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Finance ministers agree to introduce “drop-in” mechanism to protect the value of retirement benefits during periods of low or no earnings

By James Langton |

 

CARP is applauding an agreement to tweak the Canada Pension Plan (CPP) rules to better protect the retirement benefits of new parents, particularly mothers, the advocacy group announced Wednesday.

The federal and provincial finance ministers on Dec. 11 announced an agreement in principle to introduce a feature to CPP designed to protect the value of retirement benefits during periods of low or no earnings, namely when the birth or adoption of children impacts work.

The advocacy group is pleased that the ministers "were able to reach agreement on an issue that will directly impact the financial security of retirees," CARP says its announcement.

Specifically, the ministers agreed to introduce a "drop-in" mechanism that would assign an imputed income during periods when earnings drop substantially due to child rearing. For parents with a child under the age of seven, the enhanced CPP would "drop in" the parent's average earnings for the previous five years in terms of calculating retirement benefits.

The planned drop-in provisions will, "ensure any interruptions in earnings due to child rearing do not count against an individual for the purpose of the CPP they'll earn in retirement," CARP says.

This will particularly benefit women who suffer under the current rules due to time they spend out of the workforce in order to raise children, CARP notes.

Finance estimates the about 125,000 people, mostly women, would benefit from the new provision.

Read: Women face different headwinds in retirement

"To tackle seniors' poverty it is critical that we address its root causes. The announced enhancement to the CPP supplement is a key step to alleviating poverty among single female seniors in their retirement years," says Wanda Morris, vice president of advocacy at CARP, in a statement.

The ministers also agreed to move forward with regulations to ensure that CPP enhancement remains properly funded over time, and agreed to changes to the death benefit; among other measures designed to improve CPP.

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