July 13, 2016 – Low earners stand to gain little from an expanded Canada Pension Plan (CPP), according to a new C.D. Howe Institute report. In “The Pressing Question: Does CPP Expansion Help Low Earners?”, authors Kevin Milligan and Tammy Schirle show the large differences in the net payoff from the expanded CPP for lower and higher earners.
The authors’ analysis shows that the expanded CPP will deliver a serious boost to the gross CPP replacement rates of most young Canadians starting out their careers in the new program. However, many low earners don’t need extra coverage and will see much of their boosted CPP disappear because of clawbacks that reduce the income-tested Guaranteed Income Supplement (GIS).
“Expanding CPP for low earners risks making some Canadians pay for pension coverage they don’t need. To make matters worse, extra contributions may reduce the living standards of low earners today for modest net rewards in retirement tomorrow,” say the authors.
They conclude that the CPP-GIS interaction concern can be fixed by shielding low earners from expanded coverage and required extra contributions, or by exempting the expanded CPP benefits from the income test for GIS.
“Addressing the shortcomings of the expanded CPP for low earners would ensure more workers can benefit from the expansion,” they state.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information contact: Kevin Milligan, Professor, Vancouver School of Economics, University of British Columbia, and Scholar in Residence, C.D. Howe Institute; Tammy Schirle, Associate Professor, Department of Economics, Wilfrid Laurier University, and Research Fellow, C.D. Howe Institute: 416-865-1904, or email: firstname.lastname@example.org.