Canada has a growing, concerning issue. It has more than one generation of people groomed on the “Freedom 55” concept — build up your retirement fund and don’t wait until you are 65, retire 10 years earlier and enjoy life. But we also have an attitude, subconscious or not, that the government will take care of us.
New Year’s Day in 1996 was a momentous day for Canadians. On that date, the Canada Pension Plan (CPP) Act came into existence. It was “an act to establish a comprehensive program of old age pensions and supplementary benefits in Canada payable to and in respect of contributors.”
But by the mid-1970s, concern for the long-term viability of CPP was growing and, by the mid-1990s, that concern reached a crescendo with a low contribution rate and a growing, aging population. In addition, the rise of the retired baby boomers had not even reached its peak. Changes had to be made or the fund would run out by 2015. CPP had become a “hot potato” of debate.
To that end, CPP has evolved into a pay-as-you-go plan and the government has to look at changes, both minor and significant, to the plan on an annual basis as the world moves and adapts. In particular, how do we increase revenues going into the system, increase benefits provided by the program and keep it in a state of sustainability over the long haul?
Combine that with a declining birth rate, an increasing number of baby boomers hitting retirement and a still growing economy and there is a tsunami developing where the biggest danger to continued prosperity is lack of knowledge in the workplace.
We need to find a way to change the attitudes of Canadians and keep them in the workplace longer.
Changes for 2012
For 2012, there are the usual changes to CPP. The base percentage rate isn’t changing but the maximum income basis of that percentage for contributions has increased from $48,300 to $50,100. This is the government’s subtle way of instituting increases while telling the public the rates have not gone up.
But the bigger adjustment is around age. If someone takes CPP before age 65, the amount will decrease by a larger percentage than before. And if she takes it after age 65, the percentage will increase. As well, if the employee continues to work between the age of 65 and 70, she can continue to make contributions and her employer will be required to as well.
What does all this mean to employers? In the short term, probably not a lot will change. There will be some increase in costs for matching contributions for the older part of the workforce. But that may well be offset by the value that group continues to bring to the organization.
It is the first step in changing the mentality of the aforementioned Freedom 55 generation — to help build a workforce that stays longer. CPP changes around age will start to ease some of the pressure on succession planning as the experienced workforce begins to grow, with more people choosing to continue working.
This aging workforce will have a domino effect on other areas too — a widening of the generational gaps in the employee base, more people earning more vacation time through increased tenure, pressure on health and dental plans to meet changing demographics, potential for an increase in workers’ compensation costs to handle a potentially more fragile workforce and, of course, the hard costs of CPP itself.
But the more pressing challenges of succession planning, loss of practical experience at all levels and shortages of skilled labour in all industries could be eased by these latest changes to CPP.
It will probably take five to 10 years for this differing mindset to gel, where people coming into the workplace will stop thinking, “If I do this right, I can retire at 55 and even if I don’t, I can relax starting at 65.” It will take time for people to realize they can continue to bring value to their employer for a longer period of time.
Old age will continue to extend outward and those grey hairs will not signify a lack of usefulness but plenty of experience — making companies more vibrant and effective.
Bill Leesman is director of employee management firm PEO Canada in Calgary. He can be reached at (403) 705-2342, (877) 271-7720 or firstname.lastname@example.org.
Breaking down the changes
New CPP rules in 2012
Starting on Jan. 1, 2012, changes to the Canada Pension Plan (CPP) will affect employees who are between the ages of 60 and 69. It will be mandatory for employees with pensionable earnings who are at least 60 years of age, but not 65, to pay contributions even if they receive a CPP or Quebec Pension Plan (QPP) retirement pension. This may involve restarting CPP deductions for employees who had previously stopped making contributions because they receive a CPP/QPP retirement pension. Employers will also have to pay their share of CPP contributions for these employees.
Employees who are at least 65 but under 70 and who are collecting a CPP or QPP retirement pension while working in pensionable employment will have the option to either pay CPP contributions or opt out of contributing by completing form CPT30 (Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election), which is reserved for employees who are at least 65 but under 70 and collecting a CPP or QPP retirement pension.
These employees will be able to choose whether or not they want to contribute to CPP. Employees in this age bracket who do not want to pay CPP contributions starting in January 2012 will need to complete part C of the CPT30. They will have to send the original form to the Canada Revenue Agency (CRA), provide a copy to the payroll department for each of their employers and keep a copy for their records. If an employee who has opted not to pay contributions later decides to contribute, he will have to complete the applicable sections on form CPT30.
Source: Annie Chong, Payroll Consulting Group, Carswell, a Thomson Reuters business.