The Surrey Board of Trade released the results of its summer survey on CPP, in advance of the Labour Day Weekend.
“Workers of all industry and skills are the backbone of our economy,” said CEO Anita Huberman. “We need to ensure that, at the end of their career, they get to enjoy their retirement.”
On June 20th, Canada’s Ministers of Finance reached an agreement in principle to increase the CPP. The purpose is to ensure that workers retiring after 2025 will have sufficient income.
Briefly, the increase will be implemented over a 7-year period from 2019 to 2025 to minimize impact. The proposal is to gradually increase the income replacement rate from the current 25% to 33.3% between 2019 and 2023. Then the Yearly Maximum Pensionable Earnings (YMPE) will be increased step-wise to $82,700 by 2025. The shared contributions required to support these changes will also gradually increase during that time period by 2% – shared between employer and employee – bringing the total shared contribution to 11.9% from 9.9% of salary. This means an employee’s contribution will increase from 4.95% to 5.95%.
Is it a good idea? Nearly 60% of SBOT members who participated in a survey during July thought it was.
“We asked our members a number of questions regarding the CPP increases and their retirement financial planning,” said Huberman. “We also asked their opinion on a range of options and what they believe should be done to help those who may be unprepared.”
However, some workers are at risk: those who go from to job to job on contract, find it more difficult to save. Seniors who depend on a spouse’s pension sometimes struggle when survivor benefits are clawed back. Other support programs are likewise clawed back for those who were not able to fully participate in employment. These are policies that should be reviewed and possibly fixed due to their negative impacts.
“While we do support programs that will alleviate poverty, we are concerned about increasing the CPP, particularly on the timing and the potential hit to employers in already fragile sectors. Further, employers may have to halt job creation in order to pay this CPP increase or delay important investments,” said Huberman. “The timing of a payroll tax is concerning.”
The Surrey Board of Trade asked members for their opinion on the CPP increases, and despite Summer distractions, there was a strong response. Disclosure: as this survey is a voluntary opt-in, provides a snapshot of what respondents think and may not necessarily reflect all members.
On the question of overall impact where 1 represents no anticipated impacts to 5, anticipating changing future plans due to negative impacts, employers (nearly 60% of respondents) split their responses between 2 “anticipating manageable impacts” and 4 “anticipating some adjustments required” for a weighted average of 2.94. The self-employed (just under 10%) were similarly split and scored 2.73. Employees (28%) had a weighted average of 2 with responses spread from no impact to moderate.
Members’ strategies for their retirement provided an insight to the importance of CPP. Respondents were able to answer more than one option. CPP slightly surpassed RRSPs at 94% vs 92%, with both far outstripping real estate and other investment options.
With 44% of respondents anticipating retirement in the next 10 years and another 33% in the following 10, it is with mixed relief to find out that over 60% are ready. The unsure followed at 25%.
RRSPs and other tax incentive savings, at about 74%, was the winner for the question on what respondents thought would be the best vehicle to ensure individuals are prepared. Employment-based programs such as shared or pooled pension programs came second at just under 60% with pooled programs rating high for the self-employed at 53%.
When asked, few thought the increase of CPP would be sufficient (16%) and only a quarter thought the proposed increase to the Guaranteed Income Supplement for at-risk seniors would address senior poverty. Few thought union pensions should be expanded (14%), and even fewer will have a union pension (less than 5%). In fact, a guaranteed basic income garnered more support as a long-term solution than union pensions at 26%.
“Our members had strong comments about personal responsibility and individuals’ need to educate themselves on saving options,” said Huberman. “Many gave us advice on what to do to increase retirement savings such as transferring unused RESPs to RRSPs; and many indicated the need for pensions to be flexible and portable.” One of the more interesting suggestions, continued Huberman, “Several members want to be able to contribute more to CPP, to top it up as a means to make up for lost employment years.”
The Surrey Board of Trade has a policy on pensions that include support for educating youth on financial planning, employers taking an active role by connecting employees with financial advisers, increase the flexibility of TFSA and developing group and portable pension funds.
“No one retirement program will address the needs of all, so we do need options. However, I wouldn’t like to see pension programs becoming so fragmented that they lose their ability to be sustainable and cost effective,” said Huberman. The members who responded to the survey did not think the CPP increase would be effective to the extent desired. “The Surrey Board of Trade will further review the results this Fall and see where we need to focus our advocacy efforts next.”
The survey will be discussed by SBOT’s Finance & Tax team in September.
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The Surrey Board of Trade thanks those who participated in the survey. For more information contact Anita Huberman, CEO, email@example.com.