Changes to the CPP

The Federal government has reached an agreement with the majority of provinces regarding changes to the Canadian Pension Plan. Th

e new plan will provide people with up to 33% of their pensionable income rather than the 25% CPP is currently providing. Motivation for this change comes from the government’s opinion that Canadians do not or cannot save enough for retirement. Currently, the required contribution limit is 9.90%, usually 50% from the employer and 50% the employee on income between $3,500 and $54,900. Beginning in 2019 and phasing in until 2025, an extra one percent will be contributed by both the employer and employee bringing the percentage to 11.9%. And the top end of the pensionable income range will be increased to $82,700. Self-employed individuals will pay the full 11.9%. This obviously adds extra costs for employers in the future. One bright spot from these changes is that the Ontario Registered Pension Plan has been scrapped. This is good news for Ontario employers as the proposed ORPP contribution was 1.9% vs. 1% extra under the new CPP regime. Circling back to why these changes have been brought forth, studies show Canadians are not saving enough. The government is committed to providing future retirees with up to 33% of their pensionable earnings via CPP. Where will the other 67% come from? Hopefully from personal savings, and what better way to establish a personal pension plan that with a GMWB. We can guarantee part of client’s retirement income simply by knowing when they’d like to retire and how much they can save. My other thought, is to suggest a percentage of after-tax income as a guideline for the amount that should be invested annually in a guaranteed income solution. Then it will parallel the CPP methodology. We’ve got the solutions, so let’s tell everyone about them. If you want to discuss this further, please let me know. Two by Tuesdays is back, and this year it includes investment products too. I hope you get to enjoy a movie or two this summer. And, our next Money Monday is July 18th. I hope to see you there or via webinar.