B.C. has pushed the pause button on controversial changes to Canada’s public pension plan.
The federal government had intended to ratify the proposed changes to CPP with provinces last week, but the B.C. government announced it would be postponing ratification to hold consultations with stakeholders, in particular small businesses.
There have been many concerns voiced over how the changes would affect small business owners since the details were released June 20.
"It's just one more increased cost that businesses have to deal with," said Ken Macrae, small business accountant and chair of the St. Albert and District Chamber of Commerce.
The expansion will increase the maximum CPP retirement benefit to a third of an individual’s salary from about 25 per cent and expand the upper earnings limit to $82,700 from $54,900, upon full implementation.
Changes won’t come into effect until 2019 and will be phased in over seven years. The contribution rate phase-in will occur during the first five years, followed by a two-year phase-in of the upper earnings limit.
In 2019, a worker with earnings of $54,900 will contribute about an additional $75 per year, or about $6 month. In 2023, a worker earning $54,900 will contribute about an additional $515 per year, or $43 per month.
Under current CPP employers and employees each contribute 4.95 per cent of a salaried person’s earnings up to a yearly maximum of $2,356.20.
Additional costs to businesses, who match employee CPP contributions dollar for dollar, will vary based on the makeup of their labour force said Macrae. But he expects some business plans may need to be altered in an effort to remain competitive.
"Businesses will always try and make themselves whole," said Macrae. "You will undoubtedly see them reduce labour costs or wage benefits such as (private) pension, RRSP matching or other payroll benefits to offset the increased costs."
While the change reflects a one percentage point increase from present day 4.95 percent premiums, for businesses this amounts to a cost increase of 20 per cent per employee.
Hit the hardest will be the self-employed said Macrae. They will pay an extra $2,200 annually in CPP premiums, but see very little in terms of personal benefit.
"This is a significant percentage of their take home pay," said Macrae.
Of course entrepreneurs aren't obliged to pay into CPP. Business owners with no outside employees may choose to opt out of CPP and remunerated themselves through dividends rather than salary – an already growing trend.
The changes could also feed into another trend. Over the last 25 years businesses have chosen to contract various positions to avoid additional payroll costs, such as employment insurance, CPP and worker's compensation. Additional costs could hinder younger workers’ chances of securing stable permanent employment.
Macrae said if he “believed for one moment” that the CPP increases were part of an overhaul of the entire system, he might be for them, but as it is sees the move as a different way of raising taxes and redistributing wealth.
But unlike other recent tax reforms, changes to the CPP will disproportionately affect middle class workers – a group Trudeau sought to woo on the campaign trail less than a year ago.
St. Albert-Spruce Grove MLA Trevor Horne said he was pleased to see the program expanding, but was happy to see the changes delayed a couple years to hopefully give the economy a chance to recover.
He’s happy that more people will be able to retire with dignity.
St. Albert MP Michael Cooper said the move was “not a win” for seniors and would put “hundreds of thousands” of jobs at risk.
“CPP has nothing to do with income support. It is about income replacement,” he said.
Cooper believes the government should target vulnerable populations through better Guaranteed Income Supplement and Old Age Security payments. In his view it doesn’t make sense to make everyone pay more to pay for people who choose to save less.
