PEI Finance Minister Wes Sheridan has proposed Canada Pension Plan (CPP) reforms in advance of December’s meeting of finance ministers. The proposal is thought to be similar to economist Michael Wolfson’s “Wedge” approach. Since extra coverage for those with lower earnings is not needed (this group already gets the maximum CPP payout which when coupled with the OAS and GIS benefits is sufficient to cover basic costs in retirement, most would argue), Wolfson suggests keeping the replacement rate at 25% for lower earners, then use a 40% replacement rate for earnings above a certain threshold. He also proposes doubling the earnings cap to $102,200 to cover more middle and high earners. Together, the end result is a “wedge” that tops up the earnings replacement of those with middle incomes without forcing unnecessary changes on those at the bottom.
Read more about the proposals and get economics professor Kevin Milligan take at Canadian Business.