Roll out of higher CPP costs expected to affect HR budgets for wages, benefits

The enhanced Canada Pension Plan authorized by Ottawa and the provinces, expenses go up in two ways

Information regarding the Canadian Pension Plan is displayed of the service Canada website in Ottawa on Tuesday, January 31, 2012.It may not happen this year, or next year, or even the year after that. But sometime between now and 2025, Canadian employers will almost certainly need to re-think their retirement policies in response to Canada Pension Plan expenses that began to go up in January. (THE CANADIAN PRESS/Sean Kilpatrick)

It may not happen this year, or next year, or even the year after that.

But sometime between now and 2025, Canadian employers will almost certainly need to re-think their retirement policies in response to Canada Pension Plan expenses that began to go up in January.

Canadian pension experts say higher mandatory contributions to the CPP and the Quebec Pension Plan, will inevitably ripple through human resource budgets over the next six or seven years.

“When a corporation designs a pension plan … they take into account government pensions,” says Faisal Siddiqi of EY Canada, where he’s associate partner, people advisory services.

“I would think every plan sponsor would be looking at this.”

READ MORE: Alberta workers pay four times what Ontario workers pay to CPP: study

Under the enhanced Canada Pension Plan authorized by Ottawa and the provinces, expenses go up in two ways.

One way involves a series of higher contribution rates from 2019 to 2023 and the other will involve a higher ceiling on how much annual income is subject to contributions in 2024 and 2025.

By 2023, the employer’s contribution rate will be 5.95 per cent of an employee’s pensionable earnings, up from 4.95 per cent in 2018 and prior years. In 2024 and 2025, the ceiling on maximum pensionable earnings will be raised.

Siddiqi predicts that every plan sponsor will have to look at these costs.

“Then they have to make a decision … to fully offset, partially offset or not offset these changes.”

However, he and other pension experts say that only a few early adopters have begun that process.

Andrew Hamilton, who leads the Ontario retirement practice for Aon, a consulting firm, says there’s anecdotal evidence that organizations are beginning to consider the impact of the CPP enhancements.

“But very few, if any, have actually made any design or structural changes to their programs to reflect the changes.”

That’s because the additional CPP cost faced by employers in 2019 is very modest and each year’s incremental costs will also be relatively small until all the increases are implemented in 2025.

“I think some organizations look at that and there probably isn’t a sense of urgency to do something now,” Hamilton says.

“But they may feel differently when we’re closer to being fully implemented and they’re feeling the full impact of the increase in costs.”

Jean-Philippe Provost, senior partner at Mercer Canada’s wealth business, notes the employer portion of contributions will be a full percentage point higher in 2023 than in 2018 before the increases began.

“If you’re working in an industry that has very, very low margins, a per cent can make a big difference — especially if people costs (are) the lion’s share of your expenses.”

Surveys conducted prior to implementation of the enhanced CPP indicate pension plan sponsors have been looking at what’s being considered by other companies, but few have taken action yet.

“I would say a very small minority of our organizations have used that … to re-open design,” Provost says.

Ryan Silva, head of the pension segment at RBC Investor and Treasury Services, also says higher contribution rates haven’t affected private plans yet but he thinks they will “somewhere in the future.”

“At the end of the day, it’s a simple formula — matching the assets to the liabilities. And the increasing contributions essentially adds to the liability and so they will have to consider it.”

Provost says a majority of Canadian organizations set an annual budget for human resource expenses.

“Part of that budget goes towards salary increases for employees. Part of it … pays for the cost of the retirement plan. Part of it’s for the benefit plan. Part of it’s for perks.

“It can be sliced and diced in various ways.”

EY Canada’s Siddiqi says employers are always trying to find the right balance between their human resource needs and their overall financial costs.

Siddiqui adds that once those costs have been assessed, the bigger challenge will be to communicate effectively so the changes are understood throughout the workforce and unintended consequences are minimized.

“A change to a pension plan design is a pretty big deal … because it impacts the entire organization.”

David Paddon, The Canadian Press

Like us on Facebook and follow us on Twitter

Just Posted

Summerland cannabis shop receives approval in principle

Inspection now required before Green Gaia may sell cannabis

Okanagan team bows out early at B.C. baseball championships

The SOMBA Tigers U18 AAA squad lost its first two games at the provincials

Laugh out loud Okanagan theatre group production

The St. Andrew’s Players production of Drinking Habits hits the stage Aug. 23 for nine shows

Kelowna Rockets prepare for biggest rookie camp in years

The 2019 rookie camp starts Aug. 19 with over 150 players

VIDEO: Langley Ribfest met with protesters

Groups that oppose the event for various reasons plan to be on site each of the three days.

Canadians killed in Afghanistan honoured during emotional dedication ceremony

One-hundred-fifty-eight Canadian soldiers died during the mission

It’s snow joke: Up to 30 cm of snow expected to fall in northeastern B.C.

Alaska Highway, Fort Nelson to be hit with August snowstorm, according to Environment Canada

‘I’m just absolutely disgusted’: Husband furious after B.C. Mountie’s killer gets day parole

Kenneth Fenton was sentenced to prison after he fatally struck Const. Sarah Beckett’s cruiser

Sea-to-Sky Gondola in B.C. likely out of commission until 2020

Sea to Sky Gondola carries between 1,500 and 3,000 people every day during the summer season

Helicopter-riding dog Mr. Bentley now featured on cans of new B.C.-made beer

Partial proceeds from every pack go to Children’s Wish

PHOTOS: Weapons seized at Portland right-wing rally, counterprotests

Not all who gathered Saturday were with right-wing groups or antifa

Good morning bats! Salmon Arm office receives surprise visit by winged critters

Pair of bats found huddled together on wall in the sun outside downtown office

Retrieved body from Okanagan Lake identified as missing kayaker

Zygmunt Janiewicz had been missing since May and was recovered Aug. 10

Most Read