Canada’s federal and provincial finance ministers agreed to make sweeping changes to the Canada Pension Plan during meetings held in Vancouver on Monday.
Instead of the government targeting a payout of approximately 25% of preretirement earnings, CPP will increase the annual target to 33% of earnings.
The bad news is premiums will be going up to pay for this increased coverage. Workers currently pay CPP contributions on salary earned up to $54,900. After that, any money earned is exempt. The new plan will deduct from the first $82,700 of salary when it’s fully implemented by 2025.
Both workers and employers will also pay more, with contributions from both being upped from 4.95% of wages today to 5.95% by 2025.
The government felt the need to act because workplace sponsored pensions are slowly being eliminated. 40 years ago, approximately one half of all employees could look forward to some sort of pension. That number has been whittled down to less than 40% currently, with predictions it’ll go even lower over time.
Many without pensions have shown they’re not great at saving, either. According to a study from the Broadbent Institute, only 15 to 20% of Canadians without pensions are in good shape financially. The rest simply aren’t saving enough for their golden years.
Critics argue these changes punish good savers, forcing them to save for a retirement they’ll easily fund out of their own resources. But in today’s world of record setting debt levels, the small minority of folks who save a ton are dwarfed by people who need all the help they can get.
Ultimately, these changes help those who aren’t great at saving on their own, which is a good thing.
