Is it your job as a plan sponsor to educate your employees about the Canada Pension Plan expansion? Most employers will consider it the federal government’s responsibility — but there’s a lot to gain from connecting with employees on government benefits. Here’s why:
1. CPP expansion is making headlines and will continue to be in the news for some time. But few employees will understand what it actually means for them — and even fewer will invest the effort to figure it out.
Low levels of financial literacy among Canadians remain a huge problem. When there’s a knowledge gap, it’s amazing how quickly misinformation can spread to fill the space. You can do your employees a big favour by distilling complex details about the CPP into a few basic facts that cover how the changes will impact them directly.
Start by telling them how much more will be deducted from their pay, and when they’ll see the first increased deduction. With pre-retirees, you also need to manage expectations about bigger payouts and timing. After all, the higher premiums won’t be fully phased in until 2025. And if the increase applies only to future service, which is still to be confirmed by the government, it will take 40 full years of contributions after that date before anyone reaps the full benefit.
2. Most employees don’t understand how the CPP works — and have no clue what they’ll get from it.
For most Canadians — especially the 80 per cent of private sector employees with no workplace pension — the CPP will be a cornerstone of their retirement income. But few have an accurate understanding of how much they’ll receive.
Employees have a serious tendency to misestimate the size of their CPP pension. Much of what they read or hear about the CPP is focused on the maximum benefit — currently at $1,093 a month (or $13,116 a year). But it’s not easy to qualify for full CPP benefits. Many employees won’t get the full amount, because they won’t work long enough, or earn enough. The average CPP payment for new beneficiaries is currently closer to half the maximum: $665 a month ($7,980 a year).
Even worse, employees can miss out on CPP benefits entirely because they don’t realize they’re eligible, or they don’t understand it’s not automatic and they actually have to apply for them. A research paper commissioned a few years ago by the Task Force on Financial Literacy reported 55,000 Canadians weren’t getting the CPP benefits they were entitled to receive.
There’s also the lingering misconception that the CPP is underfunded and could go bankrupt when the baby boomers retire en masse.
3. Employer contributions to the CPP will represent an increasingly important part of the employment deal.
If you’re not already promoting your contributions to the CPP and other government benefits as a key component of your employees’ total compensation or total rewards package, now’s the time to start. After all, if you don’t tell them how much you’re paying into their retirement security, no one else will — and you won’t get any credit for it.
Plan sponsors can also use this as a springboard to help employees recognize that, by sponsoring a pension plan, they’re going above and beyond most other employers to support employees’ positive retirement outcomes.
CPP expansion creates a perfect opportunity to engage employees in a meaningful conversation about their future retirement income. Ideally, the government will leverage this opportunity for public outreach, equipping employers with useful tools and information.
But even in the absence of government-supported outreach, taking the time to help your employees understand their government benefits — how to get them and how they fit together with other retirement income sources — can help avoid unpleasant surprises (and unhappy employees) down the road.
It’s a minimal investment with a big return.