CPP Reform: Minister Flaherty Right to Tread Carefully

In last month’s Knowledge Bureau Poll, tax and financial advisors from across Canada were split on their opinion on whether or not the Canada Pension Plan (CPP) premiums should be increased to help more Canadians who are employed or self employed, save for retirement. 

A full 52% of respondents thought that this was a bad idea, but 48% of the voters thought CPP premium levels should be increased to improve retirement prospects for Canadians. The poll results are particularly enlightening in view of the national conversation on the subject of retirement adequacy under review by the Department of Finance through the Consultations on Canada’s Retirement System and the Task Force on Financial Literacy

Finance Minister Flaherty is right to tread slowly on the issue of hiking premiums, given the economic times.   Here are some additional thoughts for the debate; I would welcome your thoughts:

  1. Increasing CPP Premiums for Employees:  The CPP is a contributory plan so the questions to be considered by ordinary Canadians should include:  can I afford to give up more of my gross earnings on CPP premiums?  If so, how much?   Are these mandatory deductions from my pay, together with over-withholding of income taxes leading to my end-of-year refund, one of the reasons why saving for retirement is difficult and inadequate for me?   
  2. Increasing CPP Premiums to Small Business:  CPP increases will also be borne by small business, who may not have the capacity for this type of increased expense in volatile economic times.  Some would say, such increased source deductions are “job killers.”  Are you a small business owner?  Do you think you can afford to contribute more to the CPP for yourself and your employees? 
  3. Using the Tax Refund, Smartly.   What do you think of this idea:  Should governments allow additional voluntary contributions to the CPP–at the contributor’s option–including an election to transfer part or all of the tax refund to the CPP?  The average tax refund is close to $1500 these days.  A direct transfer of this amount to the CPP may go a long way towards funding retirements without cutting any further into the bi-weekly “milk budget.”

Your thoughts count. It’s Your Money.  Your Life.

Next Time:  How Does CPP Compare to Other  Investments?

Evelyn Jacks is President of The Knowledge Bureau, a national educational institute focused on excellence in financial education, and a member of the federal Task Force on Financial Literacy.  For information about self study courses and books visit www.knowledgebureau.com

Posted under: Income Tax

One Response to “CPP Reform: Minister Flaherty Right to Tread Carefully”

  1. Anni M says:

    Until we can see a better return on our contributions (employee and employer or both for self employed), I find it difficult to justify increasing contributions.
    There could be an optional pension plan for the self employed or those without a pension plan and matched by the government (just as they match their employees!). Yes expensive for the government (and us taxpayers), but at least it is more fair for all employees. Civil servants shouldn't be the only ones with a generous pension plan paid for by the rest of us.

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