPP than later retirees (age 65 or later). New factors: Age 60: reduced by 36% (2016) Age 70: increased by 42% (2013) Current factors: Age 60: reduced by 30% Age 70: increased by 30%

10. -31.2% -30% -36% -32.4% -34.8% -33.6% notice period 2016 2012 2013 2014 2015 2009 +34.2% +38.4% +42% +30% notice period 2009 2011 2012 2013 Gradual Implementation of Changes to Adjustment Factors Gradual decrease of pre-65 adjustment factors will begin in 2012: The increase of post-65 adjustment factors will be implemented at a faster rate starting as of 2011:

11. Less than 10% of retirees receive a maximum CPP retirementpension ($960 January 2011); pensioners receive on average $504.50 monthly (September 2010). This change will encourage older beneficiaries to continue working once they start receiving their CPP retirement benefits. The changes will allow workers receiving CPP retirement benefits to add an additional pension benefit. Working beneficiaries need an opportunity to continue to build low-risk retirement benefits at a good rate of return. Effective Date: January 2012 Post-retirement Contributions to CPP Amendment 2 For workers receiving a CPP retirement pension, contributions are required until age 65 and then voluntary until age 70 for an additional pension benefit.

12. Current CPP Legislation • Currently, applicants for the CPP retirement pension that eventually return to work are not allowed to contribute to the Plan. • There is no possibility to receive additional CPP benefits to increase pension earnings.

13. Additional CPP Pension Benefits Legislative change: Starting in 2012: if individual chooses to work while receiving their CPP retirement pension. • Under age 65: contributions mandatory for contributor and their employer. • Between 65-70: contributions optional. If individual chooses to contribute, their employer will have to contribute also.

14. Post-Retirement Benefit An individual who works and contributes to CPP while receiving a CPP retirement pension will get a post-retirement benefit (PRB) as a payment separate from their CPP pension. • PRB will not be subject to the maximum pension rules (not allowing payments above the maximum retirement pension). • Contributions made while receiving a CPP retirement pension cannot create eligibility or increase the amount of disability or survivor’s benefits. They are strictly used for post-retirement benefits.

15. Many older workers want flexibility to continue to work and receive their CPP benefits. The change will give them the option to stop and restart working, reduce the number of hours of work and even change the nature of their work. There are many different paths people take to retirement today and this change recognize that retirement is often a process that occurs in stages, rather than a one-time event. The requirement to stop working or reduce earnings to receive a CPP retirement pension is outdated in an era with skills shortages and difficulty saving for retirement. Effective Date: January 2012 Requirement to Stop Working Amendment 3 Eliminate the requirement to stop working or reduce earnings in order to qualify for a CPP retirement pension before age 65

16. Current Work Cessation Requirement • Currently, applicants for the CPP retirement pension must stop working or significantly reduce their earnings to qualify for the CPP retirement pension. • This is called the Work Cessation Test.

17. Eliminating the Work Cessation Test • Legislative change: Will eliminate the CPP requirement to cease work or reduce earnings to qualify for a retirement pension before age 65. • Will provide greater flexibility for those who choose to receive their retirement pension before age 65. It will enable them to receive their retirement pension while working. • The change will take effect in 2012.

18. Eliminating the Work Cessation Test Example • Connie turns 60 years old in 2012.  She is a nurse at a hospital and she loves her job.  Connie would like to continue working past age 60, but is increasingly finding the long shifts of a full-time job too tiring.  With the removal of the Work Cessation Test, she will be able to cut down her work from 40 to 30 hours per week and take her CPP pension.  Her combined income from the CPP and the hospital job will therefore remain roughly the same as before.

19. Current CPP retirement pension rules are based on a 47-year work life. In reality, today, people are in and out of the labour force for various reasons (e.g. at school, laid-off, providing care, etc.). General Drop-out provision acts as a buffer for time spent out of workforce or of low earnings. Excluding a portion of the earnings history from the calculation allows for an increase in the amount paid. Effective Date: January 2012 Low Earnings in Contributor’s Work Life Amendment 4 Enhance the general drop-out provision to exclude up to an additional year of low earnings from the benefit calculation.

20. Current Provision • Currently, CPP contributors benefit from a general drop-out provision allowing periods of low or no earnings to be excluded from the benefit calculation (15% or approximately 7 years may be dropped out of the calculation to increase the amount of the retirement benefit for someone who contributes from age 18 to 65).

21. Allowing More Periods of Low or No Earnings to be Dropped from Calculation • Legislative change: Will allow more periods of low or no earnings to be dropped from benefit calculation. • Will compensate those experiencing work interruptions that happen for a variety of reasons and are often involuntary. • The percentage of low earnings to be dropped from the calculation will increase to 16% in 2012 and 17% in 2014.

22. Allowing More Periods of Low or No Earnings to be Dropped from Calculation Example • Harriet Keane is a high school teacher.  She started university at age 18 and completed two post-secondary degrees over five years, then started teaching immediately and always earned more than “average wages”.  In her late 40s, she took a two-year leave of absence from work to care for her mother.  She plans to take her CPP retirement pension after she turns 60 in 2015.  Harriet will be able to drop all her years spent in post-secondary education and care-giving from her pension calculation.  Her pension amount will be $8,359 in 2015, and will increase each year with the cost of living.  Without the proposed change, her pension amount in 2015 would have been $8,202 (growing annually with the cost of living).    

23. Choices depend on an individual’s wants and needs • When deciding whether to apply for the CPP retirement pension prior to age 65, at age 65, or up to age 70, contributors should consider their personal life circumstances. • Health • Life expectancy • Stream of income – current and future • Employment status now and in the future • Employment history • Whether CPP pension credits were split following a divorce • Plans for retirement

24. Things to Consider • The new adjustment factors will further increase the pension for those who start receiving it after 65, and further reduce it for those who start receiving it before age 65. • If a contributor stops working permanently or significantly reduces their earnings at the end of their work life, it is often beneficial to start their CPP retirement pension at the time of this transition. • Otherwise, the nil or lower earnings at the end of the contributory period may reduce the retirement pension and may potentially lower the overall benefits payable.

25. Summary of effective dates of the changes • Actuarial Adjustment Factors • January 2011: Increase post-65 adjustment factors • January 2012: Increase pre-65 adjustment factors • Allow working CPP retirement recipients to build a Post Retirement Benefit • January 2012 • Allow contributors to continue to work while they are receiving their CPP retirement benefit • January 2012 • Enhance Drop-out Provision • January 2012 and January 2014

26. For More Information… Click www.servicecanada.gc.ca Call CPP/OAS Call centre • 1 800 277-9914 (English) • 1 800 277-9915 (French) • 1 800 255-4786 (TDD/TTY) Visit a Service Canada Office Go to www.servicecanada.gc.ca Select“Find a Service Canada Office” for a list of all offices

27. Questions