Many young people believe they can’t rely on social programs such as the Canada Pension Plan and Employment Insurance. That skepticism is understandable. Older generations and government effectively promised them financial security through college education and home ownership, but instead young adults have ended up with an inconsistent job market and unaffordable housing.
Young adults are likely even more confused after Pierre Poilievre, the new Conservative Party Leader, incorrectly referred to these programs as taxes. If our politicians are uncertain about how these programs operate, how can regular Canadians understand them?
To the under-40 crowd: Rest assured both EI and CPP (or Quebec Pension Plan for workers in that province) will be there when you need them. In fact, these valuable programs are there for you right now, providing income replacement in the event of a job loss, parental leave, or disability. Here’s how they work and what they provide for young people now and later in life.
Employment Insurance (EI)
EI is an insurance plan that protects you if you take a leave from work for a layoff, injury, or parental leave. EI premiums deducted from your paycheque are very low, and even collecting one year of EI benefits for a layoff or maternity leave means you will likely receive more from that plan than you will ever pay in during your entire working lifetime.
EI provides up to 55 per cent of your working income to a maximum insurable earnings of $60,300. This means you can receive a maximum of $638 a week in the event of a job loss or while on parental leave.
While many gripe over the payroll deduction, EI premiums are only $952.74 a year, or 1.58 per cent of the maximum insurable earnings of $60,300. In 2016, EI premiums were 1.88 per cent of maximum insurable earnings, and as far back as 1998 were a whopping 2.7 per cent of the maximum insurable earnings. In short, young people are paying proportionately less than previous generations.
Canada Pension Plan (CPP)
The CPP functions as a defined benefit pension plan. You’re guaranteed a fixed income from the time you retire until you die. Similar to EI, it’s possible to receive more than you ever pay in if you live long enough. After you pass away, there is a CPP death benefit of $2,500 paid out to your estate, and if you have a spouse, they can receive up to 60 per cent of your CPP payments until their death. While it might be hard for young adults to imagine themselves in old age, the take-away is CPP is a valuable asset for you and your family.
You can begin collecting CPP as early as age 60, but most people start at age 65. If you postpone CPP until age 70, you will receive higher payments. The amount of CPP you qualify for is based on your top 40 years of contributions; your eight lowest earning years, as well as years you were the primary caregiver of children under age 7, are excluded to ensure you receive the highest possible amount.
But what may surprise some to learn is that CPP is not only a retirement benefit: You can access CPP before age 65 for disability support. CPP disability provides a monthly payment if you are under the age of 65 and have a long-term mental or physical disability that regularly stops you from working. If you are receiving CPP disability and have dependent children, you can also receive a monthly child benefit on top of your CPP disability payments.
In 2022, the maximum CPP contribution is $3,499 per employee if your income is $64,900 or higher. If you’re self-employed, you pay both the employee and employer portion for a total of $6,999.
There are planned increases to CPP for 2023, 2024 and 2025 under the CPP enhancement, which began in 2019. This enhancement is designed to increase CPP payments by 50 per cent over seven years. A detailed breakdown of how CPP is calculated for employees and self-employed Canadians, as well as a breakdown of the scheduled enhancement, is available on the Government of Canada website.
Some young Canadians are anxious that CPP will not be available to them when they retire, so are resentful of current premiums and future scheduled increases. But the Canada Pension Plan is one of the best managed funds in the world and the Chief Actuary of Canada projects the fund is sustainable for the next 75 years. Since the oldest millennials are only 20 years away from being eligible to begin collecting CPP, this means CPP is virtually guaranteed for their entire retirement until their death.
EI and CPP are not hypotheticals that exist solely on a government balance sheet, they are real money – EI funded from general revenues, CPP mostly from continuing contributions – waiting to be used by Canadians who have diligently paid into each plan. Some believe they would be better off not paying into CPP and EI because they think they could invest more profitably elsewhere. But the reality is most Canadians are neither disciplined nor financially savvy enough to build the emergency fund and retirement accounts they would need to replace the safety net that CPP and EI provide.
Millennials are now the largest living generation, and together with Gen Z should be using their voting power to demand larger social safety nets. We’re at the tipping point: Everything we vote for now is for ourselves. And we deserve financial security.
Bridget Casey, MBA (Finance) is founder of Money After Graduation, a financial e-learning company. You can follow her on Instagram at @bridgiecasey and Twitter at @BridgieCasey.
