UW Gazette, March 5, 1997 Changes to the Canada Pension Plan announced earlier this month don't have a significant effect on the retirement benefits of UW faculty and staff members, says David Dietrich of the human resources department. "Our UW pension is integrated with CPP," said Dietrich, pointing out that the amendments - announced in the House of Commons by finance minister Paul Martin - don't include major changes to the benefits paid to retirees. The "normal" retirement age under the CPP remains 65, and benefits continue to be indexed to inflation. One big change, which of course does affect current faculty and staff, was an increase in the premiums paid to the CPP by active employees and employers. Currently the total premium rate from employee and employer is 5.85 per cent of salaries, up to "year's maximum pensionable earnings" (YMPE) of $35,800. Rates are to be increased over the next five years, Martin announced, reaching 9.9 per cent in the year 2003. The YMPE figure will continue to increase with inflation. "This is far less than the projected rate of over 14 per cent that the chief actuary said would have been necessary without changes," Martin told Parliament. A number of changes affect Canada Pension disability benefits and the calculation of "survivor" benefits for the widows and widowers of pensioners. There will also be changes to the way the CPP pension fund is invested, "to earn higher returns". In one change that directly affects retirement income, the amount of a Canada Pension will be calculated based on earnings for five years before retirement, rather than just three years. That change has the effect of lowering the pension amount slightly. The government made clear that everyone now retired, and people who reach age 65 by December 1997, aren't affected by any change; their pension benefits remain as they are. People now collecting CPP disability and survivor benefits also won't see any change. "The changes announced to date should reassure employees," Dietrich commented last week, "because they are intended to assure the financial stability of the CPP into the future." He acknowledged that economists and pension experts aren't unanimous in agreeing that Martin has gone far enough in stabilizing the value of the national pension fund. But the finance minister sounded confident when he presented the changes to Parliament: "Canada's retirement income system is not alone in facing challenges from an ageing population and increasing longevity. But almost no other industrialized country has done as much as Canada has to come to grips with these problems. This government promised to make the retirement income system secure for Canadians. We are well on our way to doing it." The design of the UW pension plan is complex, but roughly it is designed to provide post-retirement income of 2 per cent of pre-retirement income for every year that a faculty or staff member was part of the UW pension plan. Someone retiring after 30 years in the pension plan (from age 35 to age 65, say) would thus receive about 60 per cent of pre-retirement income. Some of that would come from the CPP and some from the UW pension fund, according to a formula. Dietrich said the pension and benefits committee "is monitoring" the government's changes to the CPP, "and will be reviewing what changes, if any, have to be made". He noted that if changes should be necessary, "employees will be involved in the process." But that would probably happen only if the government did something more drastic than it's hinted so far. "For instance," said Dietrich, "if the government delayed the earliest date of an unreduced CPP benefit to age 67 or 68, this would require a review of the design of the UW pension." Speaking to Parliament, Martin described the retirement age of 65 as a "very important feature" of the Canada Pension Plan. "Canadians can rest assured that the pension system as they know it can be counted on by them and by future generations." He described the CPP as "one of the three pillars of our retirement income system". The other two are private pensions, such as the UW pension plan and individual Registered Retirement Savings Plans, and the government programs for lower-income seniors, currently Old Age Security and the Guaranteed Income Supplement. The OAS and GIS are turning into "the Seniors Benefit" starting in the year 2001. Martin didn't mention, in his recent speech, that there will be a "clawback" of the Seniors Benefit, to a greater degree than OAS is now taxed. Retirees with an income of more than $26,000 a year will lose some of their Benefit; those with an income above $52,000 (single) or $78,000 (couple) will lose all of it. One of UW's most-publicized faculty members got still more publicity as a result of the recent changes to the CPP and the introduction of the Seniors Benefit. He's Dr. Rob Brown, of the department of statistics and actuarial science, considered one of Canada's leading experts on retirement financing. Brown is constantly being quoted in the media about the CPP and related matters, and had some outspoken comments in a Southam Newspapers news story a few days ago. The CPP and Seniors Benefit changes "amount to the biggest nationalization of personal wealth middle-class Canadians have ever had to face", Brown said. Cutting the present OAS benefits for all but the poorest seniors, and almost doubling the Canada Pension premiums, amounts to "a double whammy", Brown said. "The Seniors Benefit takes away the incentive for middle-class Canadians to save, while the CPP changes leave them with less money to save." Southam noted that "many financial planners say Canadians should still save," since they can still gain more by saving (especially inside RRSPs and tax-sheltered pension plans) than they'll lose through the recent tax changes. Brown is on sabbatical leave this year at the gerontology research centre at Simon Fraser University in British Columbia. In April he'll be taking his expertise far afield, to China, where he will speak with ministry of finance officials about problems they foresee with the social security system in the world's largest nation. "With one of the most rapidly aging populations in the world," says Brown, "China faces dramatic shifts in their dependency ratios (the ratio of the retired elderly to the working population) over the next 40 years." He will present to Chinese officials some of the work he has done about the pre-funding of social security, as opposed to pay-as-you-go financing. Experts from the United States and the United Kingdom will also be among five speakers who have been invited to the conference in China.