Changes to the Canada Pension Plan will cost the average worker more now but still may not be enough to retire on later, according to a local financial planner.
The federal government has proposed changes to the CPP that would see employees across the country paying more into their pension, and in turn receiving a higher benefit once they reach retirement age. For the average Canadian earning $55,000 per year, the increase would amount to $7 per month in 2019, spiking to $34 per month by 2023 as the contribution rate increase is phased in.
Ken Power, owner of Okotoks-based K.P. Power Financial Planners Inc., said the changes won’t impact many working Canadians, particularly those who are nearing retirement within the next five years.
“The potential benefit, if any, is to younger Canadians, the biggest being to those in their early twenties,” said Power. “They’ll receive the full amount of the proposed increases.”
He said the CPP can form a strong base for retirement income, but he worries people will believe a higher benefit means they can get away with saving less on their own.
“Some might think it’s enough because it’s increased,” said Power. “But everybody’s situation is different depending on the lifestyle they want to lead or the age they want to retire.”
It’s important for people to save enough for retirement, he said. Relying on CPP and not planning for the future could mean not having enough to get by on later, he said.
Power fears people will feel they won’t have to save as much on their own because they’re paying up to $400 per year more into their CPP plans.
It’s also possible businesses might cut back on matching RRSP contributions or other pension plans because they are paying more to CPP, he said.
“The hope is that it doesn’t affect people who are currently offered these savings plans, but employers may cut back if they have to pay more into benefits,” said Power.
Jim Coleman, financial advisor with Raymond James Inc., said he was surprised to hear about the increases to CPP.
“Not one person has ever asked why it wasn’t $2,000 instead of a max of $1,092 (per year),” he said. “Nobody’s really worried about CPP as their bread and butter.”
Coleman said it’s more likely business owners, families and students are viewing it as an additional tax on their income.
He said in Alberta particularly, in the midst of an economic downturn, people are seeing it as an extra hit to the bottom line.
“I’m not convinced it’s going to add much value,” said Coleman.
Foothills MP John Barlow agreed, saying it’s not the right time to increase contributions to the CPP, and it’s not a necessary move.
“I think Canadians have many options to save – tax-free savings accounts, RRSPs,” said Barlow. “I don’t think we need to be telling Canadians how to do that.”
With the cost to the average Canadian totaling close to $4,000 per year by the time the changes are phased in, he said it could take its toll on workers.
He said the change came out of nowhere and didn’t make much sense.
“I’ve had nobody coming to me saying this is something they want so I don’t know where this is coming from,” said Barlow. “They’re going to hit people and businesses with this and it’s just another tax.”
At least one local business owner doesn’t expect it to have much impact on her bottom line.
Sara Kerekes, owner of Finishing Touches in Okotoks, said she’s not overly concerned about the impact on her business.
“It’s so little really, it won’t have a huge effect,” said Kerekes. “Of all my expenses, that’s a very small one to me.”
