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Canada Pension Plans - 4 Changes to CPP That Will Give Canadians 50% more! - YouTube
Channel: All Things Retirement (for Canada) by Shaun Humphries
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Hi everyone Shaun Humphries here. Welcome to all things retirement. In this
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installment we're going to talk about
Canada Pension Plan and some key changes that
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are going on with CPP benefits. Now if
you are new to this channel make sure
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you hit the subscribe button so you're
alerted to content that's being uploaded
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all the time.Whether you are in the
runway phase five to ten years out or in
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the transition phase just about to
retire or maybe you are already retired
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we have content for all of you. And we
just don't talk about the financial
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issues we talk about health, longevity,
relationships, recreation quite literally
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all things retirement. Now the first
thing I'll do is I'll talk about what's
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driving these changes. So in the
background government's increasingly are
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concerned by the fact that more & more
Canadians don't have access to what are
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called defined benefit pension plans or
formula plans or a guaranteed income
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plans. So they want to use Canada Pension Plan as a way of shoring up that
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situation by enhancing CPP it's going to help to replace the fact that guaranteed
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pension plans are becoming fewer and
fewer far between in terms of benefit to
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employees. The second thing is they are
you know, they feel that people just
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aren't saving enough which is correct. So
people are not allocating enough money
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to tax-free savings accounts or RRSP
accounts,traditional savings vehicles to
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fund their retirement. So the nice thing
about Canada Pension Plan from their
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perspective is it's an at source
deduction, the employee's forced to make a
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contribution, the employer makes a match
contribution and they don't have any
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choice on the matter so it just happens
and so they can use that to enforce
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savings discipline within population
groups. And the last thing is they feel
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that Canadians shouldn't be exposed to
market fluctuation so if you have
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control of your own portfolio and your
investing they think that's a risk and
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they should de-risk some of that and
that might be a fair point although
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what's interesting is Canada Pension
Plan itself is not de-risk and they're
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trying to get as much return as possible so if it's not a bad option for Canada
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Pension Plan why is not a bad option
for Canadians? And so
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I have some feelings about that one but
we'll put that aside for now and just
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talk about the reasons why they're
making these changes and let's get into
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the first one which is contribution
rates are going up. So they're being
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phased through these increases to the
year 2023 ultimately contribution rates
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will be up to 5.95%
and in this next year
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contribution rates will be 5.25% and so the practical
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issue there is people will see a little
less income on their paychecks.
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They'll go "oh what's going on there? I'm
making a little bit less." The next thing
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that's going on is that the government
will be introducing a higher threshold
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for something called yearly maximum
pensionable earnings.We often refer to
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it as YMPE. That's the approximation
of the average wage in Canada which
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based on their definition is $58,700 and so
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over the next little while the YMPE
threshold will begin to go up and as
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that threshold goes up then also
contribution rates are going to go up
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and by definition your income from
Canada Pension Plan will go up as well.
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The basic idea is that CPP is
supposed to replace about 25% of
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your career earnings up to the YMPE so
remember currently that's $58,700
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so CPP's approximately going to replace
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25% of that $58,700.
We're not talking a huge amount of money
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here but they are ramping up CPP to do
that replacement to a certain
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extent. Now the changes will not benefit
people you know 55+ because
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these changes are being phased in.
Obviously for younger employees a
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combination of increased contribution
rates and the phasing in of increased YMPE
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means that potentially payouts are
going to be significantly higher from
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Canada Pension Plan for a large part of
the population. Other changes that are
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being made relate to survivor benefits.
So when a spouse who has been paying
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into CPP dies if this happens when the
survivor was between the
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ages of 35 and 45 years of age there would be a 10% reduction for each year to the
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point where if you were under 35 you
wouldn't get any survivor benefit. So
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this is not a great situation right so this
has been eliminated. There could be
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individuals outside that age range who
might now be entitled to a CPP survivor
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benefit pension ok so that change was
made. The final significant change is
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regarding the option to defer Canada
Pension Plan to age 70. So you know most
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people will take Canada Pension Plan
either a little bit before age 65 or age 65
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but you can defer it and for every year
you defer you'll get an actuarial
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enhancement, a higher payout from CPP, and
the challenge with this is that if you
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took a deferral and let's see I took a
deferral right to age 70 and then you
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were thinking in the back your mind you
start taking at age 71, the enrollment
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was not automatic so if somebody was 75 years of age they had enrolled they're
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out out the money they've now had you
know four or five years of income that
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they didn't receive. So an auto enrollment
plan will now be in place to make sure
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that people don't miss CPP payments being directed to them. So those
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are the 4 changes, the main changes
that Canada pension plan is going through
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It's this ongoing evolution that's
taking place driven mostly by
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demographics but because of some of the
other reasons I talked about at the
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beginning of this particular video. Well
it's my hope that you enjoyed this
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content and if you did hit "like" and
don't hesitate to share this video with
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friends family and colleagues if you
think there is good value in this
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content. Wishing all the best in your
retirement journey. As well we've got a
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link to an a video that is related to
this particular topic, make sure that you
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hit the subscribe button to get the most
recent content that we're uploading on a
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regular basis and in the show notes you
will be able to get to our website where we have a
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lot of great resources as well. All the
best in your retirement journey.
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