The federal government has launched its promised consultation on a possible expansion of the Canada Pension Plan (CPP) that would involve introducing a new voluntary component to the plan, the Department of Finance Canada announced on Monday.
However, the government stressed it will not pursue an expansion of the CPP that involves mandatory premium increases.
“Our government believes in providing voluntary savings options to serve Canadians. We will not consider a one-size fits all approach to force payroll taxes on small businesses and employees,” said Kevin Sorenson, Minister of State (Finance) in a statement.
The consultation seeks input on possible design features for a voluntary CPP expansion from measures to encourage participation to issues such as fund management and flexibility.
“For example, a simplified enrolment process and/or a contribution model which would allow individuals to establish automatic deductions through their paycheques could be considered,” the consultation document states.
Another key issue is the flexibility of the plan for participants in any new voluntary component. According to the document, the government is seeking views on the extent to which participants’ contributions will be locked in. It is also consulting on the ability for individuals and employers to determine contribution amounts.
“A range of options, from fixed to fully variable contributions exist,” the consultation document states. “Further, consideration could be given to whether the prescribed individual contribution amounts and regularity of contributions should be similar or separate to those prescribed for a workplace contributory model. Flexibility could also be provided through offering contribution holidays, where individuals could temporarily opt-out or reduce their contribution rate for a set amount of time.”
In addition, limits on contributions, payment options for retirees drawing on their voluntary supplements, and portability issues are being considered. For example, portability across employers and jurisdictions “would represent a significant benefit” to a voluntary CPP supplement, the document states, but that portability between savings vehicles such as RRSPs and RPPs needs to be explored.
Views are being sought on how funds contributed under a voluntary supplement should be managed, with administrative efficiency and maintaining low costs cited as key considerations force choosing possible fund managers. “Consideration could be given to having the Canada Pension Plan Investment Board (CPPIB) manage voluntary CPP supplement funds in a similar manner to the existing CPP fund. A voluntary CPP supplement would require the tracking of individual accounts. A voluntary approach would need to take into account the contributor population, timing of withdrawals, and risk tolerance,” the document states.
The consultation closes Sept. 10.