OTTAWA (Reuters) - The Canadian government's plan to increase workers' retirement benefits will raise the limit on eligible wages by 14 per cent, officials said on Monday, as the country looks to bolster its retirement system amid worries people are not saving enough.
The Liberal government reached an agreement in principle with the provinces in June to improve the pension plan after the previous Conservative government had refused to consider changes.
Canada, like many other countries, faces the growing challenge of caring for its aging population. Low economic growth prospects globally have also raised worries that younger generations will need to save more to retire.
Indeed, younger workers will get the most benefit from the proposed changes to the national pension plan, which will come into effect over a seven-year period. Officials estimate that about 24 per cent of families nearing retirement age risk not having enough income to maintain their standard of living.
"We're focusing on the long term, recognizing that too few Canadians have a situation where they're going to be able to retire in dignity," Finance Minister Bill Morneau told reporters.
Starting in 2019, the plan's income replacement level will gradually be increased to one-third of eligible earnings, from the current one-quarter, officials said.
The cap on those earnings will rise by 14 percent to $82,700 by 2025.
In current dollar terms, the maximum annual retirement benefit will increase to nearly $20,000 from the current $13,110. The planned pension enhancement will be fully funded, as required by existing legislation.
A higher contribution rate on earnings below the yearly maximum will be phased in over the first five years and is estimated to be 1 percentage point higher for both workersand companies by 2023.
In 2024, a separate contribution rate expected to be four per cent will kick in for earnings above the upper limit projected at the time.
The enhanced portion of employee contributions will be tax deductible, officials said.
The government must still table legislation to make the changes and Morneau told a parliamentary committee he would move forward on that this fall.
Once the legislation is passed federally, it will require approval from seven of the 10 provinces.
Eight provinces signed on to the agreement in principle in June, and Manitoba has since come on board. Quebec, which has its own pension plan, did not sign on but expressed support.
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