New Canada Pension Plan Enhancements: What Will They Mean for Canadian Seniors?

Abstract

How much of the enhanced Canada Pension Plan (CPP) benefit will make its way into the pockets of Canadian seniors, after it filters through Canada’s complex tax and social benefit system as income? How much will it help Canadians to maintain their living standards in retirement? To answer these and other questions, this study builds on Statistics Canada’s LifePaths dynamic microsimulation model of the Canadian population to project the implications of the CPP enhancements at full maturity (years 2070–2074). The enhancements will on average increase CPP benefits by 44 per cent across Canadian seniors. For every dollar of new CPP benefits a worker earns, approximately 62 cents will make it into their pocket. This proportion is reasonably consistent across Canadians with different lifetime earnings levels, but the dynamics vary greatly as larger CPP benefits are offset by diverse combinations of higher taxes and reduced payments from Old Age Security and Guaranteed Income Supplement. The enhancements will improve the retirement income adequacy of Canadians, particularly the third of the population without significant workplace pensions in retirement, helping an additional 12 per cent of this group to maintain their living standards in retirement.