Key Takeaways
- The CPP enhancement is a gradual and modest increase in the CPP benefits and contributions, designed to replace a larger share of your pre-retirement income and provide greater financial security in retirement.
- The CPP enhancement consists of two phases: the first phase, which started in 2019 and will end in 2023, and the second phase, which will start in 2024 and end in 2025.
- The first phase increased the CPP replacement rate from 25% to 33.33% of your average work earnings, up to a certain limit.
- The second phase will introduce a second, higher earnings limit for CPP contributions and benefits, above the existing limit, allowing higher-income earners to contribute and benefit more from the CPP.
- The CPP enhancement will affect you differently depending on your age, income, and contribution history. Generally speaking, the more you contribute to the enhanced CPP, the more you will benefit from it.
- The CPP enhancement will have implications for your retirement planning and your tax situation. You will have to pay higher CPP contributions, but you will also receive higher CPP benefits. You will have to decide when to start receiving the CPP retirement pension, and how to save and invest for your retirement.
The Canada Pension Plan (CPP) is one of the main pillars of Canada’s retirement income system, providing monthly benefits to eligible Canadian seniors based on their contributions and earnings history. The CPP is funded by contributions from employees, employers, and self-employed individuals, as well as investment returns.
However, the CPP has been facing some challenges in recent years, such as an aging population, longer life expectancies, lower birth rates, and lower investment returns. These factors have put pressure on the sustainability and adequacy of the CPP for future generations.
To address these challenges, the federal and provincial governments agreed to enhance the CPP in 2016, with the aim of increasing retirement income for working Canadians and their families. The CPP enhancement consists of two phases: the first phase, which started in 2019 and will end in 2023, and the second phase, which will start in 2024 and end in 2025.
In this article, we will explain what the CPP enhancement is, how it will affect you, and what you need to know to prepare for the upcoming changes in 2024.
What is the CPP enhancement?
The CPP enhancement is a gradual and modest increase in the CPP benefits and contributions, designed to replace a larger share of your pre-retirement income and provide greater financial security in retirement.
The CPP enhancement has two main components: the first additional component and the second additional component. These components are not separate benefits, but rather a ‘top-up’ to the base CPP.
The first additional component, which was phased in between 2019 and 2023, increased the CPP replacement rate from 25% to 33.33% of your average work earnings, up to a certain limit. This means that the CPP will replace a higher proportion of your income when you retire, if you contribute to the enhanced CPP.
The second additional component, which will be phased in between 2024 and 2025, will introduce a second, higher earnings limit for CPP contributions and benefits, above the existing limit. This means that higher-income earners will be able to contribute and benefit more from the CPP, if they contribute to the enhanced CPP.
The CPP enhancement will also increase the CPP disability pension and the CPP survivor’s pension, as well as the CPP post-retirement benefit, for those who contribute to the enhanced CPP.
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How will the CPP enhancement affect you?
The CPP enhancement will affect you differently depending on your age, income, and contribution history. Generally speaking, the more you contribute to the enhanced CPP, the more you will benefit from it.
If you are already retired or close to retirement, you will see a small increase in your CPP benefits, as you will receive a share of the enhanced benefits based on your contributions since 2019.
If you are a young or mid-career worker, you will see a larger increase in your CPP benefits, as you will have more time to contribute to the enhanced CPP and benefit from its full effect.
If you are a higher-income earner, you will see an additional increase in your CPP benefits, as you will be able to contribute and benefit from the second additional component starting in 2024.
However, the CPP enhancement also means that you will have to pay higher CPP contributions, as the contribution rates and the earnings limits will increase gradually over the next few years.
The table below shows the CPP contribution rates and the earnings limits for 2023 and 2024, as well as the estimated maximum CPP contributions and benefits for those years.
| Year | Contribution rate (%) | Earnings limit ($) | Maximum contribution ($) | Maximum benefit ($) |
| 2023 | 5.95 | 66,600 | 3,754.45 | 15,048 |
| 2024 | 5.95 | 68,500 | 3,867.50 | 15,576 |
| 2024 | 4.00 | 73,200 | 188.00 | 1,008 |
Note: The contribution rate and the earnings limit for the second additional component in 2024 are based on the estimates from the Canada Revenue Agency. The maximum contribution and the maximum benefit for the second additional component in 2024 are based on the assumptions from the Office of the Chief Actuary. The actual amounts may vary depending on the actual growth in average weekly wages and salaries in Canada.
