What does a better plan for all mean, in real terms? We calculated the difference that the Finance Ministers’ planned CPP expansion would make for four typical Canadians, whose stories might be similar to you, or someone you care about.
Jayden is a 24-year-old fitness instructor. He combines several part-time jobs at fitness centres around Mississauga and Etobicoke. His income fluctuates, but in a typical year he brings in about $27,500, roughly half the average wage.
At his current income level, Jayden was on track to retire after a working lifetime with a CPP benefit of about $480 a month. With the planned benefit increase, Jayden will receive an additional $150 a month in CPP retirement benefits, giving him a total CPP income of $7,585 a year, or about $630 a month.
This year, Jayden will contribute about $1,190 to the CPP. With the changes agreed to, Jayden will contribute another $265 annually. In addition to the tax credits Jayden already receives for his CPP contributions, the additional $265 in contributions will be tax-deductible, reducing Jayden’s net income when he files his income tax return.
Kendra is a part-time dental assistant in Calgary. In a typical year, she earns about $35,000, around two-thirds of the average wage.
With her current income, Kendra was expecting a CPP retirement benefit of about $695* a month. At the higher CPP benefit level agreed to by Ottawa and the provinces, Kendra would receive about $915 a month if she makes expanded contributions to the CPP over her whole career.
Kendra currently saves about $1,560 a year through the CPP. She will eventually put away another $350 a year. The additional contributions will be tax-deductible.
Amanda is a loan officer working in a bank in Victoria, the same bank she has worked in since graduating with a Bachelor of Commerce from the University of Victoria. Her 2016 earnings will be $50,000, close to the average wage.
With this level of income, Amanda could have expected to receive an annual CPP retirement benefit of roughly $1,000 a month. With the enhanced CPP benefit, Amanda can look forward to about $1,310 per month.
In addition to the $2,300 a year that Amanda currently saves through the CPP (matched by her employer), she will save an additional $510 each year through the enhanced CPP. This additional contribution will be tax-deductible.
Kyle is an experienced electrician living in Squamish, BC, and working for a company that manufactures and installs green home heating and cooling systems in the Lower Mainland. In 2016, he’ll earn $65,000, significantly more than the ceiling on earnings covered by the current CPP ($54,900).
Earning this level of income over a working lifetime, Kyle could expect to receive the maximum CPP retirement benefit: about $1,100 a month. With the new and improved CPP, all of Kyle’s earnings will go toward saving for a higher CPP retirement benefit. Instead of the $1,100 monthly maximum benefit Kyle could have hoped to receive, he will take home approximately $1,470 a month, an increase of almost $380.
In 2016, Kyle will contribute the maximum to CPP: about $2,545. With the changes made to CPP, Kyle will put more aside for retirement through the CPP. In 2016 terms, he will save an additional $950 a year, for a total CPP contribution of just under $3,500 a year (matched equally by his employer). Kyle’s additional contribution will be tax-deductible when he files his income tax return.
*all benefits calculated in 2016 dollars