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Changes to pension plans : employers are still not ready, says Aon

by

Justine Montminy

April 30, 2018 11:30

Photo : Freepik

A survey ofAon has revealed that only 17 % of employers have started to prepare for the entry into force of the changes, which aim to enhance the Canada pension Plan (CPP) and the Quebec pension Plan (QPP). These changes will come into force in 2019.

The survey, conducted with 325 organizations across the country, has shown that even if the increase in costs driven by changes to the CPP and QPP is a source of concern for employers, few have strategies in place to respond to this increase.

One-third of employers do not know when they will prepare

Approximately 37 % of employers are planning measures to prepare for the entry into force of the changes in the course of the year, reports the survey. However, a little more than one-third (32 %) of employers are unaware of when they will start to do so.

«The reasons for this situation cannot be clearly established, but it seems that many employers underestimate the impact that these legislative changes will have on their organization and their employees, in particular with respect to contributions and benefits of pension plans currently in place,» says Claude Lockhead, partner and executive director of the convenient Retirement of the eastern region at Aon.

The main concerns of the changes

Aon has listed the main concerns of employers in relation to the enhancement of the CPP and QPP. Among these, 68 % of surveyed organizations are concerned about the increased contributions to the organization, 53 % to the increase of employees ‘ contributions, 46 % of the impact on pension plans, and finally 40 % of the increase in administrative requirements.

The survey reveals that 57 % of employers say they know the overall impact of changes designed to enhance the CPP and the QPP on their payroll. However, 69 % of them do not know how they will manage the financial impact. In addition, only 6 % of employers have been part of upcoming changes to their employees.

Changes to the plans

The site Retirement Québec has indicated that changes to the QPP shall provide for the following measures :

  • The establishment of an additional panel to the Québec pension Plan. Thus, the QPP would now be made up of two parts : the basic plan or the plan put in place in 1966, and the supplemental plan, which would begin in 2019.
  • The increase of the pension, since the rate of replacement of the income received from the public pension system would increase from 25 % to 33.33 %.
  • The additional plan would also increase the amount of the disability pension and survivor’s pension.
  • The contributions would be increased gradually over seven years, from 2019 to 2025.
  • The maximum pensionable earnings (MPE), that is to say the maximum salary on which a worker contributes to the plan, would be increased by 14 %.
  • The contributions to the new supplemental plan and the benefits thereof would be subject to separate accounting. The funds of the plan would be managed by the Caisse de dépôt et placement du Québec, separately from that of the basic scheme.

Enhancement to the Canada pension Plan

As indicated on the website of the Government of Canada, changes to the CPP include :

  • In 2019, the CPP benefits will begin to increase and will ultimately one-third of your compensation of an average work. The limit used to calculate this average will also increase in a gradual manner, is of 14 % by 2025.
  • The bonus also applies to the provision post-retirement benefit of the CPP. Therefore, if you receive a retirement pension under the CPP (or the QPP) and that you are working on and contribute still to the PRC in 2019 or later, your post-retirement benefit will be higher.
  • From 2019 to 2023, the CPP contribution rate for employees who earned an annual salary amounting between $ 3 500 and the maximum winnings limit initial will gradually increase by one percentage point (from 4.95% to 5.95 %).
  • In 2024, staff will begin to contribute at a rate of 4 % for a portion of additional compensation. This installment will begin to limit gains initial (which will be 69 700 — $ 2025, according to estimates) and ends at the limit of gains further, which will increase by 14 % by 2025 (and which will then amount to 79 400 $, always according to the estimates).
  • If you are self-employed, you must pay both the employer share and the employee’s. Your contribution will amount to 11.9% of your working income, up to the limit of profits initial, and 8% for the slice of additional remuneration. This will have the effect of increasing the amount of your benefits when the time came.

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