Changes in CPP

​Recently the federal Government announced a tentative deal with the majority of Canadian Provinces to increase the size of CPP contributions and as a result increase the benefit payments upon retirement. I am finding that because this announcement was made when many other events were occurring on Parliament Hill some of the details of this CPP increase were not as well communicated to citizens as they could have been. As a result I would like to share some of the details of this CPP increase.

Currently both an employer and an employee pay 4.95% of a worker’s salary into CPP up to a maximum income level of $ 54,900. Over time this current CPP contribution, if at the maximum level, would result in total benefit payments of just over $ 13,000 per year. The recent CPP changes announced are intended to achieve two goals. The first is to increase the total maximum benefit payable upon retirement and the second goal is to increase the income level so that a worker with a higher income will still have the ability to earn CPP benefits. To put these changes into context I will provide a few examples. Currently a worker at the maximum income level of $ 54,900 can earn a total yearly benefit of $ 13,110 a year. That same worker with the same income level (once the CPP changes are fully phased in) would be eligible to receive a total benefit of $ 17,500 a year (in today’s dollars) thus an increase of $4,390 per year in total or a $ 365 monthly increase upon retirement.

The second change is the increase so that more wealthy workers can collect CPP benefits.  As I mentioned previously, currently the maximum income level for CPP is $54,900. Once the proposed changes are fully phased in by the year 2025 this amount would be increased up to $82,700 per year. As a result of these changes a retiring worker with an income level of $ 82,700 would be eligible for maximum annual CPP benefits of up to $19,900 a year, again expressed in today’s dollars.

Keep in mind these proposed increases also carry increased costs to your CPP contributions that will be deducted from your pay check. While the exact cost details will vary per worker it is expected that a worker with an annual salary of $54,900 will see a CPP increase of $ 108 a year in 2019 as 2019 is the first year the CPP increase changes would begin to take effect.  Once the CPP increases are fully implemented in 2025 the increased costs to a worker would be just over $ 500 per year. Keep in mind all of these same increased costs will also have to be absorbed by employers. As a result the Canadian Federation of Independent Business has expressed concerns that imposing what amounts to billions in increases on labour costs over time will have a detrimental impact on job creation and be potentially harmful to many small businesses.  The Federal Government will also be introducing a partial tax credit for employee contributions however the overall impact on small business is unknown.

While the increased CPP changes will cost employers and employees more in contributions what has also been overlooked is that these changes may actually provide some financial relief to the federal Government in the future.  Increasing CPP benefits may result in less pressure and eligibility on programs such as the Guaranteed Income Supplement (GIS) and Old Age Security (OAS) that are not directly supported by contributions from employers and employees as is the case with CPP.  If you have any further comments, questions or concerns on increased CPP or any matter before the Federal Government do not hesitate to contact me at Dan.Albas@parl.gc.ca or call toll free at 1-800-665-8711