CPP and EI Updates | Developing a Retirement Plan
Canada Pension Plan Update
As of January 1, 2017 the maximum Canada Pension Plan (CPP) retirement benefit is $1,114.17, up from $1,092.50 in 2016. The basic Old Age Security Pension also increased over the course of 2016 from $570.52 to $578.53.
These totals are adjusted every January to align with increases in the cost of living as measured by the Consumer Price Index (CPI). While the maximum CPP retirement benefit has shown consistent and steady growth, most Canadians should not bank on receiving the maximum amount upon retirement. In fact the average CPP monthly benefit is slightly over half of the maximum. At the most basic level, the amount you get from CPP is determined by how much you put into it. The best way to discover how much you qualify for is to get your CPP statement of contribution from Service Canada.
Changes to the year’s maximum pensionable earnings under the CPP also took effect on Jan. 1, 2017. The increase was $400, to $55,300 in 2017 from $54,900 in 2016. Contributors who earn more than $55,300 in 2017 don’t make additional contributions to the CPP. The basic exemption amount remains at $3,500.
Employment Insurance Update
Each year, Canada Revenue Agency gives the maximum insurable earnings and rate for employers to calculate the amount of EI to deduct from your employees.
Previous premiums, set at $1.88 per $100 earned, were delivering more revenue to the government than it required to administer and pay benefits. A new, lower premium was announced in September for workers ($1.63) and employers ($1.63 x 1.4 = $2.28). Some small employers, or those that have registered for the EI Premium Reduction Program, qualify for an additional premium reduction.
The two-week waiting period before EI benefits start paying out (including special benefits for maternity or disability leave), will also be reduced to one week starting Jan. 1/2017.
Employers that coordinate their benefits with EI may need to adjust for the shorter wait time.
Developing a Retirement Plan
While the Canada Pension Plan is a nice addition to a retirement plan, it is not a plan for retirement in and of itself. With that being said, Canadians must consider other forms of retirement saving in order to live comfortably during retirement. There is no magic number, but many financial advisors recommend that Canadians replace 40% to 70% of what they earned before they left the workforce each year through their retirement savings fund. While many people think of retirement savings as a lump sum, it is much more practical to look at it from this angle of the necessary amount of income replacement required. For a more accurate percentage, the 2016 Sun Life Canadian Retirement Now Report – a study of both workers and retirees – found that on average retired Canadians are living on 62% of what they earned before leaving the workforce.
In the past many people relied on direct benefit plans from employers where they would receive a guaranteed monthly payment in perpetuity for as long as they lived. This essentially took the guessing out of saving for retirement. Times have changed however and between people spending less time at a single job and a greater amount of employers no longer offering direct benefit plans, employees now need to look towards direct contribution plans like RRSP’s and start calculating how much they need to save.
As an employer, it can be of great benefit to both your employees and your organization as a whole, to start talking about these retirement needs. A discussion around a Group RRSP is a great starting point. In a nutshell, a Group RRSP is a plan designed to encourage your employees to start saving for retirement at work by contributing through payroll deductions. Both employee and employer may contribute depending on the rules of the plan and all contributions (both employee and employer) are tax-deductible to the employee with investment earnings being tax-sheltered as well.
For more information on the CPP/EI updates or how to get your employees on a retirement saving plan, please contact your Silverberg Advisor today.