Expanding CPP

Tue, 2016-07-19

Federal Finance Minister Bill Morneau largely gathered national support for a plan to expand current CPP beginning in 2019. 

Manitoba hasn't signed on yet, business organizations are screaming about the additional burden on employers and the investment industry no doubt will claim that there were enough avenues already available.

This won't affect today's recipients and is primarily aimed at a middle class that has witnessed the mass disappearance of employer pension plans.  While actual living costs continue to rise, real wage growth is stagnant and savings rates continue to fall.  In addition, many enter retirement with mortgage obligations.

When CPP was originally created it was designed to provide 25% of take home pay to the recipient in retirement.  Add in employer plans, RRSPs, OAS, home equity and other savings and one might reasonably be afforded a financially independent retirement.

The goal, is to increase CPP to make-up approximately 33% of pre-retirement income by raising the 4.95% that both employers and employees contribute to 5.95%.  In addition, the current cap on contributions to a maximum of $54,900 will rise to $82,700 by 2025.  In English, everyone pays a little more for a more generous pension coming out.

This is far from the most significant changes we've seen to CPP as being reported and more an evolution of a plan that has seen increases before and much more flexibility.  By world standards, Canada has a very good track record.

As I look at my own young adult children I have no illusions that they will have an easier time in the future than I.  They will largely pay into this plan and be the beneficiary of it.  Still, one will need to augment with additional income streams  should they desire a comfortable retirement.

Compromise is always necessary.  As a smart person once told me, "if all parties aren't 100% satisfied it is probably a pretty fair arrangement."