Canadians paying more CPP for a better retirement

Higher rates mean new investments for pension fund

Canadians paying more CPP for a better retirement

The first of five annual increases to Canada Pension Plan contributions mean those earning between $3,500 and $57,400 will pay 5.1% in 2019 compared to 4.95% in 2018.

The contribution rate will hit 5.95% in 2023 and the Canada Pension Plan Investment Board is looking at how it will invest its enhanced fund to ensure better retirement income for current contributors and future generations.

"Over the past year, CPPIB has worked to ensure that both the base CPP and the additional CPP amounts will be managed efficiently and with a view to the opportunities that may be created as the CPP Fund grows," said Mark Machin, President & CEO, CPPIB. "We will invest the additional stream of CPP with the same attention to appropriate growth, risk control and transparency that Canadians count on."

The investment structures will be separate for the base CPP and the enhanced amounts but both will have a widely diversified portfolio with appropriate distinct risk characteristics for each account.

EI cut will offset some of the increase
While the additional CPP will mean greater costs for workers, it will be partly offset by a cut in Employment Insurance premiums.

The 2019 premium rate of $1.62 per $100 of insurable earnings, is down from $1.66 in 2018, a reduction of 26 cents from the 2016 rate of $1.88 since the Government announced new enhancements to EI benefits and programs.

The government says that taken together, changes to the Employment Insurance (EI), enhancements to the CPP and the middle class tax cut, mean that a single person earning $48,000 will save almost $60 in paycheque deductions in 2019 compared with 2015. For a single person earning $75,000, this would represent a saving of almost $210.

And Jamie Golombek, managing director of tax and estate planning with CIBC says the additional CPP amount will bring a return later.

"You can think of it as a cost right now, but you're actually going to be contributing toward an enhanced Canada Pension Plan benefit over time, ultimately leading to a higher amount of pensionable earnings," he told CBC News.

Provinces stand up against tax burdens
With the extra cost of pension contributions, Ontario and Saskatchewan have penned a joint letter expressing their deep concern for rising costs for families and businesses.

They say that the additional CPP and the carbon tax will hurt Canada’s ability to be competitive and increase costs for businesses and households.

"We will not stop in our fight for Ontario businesses. Simply put, small businesses can't afford the federal carbon tax on top of higher payroll costs and our workers and businesses deserve to know what the real cost of these initiatives is going to be," said Vic Fedeli, Ontario’s Minister of Finance.

"We will fight the carbon tax with every tool we have and will pursue ways to make sure that every person in Ontario is informed of how much they are paying in federal carbon tax — every time they pay a home heating bill or fill up their car," added Fedeli.