MONEY IN YOUR POCKET
As of Jan. 1, employers, including incorporated farm opera-t
ions, will be required to deduct Canada Pension Plan contributions from the pensionable earnings of workers who are:
• 60 to 65 years old, even if they have begun to receive CPP benefits
• 65 to 70 years old unless the employee files to opt out
• 65 to 70 years old if the employee revokes his decision to opt out in 2013 or later.
Taxpayers wishing to opt out of the new provisions must file a form available on the Canada Revenue website.
Read Also
Research looks to control flea beetles with RNAi
A Vancouver agri-tech company wants to give canola growers another weapon in the never-ending battle against flea beetles.
Employers will also be responsible for the corresponding employer portion of the CPP payments.
The extension of CPP contribution payments is intended to increase retirement benefits, but underlying the new rules is the changing nature of the Canadian population.
On one side is an aging population that will place increased demands on CPP while on the other is a reduction in the number of younger Canadians contributing to the plan.
In the mid-1970s, for instance, eight people younger than 65 were in the workforce for every person older than 65. There are now fewer than five and by 2030 it is anticipated there will be fewer than three.
There has been much discussion recently about the need for pension reform, largely stimulated by fears that, despite a strong CPP investment performance, the fund may not be structured well enough to support the rapidly swelling ranks of Canada’s senior population and that Canadians are not saving enough for their retirement.
The federal government seems to have shifted its support away from CPP reform to a new private sector funding alternative called the Pooled Registered Pension Plan (PRPP). It recently issued a white paper on the topic seeking public and business response to the proposal.
A PRPP would be offered by financial institutions such as private insurance companies. Apparently, the federal government feels the regulated status of these financial institutions would be sufficient to keep them operating in a responsible manner.
Companies that do not have pension plans for their employees would be required to automatically enrol them.
The PRPPs are pooled contributions from many individual companies and workers that provide the investment power of many larger retirement funds.
Employees who don’t want to participate would specifically have to opt out of the plan.
The issue posed by some of the most astute observers of the draft plan is whether a private optional saving system driven by employee choice is better than forced saving by employers/workers through CPP.
They also ask why workers would be more willing to contribute to a PRPP than the existing Registered Retirement Savings Plan/Registered Retirement Income Fund system.
It is also not clear whether the federal government will allow CPP to stand still without enhancement in favour of the voluntary PRPP private option.
Insurance companies, who will be major beneficiaries of having a new source of sales and profits, obviously are all for the concept. However, the debate on this issue is just starting so stay tuned.
Grant Diamond is a tax analyst in Kelowna, B.C., with FBC, a company that specializes in farm tax. Contact fbc@fbc.ca
or phone 800-265-1002.
