Warning to Finance Ministers: leaving some workers out of an expanded CPP could boost precarious employment

Despite having had few good things to say about CPP expansion in the past, Business Council of Canada CEO John Manley and Chamber of Commerce CEO Perrin Beatty now grudgingly endorse a modest, targeted enhancement of the Canada Pension Plan.  But could a benefit enhancement targeted at modest income-earners lead to more temporary, part-time, and low-wage employment?

Many commentators have pointed out that it is middle-income earners who are at greatest risk of inadequate incomes in retirement. Low-income Canadians can take advantage of Old Age Security and the newly-enhanced Guaranteed Income Supplement to replace most or all of their (low) pre-retirement employment earnings. High earners will draw retirement income from private savings, investment property, and other assets.

But a high threshold for workers to gain access to an enhanced CPP benefit targeted at modest and middle-income earners could encourage employers to game the system.

Currently, the CPP has a very low threshold for participating in the plan. As discussed in another post, bosses and workers currently don’t have to make CPP contributions on employment earnings under $3,500 (the Year’s Basic Exemption or YBE). Above this level, CPP contributions are required on pay, up to an annual maximum (the Yearly Maximum Pensionable Earnings or YMPE).

One way to target an improved CPP benefit towards modest and middle-income earners would be to raise the annual basic income exemption from the current $3,500 to, say, $25,000. This would exclude low-income workers from having to pay into the CPP, leaving them to rely even more heavily on OAS and GIS.

But low-wage employers would also now have an incentive to hold employee earnings below that $25,000-a-year threshold. For instance, no additional employer CPP contributions would be required for a full-time, full-year minimum wage worker in Ontario currently earning $22,500. But paying slightly more than minimum wage could lift the annual wage above the $25,000 threshold and require the employer to pay additional CPP contributions.

As the minimum wage gradually increases, employers would find themselves paying additional CPP contributions in any case. But replacing full-time work with part-time employment would avoid this. For example, employing a single $40,000-a-year employee would necessitate additional employer CPP contributions in this scenario, but two employees earning $20,000 each would entail zero extra CPP contributions.

In many cases, employers already have an interest in substituting part-time employment for offers of full-time work. Implementing CPP enhancement with a high threshold before CPP contributions kick in could inadvertently add to those incentives.



  1. The Business Council and the Chamber of Commerce do not want any change in the public pension system. The Ontario Retirement Pension Plan (ORPP), even with its exemptions, is far beyond what these employer groups can accept. They turn to an enhanced CPP in an effort to stop Ontario’s implementation of the ORPP.

    The proposal for a modest CPP enhancement, protects employers twofold. First, they do not believe that the provinces and territories will get it together on an enhanced CPP. And second, just in case they do get their act together, the changes in CPP should be such that employers can get around them.

    Employers really are not showing themselves to take retirement income seriously for their employees. Thanks Chris Roberts for a timely comment.


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