Recent Changes to the CPP

August 16th, 2016

Although many people are unaware of it, modest enhancements to the Canada Pension Plan were agreed on when federal Finance Minister Bill Morneau met with the provincial finance ministers met in June. The changes are to be submitted to Parliament for approval in October.

Currently, employers and employees contribute 4.95% of their earnings up to a maximum income level of $54,900. Depending on their contribution history, they would be eligible for a maximum pension of $13,110. There are no contributions made or benefits earned on income in excess of $54,900. While there are many, many details that have not been released, there are some things that are clear about how this will change:

  • The first major change is to increase the retirement benefit target from 25% of earnings to 33% and to increase the maximum pensionable earnings from $54,900 to $82,700 when the program is fully phased in by 2025. For someone contributing at the maximum level, the maximum retirement benefit will increase to $19,900 per year.
  • Another change is a 1% increase in contribution rates from 4.95% to 5.95% up to $54,900. The increase will be phased in from 2019 to 2025. Contribution rates on earnings between $54,900 and $82,700 are expected to be 4%.

The big question is who will benefit from these changes and when.

  • People currently receiving CPP retirement benefits will see no changes as a result of these reforms.
  • Increases in the benefits will be determined by your current age. The closer you are to age 65, the lower the increased benefit.
  • The reforms will be fully phased in by 2025. To earn the maximum retirement benefit, you must earn the yearly maximum earnings for a period of 40 years. That means that young people, starting to contribute in 2025 will see the largest increase in benefits when they retire in 2065.
  • For people with six figure incomes, the changes will not make a substantial impact on their post-retirement incomes.
  • People with no, or limited access to the workforce will see little or no impact on their CPP benefits.

When the Ontario Pension Plan was announced, I was told by my (Liberal) MPP that the purpose was to force the hands of the federal and other provincial governments. If it was truly a bluff, it worked but the province has spent $70 million of our money on this bluff, not including the severance payments of the civil service employees who are now out of a job.

Implementing and administering the proposed Ontario plan would have been staggeringly expensive. If the bluff cost $70 million and there are a little over 4 million taxpayers in Ontario, my share of the bluff is about $16. I am delighted to contribute $16 of my hard earned savings to dodge the bullet of the Ontario go-it-alone pension scheme.