CPP Changes Do Little for Low-Income Earners, Study Finds

The changes made last year to the Canada Pension Plan provide little benefit for low-income earners, says a new study from the Institute for Research on Public Policy released Wednesday.

The study, titled Unfinished Business: Pension Reform in Canada, found that an examination of how the CPP changes interact with the rest of Canada’s retirement system, such as the Guaranteed Income Supplement for low-income pensioners, should be conducted.

The concern is that pension changes could end up resulting in clawbacks of other retirement income, making the CPP changes almost negligible.

“We would have preferred that there be some analysis taking the whole retirement income system together [and showing] here’s the implications of changes, rather than just CPP by itself,” said study co-author Richard Shillington.

Last June in Vancouver, Ottawa reached an agreement with the provinces to increase contributions to the CPP in order to boost benefits when people retire.

The changes will be phased in over seven years beginning in 2019. Contributions by employees and employers will increase by $6 a month initially, eventually rising by $43 a month from current levels.

Those contributing under the new plan will see $7,000 to $20,000 more per year in their pension payout than the current $13,000 maximum benefit.

But for low-income earners, which the study defines as those earning less than half the average wage, there will be little benefit.

Shillington said for people claiming the Guaranteed Income Supplement, or in some cases Old Age Security, the higher CPP benefits could result in reduced payments under those programs.

The GIS and OAS are tied to income, so an increased income from a bigger CPP means the GIS payment will be clawed back, which could actually make life harder for low-income people, Shillington said.

“They’re going to be required by law to pay extra money into the CPP while they’re working,” Shillington said. “Making them somewhat worse off while working — because they’re contributing more to CPP — and they’ll get very little benefit from it.”

Chris Roberts, director of social and economic policy for the Canadian Labour Congress, agrees a study of how different retirement benefits and plans interact is needed.

The Canadian Labour Congress was partly behind the push for changes to the CPP.

“All along we’ve been calling for a review of the GIS clawback,” Roberts said. “It affects a whole range of retirement income sources.”

But the concerns raised in the study don’t end there. Another is the use of a specific retirement age for determining when people are eligible to collect their benefits.

Currently there is little wiggle room and the system is based on the assumption people enter the workforce at 18 and retire at 65, Shillington said. CPP benefits are expected to start at 65, but participants can opt to begin receiving reduced benefits at 60.

While some people enter the workforce at 18, others don’t begin working until they are finished university well into their twenties.

Many of those who enter the workforce at 18 are in jobs requiring physical labour, and it can be difficult to continue working until their mid-60s, Shillington said.

It’s especially a problem for people in labour-intensive, low-income jobs, he said.

“There are people who are in vulnerable jobs who are working at minimum wage or living on welfare who are desperately waiting to turn 65 so their income can go up,” he said.

One solution may be determining CPP eligibility on how many years you have contributed rather than what age you are, he said.

The study also looked at concerns about a “lack of openness and transparency” in the regular review of CPP finances conducted by the provinces and federal government.

“For the individual contributors, the issue is having confidence that they are being paid the proper amount of benefits,” it reads. “We have no reason to believe that benefits are not calculated properly, but we also know that benefits are paid with no explanation of how they were calculated.”

“Major gaps” in data to assess retirement income issues and not conducting regular assessments of income and living standards of elderly Canadians is also a concern, according to the study.