CPP: Time for Change

According to an often used saying, there are only two things that are certain: death and taxes.

The former usually comes as a result of aging. The latter comes as a result of working.

As Canadians, we live in a society that uses taxes or income deductions from those who are working in order to provide financial support for those who are aging and moving into retirement. Much has been written about the impact of the baby boomer generation (those that were born between the early 1950’s to the early 1960’s) on the economy. As the people from this age group start leaving the workforce, they will need to have saved earnings in order to support themselves financially.

Unfortunately, many Canadians do not have enough money set aside for this purpose, nor do all Canadian employers offer a pension plan that allows workers to save for their retirement. In order to supplement income for aging Canadians, the federal government provides financial support through Old Age Security (OAS) payments and the Canada Pension Plan (CPP). It is a known fact that the number of Canadians approaching retirement over the next ten to twenty years exceeds the amount of funding that is available to support them. These factors have all come into play and have resulted in significant changes to the Canada Pension Plan, which will require more funding in order to provide for ongoing financial support to our fellow aging Canadians.

The changes to the CPP are being implemented well into the mid 2020’s. As the payments for CPP are processed through employer payroll deductions, all Canadian companies and employees will be impacted. Canadian HR reporter provides us with an overview of the upcoming changes. The video clip below includes practical advice on how to prepare for tracking the financial impact on both the organization and its employees as follows:

[embedyt] https://www.youtube.com/watch?v=6JWLjskiFDc[/embedyt]

Even though the changes to the CPP program are intended to be gradual, both employers and employees will be impacted by the increased amounts that will, over time, appear to reduce the amount of an individual’s take-home pay. As such, another certainty will be the obligation of those responsible for compensation management, to ensure that all employees understand why these changes have been put into place.

Discussion Questions:

  1. As the Compensation Manager, prepare a brief communication to employees explaining how their pay will be impacted by changes to the CPP.
  2. How do the changes to the CPP benefit Canadian workers?
  3. In addition to the CPP, what types of pension or retirement plans would you advise an employer to put into place?
  4. Take a look at a recent pay stub from your current employer. How are the mandatory deductions identified? How are the CPP deductions calculated?