CPP en­hance­ments be­gin in 2019 and will be rolled out over seven years

Medicine Hat News - - BUSINESS - DAVID PADDON

TORONTO The big­gest change to the coun­try’s pen­sion plans in more than a decade will take place in the new year, but the ef­fects will be felt dif­fer­ently de­pend­ing on which gen­er­a­tion you be­long to.

Be­gin­ning in early 2019, the Canada Pen­sion Plan and Que­bec Pen­sion Plan will phase in en­hanced ben­e­fits over the next seven years to pro­vide more fi­nan­cial sup­port for Cana­di­ans af­ter they re­tire.

How­ever, while pen­sion con­tri­bu­tions will grad­u­ally in­crease for all em­ploy­ees and em­ploy­ers, the younger gen­er­a­tions will see the lion’s share of en­hanced ben­e­fits as the im­prove­ments slowly make their way through the sys­tem.

“Don’t get too ex­cited un­less you’re 30 years old or less. Then it could im­pact you fairly sig­nif­i­cantly,” says Doug Runchey, an in­de­pen­dent con­sul­tant who spe­cial­izes in Canada Pen­sion Plan and Old Age Se­cu­rity.

Cur­rently, em­ploy­ees con­trib­ute a per­cent­age of their pen­sion­able earn­ings un­til hit­ting an an­nual cap, while their em­ploy­ers pay an equal amount per em­ployee. Self-em­ployed peo­ple pay both amounts.

Un­der the en­hanced plan, CPP con­tri­bu­tions will go up in two ways.

One in­crease will in­volve a se­ries of higher con­tri­bu­tion rates from 2019 to 2023 and the other will in­volve a higher ceil­ing on an­nual in­come sub­ject to con­tri­bu­tions in 2024 and 2025.

On Jan. 1, 2019, the to­tal rate paid by em­ploy­ees and em­ploy­ers will rise to 10.2 per cent per em­ployee from 9.9 per cent (em­ployee por­tion of con­tri­bu­tion rises to 5.10 per cent from 4.95 per cent).

The con­tri­bu­tion rate is sched­uled to grad­u­ally in­crease to 11.9 per cent of an em­ployee’s pen­sion­able earn­ings in 2023 (of which em­ploy­ees con­trib­ute 5.95 per cent).

Un­til 2023, the con­tri­bu­tions will be ap­plied on up to a max­i­mum an­nual in­come ceil­ing that rises most years un­der an es­tab­lished for­mula.

In each of 2024 and 2025, how­ever, the ceil­ings will be de­ter­mined by a new for­mula — mean­ing peo­ple earn­ing above a cer­tain thresh­old will con­trib­ute more and re­ceive more CPP ben­e­fits than they would un­der the orig­i­nal cal­cu­la­tions.

As a re­sult of the con­tri­bu­tions in­crease, ben­e­fits will also in­crease grad­u­ally — although it will take decades and a life­time of em­ploy­ment for most of them to be fully avail­able to re­tirees.

In gen­eral, baby boomers and gen­er­a­tion Xers will stand to gain less than mil­len­ni­als or gen­er­a­tion Z be­cause it will take 45 years to achieve max­i­mum ben­e­fits, although they go up slightly ev­ery year of em­ploy­ment start­ing in 2019.

Has­san Yus­suff, pres­i­dent of the Cana­dian Labour Congress, says the eco­nomic ben­e­fits of CPP en­hance­ments will more than off­set the in­creased costs and help the over­all econ­omy by giv­ing re­tirees more buy­ing power.

“I be­lieve the pre­mium in­crease is go­ing to have lit­tle or no im­pact, both on work­ers but equally so on em­ploy­ers who are go­ing to have to con­trib­ute,” says Yus­suff, who cam­paigned for sev­eral years to get sup­port of the en­hance­ments. He says small busi­ness own­ers — like their em­ploy­ees and the self-em­ployed — have dif­fi­culty sav­ing for re­tire­ment.

“So the CPP is go­ing to guar­an­tee they get some­thing out of the sys­tem,” Yus­suff says.

“Of course it will take some time for this new en­hance­ment to de­liver the ben­e­fits, but that’s the na­ture of all pen­sions.”

One of the main voices speak­ing against the en­hanced CPP when it was pro­posed in 2016 was the Cana­dian Fed­er­a­tion of In­de­pen­dent Busi­ness.

Monique Moreau, the CFIB’s vi­cepres­i­dent for na­tional af­fairs, says the busi­ness group con­stantly needs to re­mind gov­ern­ments that its mem­bers must deal with a range of cost in­creases — not just the ex­pense of the lat­est ini­tia­tive.

“An en­hanced CPP may seem like a rel­a­tively man­age­able in­crease, but that’s just for the CPP,” Moreau says.

She notes that a new fed­eral car­bon tax will go into ef­fect next year in prov­inces that don’t have a com­pa­ra­ble pro­gram.

How­ever, she says, Ot­tawa has also re­duced the small busi­ness tax rate to 10 per cent, as of Jan. 1, 2018, and it will go down to nine per cent as of the new year.

In ad­di­tion, the rate for em­ploy­ment in­sur­ance pre­mi­ums and max­i­mum an­nual EI pre­mi­ums have fallen since 2016 due to an­nual ad­just­ments.

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