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State pensions and mandatory schemes
Contributions Do employers and/or employees make pension contributions to the government in your jurisdiction? If so, briefly outline the existing state pension system.
Canada’s public pension system consists of two pillars:
- the Canada or Quebec Pension Plan (CPP and QPP, respectively); and
- the Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits.
The CPP and the QPP are contributory, earnings-related social insurance programmes. Subject to certain narrow exceptions, Canadian employers are required to contribute to the CPP on behalf of their respective employees or, if any of the employees are employed in the province of Quebec, are required to contribute to the QPP. Employees and the self-employed are also required to contribute to both plans. Both employer and employee contributions to the CPP and the QPP are based on pensionable earnings, up to the maximum contribution limits set out under the CPP and the QPP, as applicable. The maximum pensionable earnings and contribution rates under the CPP and the QPP may vary year to year and are fixed in advance by the Canadian and Quebec governments, respectively. In 2017 the employer and employee CPP contribution rate is 4.95% of earnings, to a maximum pensionable earnings of C$55,300, whereas the employer and employee QPP contribution rate is 5.4%, to a maximum pensionable earnings of C$55,300.
Under the CPP and the QPP, employees and their eligible beneficiaries may be entitled to retirement benefits, survivor benefits, death benefits or long-term disability benefits.
Canadians may also be eligible to receive OAS and GIS benefits under the Old Age Security Act; OAS and GIS are government benefits for seniors. No employer or employee contributions are required for either benefit. Entitlement to OAS and GIS benefits is means-based – employment history is not a factor.
Can employers deduct any state pension contributions from their taxable income?
An employer can deduct the CPP and QPP contributions it made on behalf of its employees from its business income.
Are there any proposals to reform or amend the existing system?
The CPP can be amended or reformed only with the consent of the federal government and two-thirds of provincial governments, which represent two-thirds of the population of all provinces. In 2016 the federal government and all provinces, with the exception of Quebec, agreed to reform the CPP significantly. The reforms will be phased in over seven years, from January 1 2019.
As part of the reform, the maximum amount of income subject to the CPP will by increased by 14% to a projected amount of C$82,700 in 2025. In order to fund the enhancements, employer and employee contributions to the CPP will increase from January 1 2019. The increase in contribution rates will be phased in over seven years and consist of:
- an increased contribution rate on earnings below the year’s maximum pensionable earnings, which will be phased in over the first five years; and
- an increased contribution rate on earnings above the year’s maximum pensionable earnings, which will begin to take effect in 2024 and be phased in over two years.
In December 2016 the Quebec government released a discussion paper outlining possible options for enhancing the QPP. As of August 1 2017 no formal announcement had been made.
Other mandatory schemes Are employers required to arrange or contribute to supplementary pension schemes for employees? If so, briefly outline how the scheme is enforced and regulated.
Canadian employers are not required to arrange or contribute to supplementary pension schemes for employees, but may choose to do so.
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