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

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

High tech fish transport system set up to ‘whoosh’ salmon past Big Bar landslide

Fish will spend about 20 seconds inside the system, moving at roughly 20 metres per second

100 Mile RCMP seek help in stolen credit card case

Card was used at multiple locations in 100 Mile House

Clinton RCMP seek assistance in Canoe Creek hit and run

A pedestrian was sent to hospital with serious injuries after vehicle failed to stop

Kelowna man charged with harming a hamster

The 20-year-old Kelowna man faces several animal cruelty charges

Trudeau to seek 10 days of paid sick leave for Canadian workers, says talks are ongoing

Paid sick leave is key to keeping COVID-19 spread under control, prime minister says

COVID-19 checkpoints ‘up to them,’ Bonnie Henry says of remote B.C. villages

Support local tourism economy, but only if you’re invited in

Vancouver Island hasn’t seen a new homegrown case of COVID-19 in two weeks

Island’s low and steady transmission rate chalked up to several factors

Eight people arrested in Victoria homeless camp after enforcement order issued

Those living in tents were given until May 20 to move indoors

Andrew Weaver says he was ready to defeat John Horgan government

Independent MLA blasts B.C. Greens over LNG opposition

44% fewer passengers flew on Canadian airlines in March 2020 than in 2019

COVID-19 pandemic has hit airlines hard as travel remains low

Commercial rent relief applications open as feds encourage landlords to apply

Program would see government cover 50 per cent of the rent

Most Read