Canada’s finance ministers have reached an agreement in principle to expand the Canada Pension Plan (CPP) that stands to act as a long-term drain on the economy.
In a scheme that will be doubly damaging for many employees and their employers, not only will it raise the rate of contributions, it will also draw in additional income by raising the threshold on income that was previously exempted from contributions.
CFIB has since filed Freedom of Information (FOI) requests with all eight provinces that signed the agreement, as well as with the federal government, seeking to determine whether governments did any economic impact analyses. CFIB also sent an open letter to premiers and the Prime Minister, encouraging them to share analyses they did on the CPP deal before the July 15 signing deadline.
What does CPP expansion look like?
Employer and employee premiums go up from the current 4.95% of earnings to 5.95% by 2025.
CPP contributions will now be deducted on income up to a threshold of $82,700 (previously, the threshold was a maximum of $54,900 of a person’s income that was subject to mandatory CPP contributions).
Beginning in 2024, a new “Upper Earnings Limit” comes into effect, which will be set at 7% above the Yearly Maximum Pensionable Earnings level in 2024 and 14% above it in 2025 (the upper earnings limit is projected to be $82,700 by 2025). Employees and employers will pay a 4% premium on income between the two levels.
The new plan aims to replace 33% of income up to this higher ceiling (currently CPP is meant to replace 25% of earnings).
Increased contributions begin in 2019 (the plan takes three years to implement since the legislation covering CPP stipulates that any changes to the plan be brought in no earlier than three years down the road). Ministers say the full effect of the reforms will be in place by 2025.
CFIB Reaction to CPP Announcement
CFIB President Dan Kelly Comments on Decision to Expand CPP
Voices of opposition
CFIB gathered over 50,000 petitions from small business owners opposed to CPP/QPP hikes and presented them to finance ministers in advance of their meeting. A further 40,000 petitions were collected in opposition to the Ontario Retirement Pension Plan (ORPP).
A recent CFIB survey of its membership found 71% were against mandatory CPP premium hikes. This is consistent with previous member surveys on the subject.
Quebec and Manitoba have yet to sign off on this round of expanded CPP, but agreed to conduct further analysis. The other eight provinces have committed to this expansion, while it appears Ontario will now back away from the ORPP.
Quebec’s government would apparently not follow the same approach, describing the proposal put forward as very expensive and not sufficiently focused on the needs of Quebec. According to its calculations, the proposed reform would mean an additional hit of $3.5 billion per year out of the pockets of workers and employers in Quebec.
The signs of trouble are clear
All signs point to trouble for Canadians!
The federal government has not committed to any further public consultations on the issue, despite the fact that polls show a low level of understanding about CPP expansion.
CPP expansion is not the favoured choice of Canadians for retirement savings. A public opinion poll and corresponding CFIB member survey on the subject found that, if given a choice, Canadian small business owners and employees both prefer RRSPs, TFSAs and personal investments over mandated CPP increases.
Mandatory CPP expansion will also lead to economic pressures: over one-third of employed Canadians said such increases will reduce their ability to spend on essential goods and services; two-thirds of small business owners said they will face increased pressure to freeze or cut workers’ salaries.
When asked about the best way for government to help Canadians save more for retirement, only 18% of employed Canadians and 5% of small business owners chose mandatory increases in CPP contributions.