Hello and welcome to our Q & A livechat on pension reform in Canada. My name is Maurice Cacho, I'm a producer here at CTVNews.
We'll be joined by Susan Eng, vice president of advocacy for CARP (A New Vision of Aging for Canada) and Monique Moreau, senior policy analyst at CFIB (Canadian Federation of Independent Business).
Hello! Looking forward to the conversation.
Welcome Monique. Briefly tell us about you & your organization, CFIB.
Hi Susan. Briefly tell us about you & your organization, CARP.
Thanks Maurice. CFIB is an advocacy group for small- and medium-sized businesses in Canada. We are a non-partisan, not-for-profit organization funded solely by our members. We have 109,000 members across all regions of the country and from all sectors. I have been with CFIB for 2 years and working on the pension file, among others.
CARP is a national membership organization advocating for improvements to our quality of life as we age. Obviously retirement security is a major issue
We have 300,000 members across the country and 57 local chapters - at least one in each provicne
that would not be a bad idea - increasing the CPP was a better idea because it would be availabl;e across Canada
Retirement security is an important issue for sure. But for small business owners, any increase in payroll taxes like CPP can be tough. CPP is the highest taxes (4.95% of the salary for employees and employers, who also pay the full amount if they are self-employed). We are interested in ensuring Canadians have enough to retire on but through different means like using the already available TFSAs and RRSP, for example.
Monique - how could the increase in payroll hurt business? What would the impact be like?
This survey counters the impression that all employers resist making any more contribution to the security of their employees’ futures because the economy is “soft”
Susan - some would argue that workers are already dealing with several deductions, and they'd rather have a job than nothing if employers must scale back hiring to pay more into CPP. What are your thoughts?
But how much are we talking about? One proposal to increase the Canada Pension Plan will require additional contributions – about $20 month more for someone earning $40,000, matched by the employer. Those with higher incomes pay more to get more. Dollar for dollar, the CPP is the most cost-effective way to purchase a lifetime pension and arguably, at these rates, eminently affordable.
The key is that the employers match these contributions. Matched contributions makes the savings more productive for the employees but have also become the main talking point of employer lobby groups who call these modest amounts “job killers”. Presumably, employers would rather forego hiring a needed worker than pay $20 or $60 a month more in CPP premiums.
Question from the public coming up:
there are a lot of different estimates out there for how much you need to have in the Kitty so that you can live off the interest. But at today's low interest rates - it's have to be much more than $500,000 of your own money.
CPP contributions are deferred income for employees, but not for employers (that's why we call it a payroll taxe), so it's a tricky balance. Some of the proposals are talking about increased benefits but are avoiding the discussion about the increased premiums. Currently the premium is 9.9% and some proposals would bring that to 15.3% and/or increase the maximum pensionable earnings (which will be $52,500 for 2014).
that's why it's important to join a large plan like the CPP so that it can guarantee a lifetime pension without you having to have that kind of money around
There is a myriad of ways to invest savings, maybe too many - another reason people shy away - but leading experts say that the best and most cost-effective for the average person is to put money into a large fund like the CPP managed by professionals who have access to better investments, keep costs low and maximize benefits. Most important, a large fund stands the best chance of guaranteeing that benefits will be there when needed. The problem is that most employers don’t offer pension plans and the CPP provides a maximum of $12,000 a year, the average is closer to $7,000.
CPP was only ever designed to be one part of a Canadian's retirement savings--not all of it. That's why the fund is currently in good shape. But increased CPP premiums may also mean that Canadians will have less in their take-home pay to invest in their own way. Many Canadians are interested in managing their own investments instead of having the government do it.
Some people think it's enough to just rely on CPP or their employer's pension plan. Is that a misconception? Why/why not?
let me repeat - the modest increases add up to around a maximum of $800 a year - or $65 a mont - two evenings out - for a decent increase in the ultimate payout
most employers don't provide a pension plan - but even those tyhat do think there should be an increase to the CPP
Which plan are you referring to Susan for the $800 a year? If you're an employer, and have a staff of 11, as the average small business owner does, that adds up very quickly.
With CPP, employees and employers split the 9.9 per cent CPP contribution rate. Is that sustainable?
CPP Total Yearly Premium & Benefit Increase - Sheridan Model
• Low wage earners: Exemption from premiums and benefits.
• Earnings of $40,000: Total Premium increase $465 – New Benefits increase $2,250
• At current YMPE Total: Total Premium increase $775 – New Benefits increase $3,750
employers paying much lower salaries would pay far less than those numbers
Thanks Susan. An important component of the Sheridan model is the proposal to increase the current 'ceiling' of CPP contributions from $51,500 to $102,000. That would be a big increase, especially for self-employed Canadians who pay the full 9.9%
Absolutely true - people trying to catch up in their late 40s and 50s have to amass a lot of money quickly and that usually has them taking risks they should not
If taxes were lower overall, Canadians would have more money to set aside for their retirement or make other choices such as saving for and buying a house which then becomes part of your retirement nest egg when it is sold.
Self employed people are those who need the most help - they have no workplace to share the risk and cannot join any other large plan on their own.
If the economy were to improve, would it be more feasible for employers to pay more for pension benefits?
That's why we think models like the PRPP are interesting. And of course the TFSAs and RRSPs which have important tax deductions.
it still would not be enough - the few dollars you save on taxes will not have the same multiplier effect unless you can contribute to a large pension fund