Member Update / Impact:

As members will know through media, there is an agreement-in-principle in place between eight provinces and the federal government to enhance benefits (and raise the contribution rates) under the Canada Pension Plan (CPP). The deal was struck on June 20, after a negotiation session in Vancouver.
Following a Retail Council of Canada briefing with the Department of Finance earlier today (June 23) this note provides greater detail than has been available publicly.

Which Provinces Have Signed On?

Eight provinces have agreed to proceed with the CPP enhancement: Newfoundland and Labrador, Nova Scotia, New Brunswick, Prince Edward Island, Ontario, Saskatchewan, Alberta and British Columbia.
Some media have reported that Quebec does not support the deal. That interpretation undervalues the fact that as the Quebec Pension Plan (QPP) is already distinct from the CPP, Quebec was always expected to take a different path. The Quebec government will submit its own plan to the Quebec public. While no details have been provided, it is expected that the QPP will have a much higher earnings threshold before increased contributions kick-in.
Manitoba is the only province within the CPP to not sign on. Because changes to the CPP require the support of at least seven provinces, including provinces representing at least 2/3 of the Canadian population, the agreement of the eight listed above is sufficient to make the agreed changes, which will apply in all provinces except Quebec.
For Ontario, this means that unless the national agreement-in-principle falls apart, the Ontario government will withdraw its proposed Ontario Retirement Pension Plan (ORPP), which was to have come into effect beginning January 1, 2018. The governments of Canada and Ontario have stipulated that the signatory provinces must all approve the deal by July 15, 2016.

Outline of Agreed Provisions:

The implementation of the new thresholds and rates will be phased-in over seven years, beginning on January 1, 2019. (See Table 1 at the end of this note for specific phase-in rates year-by-year.)

  • The rate of contribution will be increased by 1% each from employers and employees.
  • The Yearly Maximum Pensionable Earnings (YMPE) will rise to approximately $82,700. But for these changes, the YMPE (currently at $54,900) was expected to rise to approximately $72,500 by 2025.
  • The 1% increase under the YMPE will be fully phased-in by 2023, followed by a two year phase-in of the boost to the YMPE ceiling.
  • The basic income exemption, below which CPP premiums are not collected, would remain at $3,500.
  • There will be no exemptions for existing workplace pension or savings plans.
  • Both employers and employees will get an income tax deduction for these additional premiums (as opposed to a tax credit for employees).
Examples:

A full-time retail employee making $14.25/hour and working 40-hours a week would earn $29,640 annually. After deducting the basic exemption of $3,500, that employee would have $26,140 in wages subject to the 1% increase in the premium rate. That works out to 12.5 cents/hour in increased costs for the employer by 2023 (see interim rates in Tables 1 and 2 below).
The contribution increases would be slightly lower on behalf of a part-time employee earning the same rate, as the $3,500 basic exemption would be a greater proportion of his or her income.
A full-time retail supervisor making $45,000 annually would have $41,500 in wages subject to the 1% premium increase, after deducting the $3,500 basic exemption. That works out to $415 annually (or 20 cents/hour) in increased costs for the employer by 2023.

Initial RCC Response:

RCC views this agreement as a step in the right direction for those employers with significant operations in Ontario.

  • The agreement will ensure that we do not have a fractured system of go-it-alone pension plans in different provinces.
  • The systems will be built upon the existing CPP, which is well-understood by employers.
  • The CPP enhancement cost will be only slightly more than half the cost that the ORPP would have been for most retail employees.
  • The phase-in is far slower than ORPP would have been, pushing most of the costs out of the near-term and providing significant lead-time for adjustment.
  • There is a long-term benefit for retailers in the increased disposable income of Canadian retirees.

For retailers without significant operations in Ontario, these costs may all be incremental to what they were otherwise facing.
Because the model is the universal one of the CPP, there will be no exemptions for employers who already have workplace pension plans. Some employers with existing workplace pension/savings plans may be able to adjust those costs to remain whole or nearly so.
While we are disappointed with the absence of exemptions for existing plans and with the basic threshold remaining at $3,500, given the commitment of the federal government and the obvious willingness of eight provinces to join in the CPP enhancement, we feel that this compromise may be close to being the best one available.

Next Steps:

RCC will be meeting with senior officials at the Department of Finance over the next few weeks and will work to get answers to any “unknowns” and continue to press for workplace pension plan exemptions and for an increase in the $3,500 threshold.

Table 1: CPP Contribution Rate Phase-in

 

Upper earnings limit phase-in

Employer contribution rate

Employer contributions (nominal; rounded to nearest $10)

Year

projected

Upper earnings

Upper earnings limit as share of YMPE

Below YMPE

Above YMPE

$27,450

$54,900

$85,000+

YMPE

limit

% of

rate

% of

rate

(half 2016 YMPE)

(2016 YMPE)

max

max

2016

$54,900

$54,900

100%

0%

0%

0%

0%

$0

$0

$0

2017

$56,400

$56,400

100%

0%

0%

0%

0%

$0

$0

$0

2018

$58,000

$58,000

100%

0%

0%

0%

0%

$0

$0

$0

2019

$59,700

$59,700

100%

7.5%

0%

0%

0%

$35

$75

$85

2020

$61,500

$61,500

100%

15.0%

0%

0%

0%

$70

$155

$175

2021

$63,500

$63,500

100%

25.0%

1%

0%

0%

$120

$255

$300

2022

$65,600

$65,600

100%

37.5%

1%

0%

0%

$180

$385

$465

2023

$67,800

$67,800

100%

50.0%

1%

0%

0%

$240

$515

$645

2024

$70,100

$74,900

107%

50.0%

1%

50%

4.0%

$240

$515

$860

2025

$72,500

$82,700

114%

50.0%

1%

50%

4.0%

$240

$515

$1,100


Table 2: Hourly Rate Phase-in

 

Employer Hourly contributions

Year

$27,450

$54,900

$85,000+

 

2016

$0

$0

$0

2017

$0

$0

$0

2018

$0

$0

$0

2019

$0.02

$0.04

$0.04

2020

$0.03

$0.07

$0.08

2021

$0.06

$0.12

$0.14

2022

$0.09

$0.19

$0.22

2023

$0.12

$0.25

$0.31

2024

$0.12

$0.25

$0.41

2025

$0.12

$0.25

$0.53


If you have any questions or concerns, please don’t hesitate to contact: Karl Littler, Vice President, Public Affairs at: [email protected] or Office: 416-467-3783 or Mobile: 416-906-0040 Retail Council of Canada RetailCouncil.org