In June 2016, after years of discussions, the federal govern-ment
reached an agreement, in principle, with provincial and
territorial finance ministers to strengthen the Canada Pension
Plan (CPP).
For the past eight years, the Canadian Payroll Association
(CPA) has conducted market research of Canadian employees for
its National Payroll Week (NPW) campaign, querying working
Canadians on their spending, savings, debt and retirement plans.
Research consistently shows that the road to a comfortable retire-ment
is becoming longer and more difficult for many Canadians.
Almost half of Canadians are living paycheque to paycheque, one-third
feel overwhelmed by debt and an astounding 76 per cent say
they have saved only one-quarter or less of what they feel they
will need to retire. A number of governments recognized this
need and initiated legislation to establish voluntary pension plans.
The Government of Ontario went further, and started to devel-op
the Ontario Registered Pension Plan (ORPP). It is important
to note that the CPA played a major role in the postponement
and eventual cancellation of the ORPP in favour of a modest CPP
enhancement.
The government’s decision to enhance the CPP will help em-ployees
by bolstering the financial wellbeing of Canadians through
mandatory retirement savings. Research and results show the
available voluntary savings programs such as registered retirement
savings plans (RRSPs) and tax-free savings accounts (TFSAs) are
not being utilized by many Canadians to fill the retirement savings
benefits
gap. Enhanced CPP will increase everyone’s retirement earnings;
however, it is a modest increase and will remain only a part of
Canadians’ savings for retirement.
For those tasked with implementing the CPP enhancement
on behalf of their employers – including those in payroll, hu-man
resources and accounting – regulatory and administrative
compliance will require careful consideration. Beyond that, these
professionals will need to be able to clearly explain and communi-cate
changes and challenges of the CPP enhancement to employers
and employees.
WHAT WE KNOW ABOUT THE ENHANCEMENT
The agreement in principle enabled Federal Finance Minister Bill
Morneau to table legislation in Parliament to amend the CPP Act.
Bill C-26, An Act to amend the Canada Pension Plan, the Canada
Pension Plan Investment Board Act and the Income Tax Act, which
received Royal Assent on Dec. 15, 2016, will officially usher in
changes to the CPP.
Once Bill C-26 comes into force, the enhanced CPP will:
■■ Replace 33 per cent of pre-retirement income, up from 25
per cent
■■ Increase the maximum amount of income subject to CPP by
14 per cent, which is projected to be equal to roughly $82,700
in 2025
■■ Gradually phase in contribution increases over seven years,
beginning Jan. 1, 2019
Changes to
the Canada
Pension Plan
WHY HR NEEDS TO PAY ATTENTION
By Patrick Culhane, B.Comm., CAE, FCPA, FCMA
Still AB/Shutterstock.com
HRPROFESSIONALNOW.CA ❚ APRIL 2017 ❚ 35