Increasing CPP (Canada Pension Plan) contributions will hurt small businesses, many whom are already struggling in this fragile economy.
That’s the gist from the BC Chamber of Commerce regarding CPP changes the government is proposing to implement over five years beginning in 2019.
Currently the plan works by having employers and employees each contribute 4.95 per cent of a salaried person’s earnings if that person makes between $3,500 and $53,600 - the combined maximum annual contribution is $2.479.95.
The new agreement would increase CPP contributions an additional two per cent (1 per cent for employee and one per cent for employer) on top of the current 9.9 per cent.
That means the upper salary limit would increase to progressively to $82,700 and would aim at moving from a payout of 25 per cent of earnings to a 33 per cent payout.
The BC Chamber of Commerce maintains that since employers pay half of the contributions, a mandated increase will reduce much needed cash flow in may businesses, and that could end up costing jobs.
“Employers may have to halt job creation in order to pay this CPP increase or delay important investments,” states the chamber. “Although there’s never a right time for a payroll tax, the fragile state of our economy make this a particularly bad time.
“The worst thing Canada can do right now is end up with a patchwork of retirement plans. Such as system would severely impact worker mobility and regional competitiveness across the country.”
Instead, the chamber is recommending that employees should be allowed to contribute higher amounts to their CPP, above their 4.95 per cent contribution to a maximum of 6.85 per cent.
Additionally, the organization is asking for the government to create or commission a demographic forecast that lists who will be most affected by any enhancement to ensure no negative impact to private business.
The system was designed so that each generation of the workforce pays for its own retirement.
When the contributor reaches the normal retirement age of 65, CPP provides regular pension benefit payments to the contributor, equal to 25 per cent of the earnings on which CPP contributions were made over the entire working life of a contributor from age 18 to 65 in constant earnings.
In March 2016, average monthly benefits for new retirement pension (taken at age 65) was just over $550.00 per month and the maximum amount was $1,092.50. Monthly benefits are adjusted every year based on the Consumer Price Index. CPP benefit payments are taxable as ordinary income.
CPP differs from two other income replacement programs for seniors and retirees: old age security and the guaranteed income supplement, those programs are covered through general tax revenues, meaning that workers today pay taxes to raise the incomes of poorer seniors.
CPP premiums have only been raised once in the last 20 years. In 1997, finance ministers agreed to a phased-in increase in premiums to ensure one generation of workers wasn’t paying for another generation’s retirement. The argument today is that the CPP should pay more in benefits and help those who aren’t saving enough for retirement. The argument against raising premiums is that it would hit workers’ wallets at a time when governments keep saying the economy is fragile.
What the new agreement means is that the Canadian worker earning about $55,000 will pay an additional $7 a month in 2019. That would increase to $34 a month by 2023. Once the plan is fully implemented, the maximum annual benefits will increase by about one-third to $17,478 from $13,110.