We have all heard that there is a plan to help Canadians save more for retirement. In order to fund that promise, Canada Pension Plan (CPP/QPP) will be increasing required contributions. This means all working Canadians will be paying higher CPP contributions starting January 1, 2019. For more information on the Canada Pension Plan enhancement, please follow this link:
Interesting Fact: When CPP started in 1966, the contribution rate was only 1.8% (each) and held at that rate for 30 years. It was expected CPP would provide you with an income equal to 25% of your Pensionable Earnings. Starting in 2019, the contribution rate will be 5.10% (each) and will gradually increase to 5.95%. Benefits will also gradually increase and will be fully implemented within the next 40 years, providing you with an income equal to 33% of your Pensionable Earnings.
Once you reach the maximum contribution amount (ie. $2,748.90 for 2019), you will stop payments to CPP and will be on a ‘contribution holiday’ until January 1 of the next year. Typically, those earning more than $53,900 in 2019 will experience a contribution holiday at some point in the calendar year. The more you earn, the faster you reach the maximum contribution, the faster you are on a ‘contribution holiday’.
While a ‘contribution holiday’ sounds great, many people get “used to” the higher income and then find it difficult to adjust to lower pay starting January 1 of the next year.
SOLUTION: once you reach your maximum CPP contribution, have payroll redirect the amount normally going towards CPP into an Employer Sponsored RRSP or Pension Plan. This allows you to maintain a consistent income and helps to increase your Retirement Savings, painlessly. Note: This solution can only be offered through an Employer Sponsored RRSP or Pension Plan. Don’t have a plan at work? We can help.
For more information on how to set up this convenient way to budget and save, please contact us at The Winch Group. We look forward to connecting with you.