Changes to CPP

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The Department of Finance has issued a press release regarding changes to the Canada Pension Plan (CPP) which they implemented, effective January 1st 2018.

The Canada Pension Plan was set up with the intention that all employees and employers would contribute matching contributions for an employee’s forty-year working life (up to an indexed maximum CPP insurable income, which in 2017 was $54,500). In turn this government mandated fund would provide a monthly payment that should be approximately 25% of the retiree’s retirement income. Old Age Security (OAS) is intended to provide another approximately 25% of retirement income.

For wage earning Canadians, challenges of maintaining these yearly contributions occur if you are disabled or drop out of the work force for maternity leave and/or child rearing purposes. The government has recognized these concerns and has implemented changes to minimize the negative impact of not contributing for these purposes.

We think these are positive changes for farm families and wage earning employees, as they are unlikely to have consistently high taxable incomes during their working years. Any resulting CPP pension entitlement will be an important component of their eventual retirement income.

Five things you need to know about “enhanced CPP” for 2018

  • A new formula will be introduced so Canadians who temporarily opt out of the workforce to raise children or due to disability don’t see a major drop in their future retirement benefits. The new CPP formula will have a “drop-in” provision that will assign a higher income for calculating entitlement for those years.
  • For child-rearing care givers, the finance ministers agreed to a formula which will “drop-in” the average income over the preceding five–year period rather than the previous fixed $6,000 per year credit for 0 to age 6 children.
  • Survivor benefits will be paid out to everyone, regardless of age, dependent children or disability. Even those previously denied due to their age might be eligible to re-apply for survivor benefits when the rules come into effect in 2019. Additionally, there will be no reductions in benefits for those under age 45.
  • A lump-sum payment upon a person’s death will be set for everyone at $2,500, rather than being calculated based on deceased’s earnings.
  • The government says the changes won’t require increases in CPP contribution rates. However, Canadians will have to wait until next year to find out the actual cost to the CPP balance sheet and the effect on benefits for recipients.

These changes are technical in nature but are important as good child care can be limited or non-existent in rural areas, leaving many farm family caregivers opting to stay home to care for their children instead of returning to the workforce.

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