In last week’s report I referenced higher CPP premiums, that will increase from 4.95% up to 5.95% gradually between 2019 and 2023, resulting in lower take home pay for many Canadians.
If you have been watching television, it is possible that you may have even come across commercials from the CPP Investment Board that state “you started saving for retirement with your first paycheque.”
I have received complaints over the fact that a true savings account is one that citizens can voluntarily withdraw from, whereas CPP contributions do not offer this flexibility.
I have also received enquiries and comments about CPP and other federal government retirement programs.
For those who may be unaware, here is a summary about the different programs that the Federal Government administers.
These include the Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS).
CPP is generally funded equally by you and your employer during your working years.
CPP can provide benefits for loss of income created by disability or retirement. The benefits are ultimately calculated by how much you have contributed and over what length of time.
You can start collecting CPP as early as 60 or as late as 70, however different rates would apply.
In contrast, OAS provides a modest pension to most Canadians at age 65, if you have lived in Canada for at least 10 years.
The maximum OAS payment is for individuals with 40 years or more of residency after their eighteenth birthday.
Seniors with earnings in excess of roughly $77,580 per year will gradually receive a lesser OAS benefit that ultimately is eliminated for an income in excess of $ 125,696 a year.
The GIS is specifically for lower income seniors 65 and older with an income of roughly $18,239 annually or less.
If you have questions for any of the above programs you can contact Service Canada toll free at 1-800-622-6232 for further information.
I have heard many comments over the recent increase in CPP premiums.
One common complaint is that if a person does not live to 65, or not long after, the amount that can be transferred to spouse, after a lifetime of CPP contributions, is comparatively quite limited.
My question this week:
Would you support more equitable options to transfer your lifetime CPP contributions to your estate or to another investment program?
I can be reached at Dan.Albas@parl.gc.ca or call toll free 1-800-665-8711.
It was not long into the new year when a citizen shared with me an email they received from their employer stating Statutory Canada Pension Plan (CPP) "deductions are reset for the new year so you will notice a decrease in your net take home pay starting in January”.
The citizen asked if this information was correct and if so, what are the reasons for it?
As I reported back in July and October of 2016, the Trudeau Liberal government raised CPP premium rates.
The changes mean that beginning this year and for every year until 2023, the mandatory CPP contribution rate will be gradually increase from the former rate of 4.95% up to 5.95% in 2023.
It is true that in most situations your net take home pay will be less because of this CPP increase.
Likewise, for an employer the costs of making payroll will also correspondingly increase.
The intent of these CPP changes is to increase the total annual CPP benefit (assuming an individual reaches age 65).
As an example, the current maximum CPP benefit is $13,110 a year.
This CPP maximum benefit would increase by $4,390 per year up to a new maximum of $ 17,500 annually.
Keep in mind the maximum benefit figures only apply to those who contribute the maximum CPP contribution for roughly 40 years.
For most workers, the rates will vary.
One of the downsides to the CPP program is that it is not a transportable retirement investment.
For citizens who do not live to reach 65 or only live a few years beyond 65, a lifetime of contributions paid to CPP are of no significant benefit to a spouse or family in that the full value of the contributions cannot be transferred through to an estate.
So where would those unused CPP contributions end up?
One of the lesser known criticisms of CPP is the fact that your CPP contributions are being consumed by significantly rising administration costs.
Operating costs went from $3 million in the year 2000 to $803 Million in 2015, not to mention external management fees that have risen from $36 million in 2006 to $1.25 Billion in 2015.
These are serious administration increases.
The Canadian Federation of Independent Business (CFIB) released a poll indicating that 70% of business owners have indicated that the costs of the CPP premium increase will create cost pressures to freeze or cut salaries.
While an increased CPP benefit may appear to help younger people the most, perversely higher payroll taxes can discourage hiring of youth, who already face significantly higher unemployment rates due to a lack of experience.
For some, finding that first job will be tougher.
In response to these increased costs the Trudeau Liberal budget for 2019 will lower the small business tax rate to 9%.
This was the same small business tax cut that was originally legislated by the former Conservative government, cancelled by the Trudeau government in Budget 2016 and was only reinstated after significant political pressure.
My concern is with reduced take home pay, courtesy of the increased CPP deductions, coupled with recent provincial announcements to increase ICBC rates, as well as many local governments increasing property taxes at rates beyond inflation, citizens are being collectively squeezed from all levels of government.
From my perspective it should never be overlooked that there is only one taxpayer and when the Prime Minister refers to the concept of a balanced budget as being an “austerity” measure, this points to a road of future tax increases to pay for deficit spending.
My question this week is a simple one:
Are you concerned by having your net take home pay reduced by increased CPP premiums?
I can be at Dan.Albas@parl.gc.ca or toll free at 1-800-665-8711.
Subscribe to the MP Report
Sign up now to get Dan's weekly MP report emailed directly to you!
Sign up now to get a monthly MP Report mailed directly to your home.
Dan Albas is the Member of Parliament for the riding of Central Okanagan-Similkameen-Nicola.