CPP Improvements on the Horizon

The Government of Canada has agreed to enhance the Canada Pension Plan (CPP). The enhancements to the CPP are targeted to be phased in over seven years, starting in 2019. Some may ask the question: “with the CPP increasing, do I need to save as much for retirement?” The answer is yes. It is important to continue saving just as much as before, especially due to increasing lifespans, low-interest rates and uncertain market returns.

While the percentage increase in the CPP for some could be large, the amount in terms of actual pension dollars is still just a portion of what you will need to retire comfortably. Based on working from age 18-65, someone age 30 making $75,000 per year would see a CPP benefit increase of just over 35 per cent. While this increase sounds large, if you were retiring today and the CPP was 35 per cent higher than the current amounts noted above ($7,700 increased by 35 per cent is $10,400) your lifestyle may not change much. In short, the absolute increase in pension is a help but still needs additional pension income funded by participation in a corporate savings program.

The CPP is earned for each year you work and the improvement in the CPP is earned on service starting after 2019 (the phase in period is through 2025). If you are age 50 and make between $50,000 and $75,000, the potential increase in maximum CPP is only about 10-15 per cent.

Although the CPP enhancements are great news for Canadians, it is important to ensure you continue saving for retirement, as the CPP will mostly likely only be a portion of your retirement income needs.