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back to index backAMERItalk November,  2016


Canada: CPP expands, affecting employer pension plans; Ontario plan dropped

Employer action code: Act

On October 6, 2016, the federal government introduced Bill C-26 — an act to amend the Canada Pension Plan (CPP), the CPP Investment Board Act and the Income Tax Act — into Parliament. The CPP is the earnings-related pension program within the Canadian social security system funded by employer and employee contributions.

The bill is generally consistent with previously released information on expanding CPP benefits and contributions, as discussed in our Client Advisory. Changes to the CPP require the approval of at least two-thirds of the provinces representing two-thirds of the population. British Columbia has confirmed its support, meaning that these proposed reforms may now proceed.

The agreement to expand the CPP means that the province of Ontario is no longer proceeding with the establishment of the Ontario Retirement Pension Plan.

Key details

If passed, Bill C-26 would introduce the following changes, among others:

- Starting in 2019, CPP benefits for future years of participation would increase from 25% to 33.3% of income up to a maximum of national average earnings. The expansion would apply to CPP retirement benefits, as well as CPP disability, survivor and post-retirement benefits.

- The changes are prospective and incremental; that is, CPP benefits for service up to the end of 2018 would not change, and the full effect of the changes would not occur until 40 years after the changes are fully implemented.

- The increased cost of CPP benefits would be met by additional employer-employee contributions (as detailed below), which would be tax-deductible. There would be no change in the tax treatment of existing contributions.

- Total employer costs for the additional CPP contributions would not exceed 1.33% of payroll, factoring in the total increase in employer contributions on the different ranges of covered earnings.

Further details on CPP contributions and benefits:

- Starting in 2019, the base contribution rate — currently 4.95% for employers and employees on covered earnings up to the year’s maximum pensionable earnings (YMPE) — would gradually increase by a total of 1% over five years from 2019 to 2023 (referred to as the first additional contribution rate”) to fund the increase in the target CPP retirement benefit.

- Starting in 2024, CPP contributory earnings would be expanded above the YMPE to the year’s additional maximum pensionable earnings (YAMPE), a new upper limit on contributory earnings. In 2023, the YAMPE would be 107% of the YMPE, and in 2025 and beyond, it would be 114% of the YMPE.

- Concurrently, employers and employees would both be subject to an additional 4% contribution (the second additional contribution rate”) on earnings between the YMPE and YAMPE.

To read entire article, including view graphs/charts, please click here.

Source: Willis Towers Watson
- GAI





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