Canada’s finance ministers agreed to a number of changes to the Canada Pension Plan (CPP) during their mid-December meeting that will take effect in 2019. These include:
- A new formula will be used for Canadians who take extended time-off work due to a disability or to raise children. The calculation will have ‘drop-in’ provisions that will assign a higher income for those years taken-off and use that ‘income’ when calculating retirement benefits. The Department of Finance Canada prefers this method as it mirrors the new ‘enhanced’ CPP’s formula that uses a fixed 40-year benefit accrual period; making it easier to drop-in amounts rather than drop-out years when someone didn’t work.
- The finance ministers agreed to a formula that uses the average income over the previous five years as the drop-in amount for new parents who take time-off to raise children under the age of seven. For people who take time-off due to a disability the formula agreed upon will use 70% of the person’s average income over the six-year period prior to the disability.
- Survivor benefits will now be paid to everyone regardless of their age, disability or whether they have dependent children. Furthermore, when the rules come into effect in 2019 those who were previously denied because of their age can re-apply to receive benefits. In addition, there will be no reduction in benefits for those under the age of 45 and current recipients will automatically have their benefits bumped up.
- Currently the lump-sum payment upon someone’s death is calculated based on the deceased person’s earned income and is capped at $2500. Under the new rules everyone will receive $2500, this is meant to help low-income workers who typically don’t receive the maximum benefit. However, the amount will remain frozen where it has been since 1998. Had the amount been indexed with inflation, it would probably be more than double the current amount.
- The Liberal government says these changes won’t require an increase to the current CPP contribution rates. However, Canadians will have to wait until later this year to find out what the actual cost of the changes will be, and how they will effect the benefits for recipients. Once the Liberals table the necessary legislative amendments to CPP the chief actuary will do the final assessment of the costs and effects of all these new measures.
Have a great weekend,
Tracey
Source: Original article posted on Investment Executive by Canadian Press 12-13-17
Image courtesy of Stuart Miles at FreeDigitalPhotos.net