How the CPP will Impact Businesses

Written by: Categories: Risk Management

On June 20, 2016, the federal government and the majority of Canadian provinces reached an agreement in principle regarding changes to the Canada Pension Plan (CPP). The changes will be phased in over the course of seven years, beginning on Jan. 1, 2019, and will require workers and their employers to pay higher contributions.

This new deal will mark the first significant increase in CPP benefits since the program was initially launched 50 years ago. In general, the CPP aims to help Canadians enjoy a financially safe retirement and ensures a strong public pension system.

The CPP deal includes, but is not limited to, three major changes that will impact businesses:


  1. The annual payout target will increase from 25% of pre-retirement earnings to 33%.
  2. Contributions to CPP from employees and companies will increase by 1 percentage point to 5.95% of wages.
  3. The maximum income that is subject to CPP contributions will increase from $54,900 to $82,700 by 2025.

Young Canadian employees are likely to be the ones benefiting most from CPP changes. This is because, to reap the full benefits of CPP, an employee would have to contribute for about 40 years. Other employees will benefit to varying degrees depending on their age.

There is some concern the higher contributions will force small and medium-sized businesses to refrain from hiring new workers or making other important investments. However, experts have said that it is unlikely the Canadian economy will suffer from CPP expansion.