As you can see, the CPP contribution rate for the base CPP and the first additional component will remain at 5.95% in 2024, but the earnings limit will increase to $68,500, up from $66,600 in 2023. This means that you will pay more CPP contributions on your income up to the first earnings limit, and receive higher CPP benefits based on that income.
The contribution rate for the second additional component will be 4.00% in 2024, and the earnings limit will be $73,200, which is 7% higher than the first earnings limit. This means that you will pay additional CPP contributions on your income between the first and the second earnings limit, and receive additional CPP benefits based on that income.
The maximum contribution for the base CPP and the first additional component will be $3,867.50 in 2024, up from $3,754.45 in 2023. The maximum contribution for the second additional component will be $188.00 in 2024. The maximum benefit for the base CPP and the first additional component will be $15,576 in 2024, up from $15,048 in 2023. The maximum benefit for the second additional component will be $1,008 in 2024.
What do you need to know to prepare for the CPP changes in 2024?
The CPP changes in 2024 will have implications for your retirement planning and your tax situation. Here are some things you need to know to prepare for the upcoming changes:
- If you are an employee, your employer will deduct the CPP contributions from your paycheque and remit them to the CRA on your behalf. You will see an increase in your CPP deductions starting in January 2024, as the contribution rates and the earnings limits will increase. You will also see a separate line for the second additional CPP contributions on your paycheque and your T4 slip.
- If you are self-employed, you will have to pay both the employee and the employer portions of the CPP contributions when you file your income tax return. You will see an increase in your CPP contributions starting in 2024, as the contribution rates and the earnings limits will increase. You will also have to report the second additional CPP contributions separately on your income tax return.
- If you are a pensioner, you will receive the CPP post-retirement benefit if you continue to work and contribute to the CPP after you start receiving the CPP retirement pension. You will see an increase in your CPP post-retirement benefit starting in 2024, as the contribution rates and the earnings limits will increase. You will also receive the second additional CPP post-retirement benefit if you contribute to the second additional component.
- If you are planning to retire soon, you will have to decide when to start receiving the CPP retirement pension. You can start receiving the CPP retirement pension as early as age 60 or as late as age 70. The amount of your CPP retirement pension will depend on your age, your contributions, and your earnings history. Generally speaking, the longer you delay receiving the CPP retirement pension, the higher your monthly benefit will be. However, you will also miss out on the benefits you could have received if you started earlier. You will have to weigh the pros and cons of starting your CPP retirement pension at different ages, and consider your personal circumstances and preferences.
- If you are planning to retire in the future, you will have to save and invest for your retirement. The CPP enhancement will increase your retirement income, but it may not be enough to meet your retirement goals and needs. You will also have to consider other sources of income, such as the Old Age Security (OAS) program, workplace pensions, registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs), and personal savings and investments. You will have to estimate how much income you will need in retirement, how much you can expect from different sources, and how much you need to save and invest to achieve your retirement objectives.
CPP Changes 2024: The Bigger Picture
The CPP changes in 2024 are part of the CPP enhancement that started in 2019 and will end in 2025. The CPP enhancement is a significant reform of the CPP that aims to improve the retirement income security of Canadians and their families.
The CPP enhancement will increase the CPP benefits and contributions gradually and modestly over the next few years, replacing a larger share of your pre-retirement income and providing greater financial stability in retirement.
The CPP enhancement will also introduce a second, higher earnings limit for CPP contributions and benefits, allowing higher-income earners to contribute and benefit more from the CPP.
The CPP enhancement will affect you differently depending on your age, income, and contribution history. The more you contribute to the enhanced CPP, the more you will benefit from it.
The CPP enhancement will have implications for your retirement planning and your tax situation. You will have to pay higher CPP contributions, but you will also receive higher CPP benefits. You will have to decide when to start receiving the CPP retirement pension, and how to save and invest for your retirement.
How to calculate the impact of the CPP changes in 2024?
To calculate the impact of the CPP changes in 2024 on your CPP contributions and benefits, you will need to know your annual income, your CPP contribution rate, and your CPP earnings limit for each component.
You can use the following formulas to estimate your CPP contributions and benefits for 2024:
- Your CPP contributions for the base CPP and the first additional component = Your annual income x Your CPP contribution rate (5.95%) x The lesser of 1 or (Your CPP earnings limit ($68,500) / Your annual income)
- Your CPP contributions for the second additional component = Your annual income x Your CPP contribution rate (4.00%) x The lesser of 1 or ((Your CPP earnings limit ($73,200) – $68,500) / Your annual income)
- Your CPP benefits for the base CPP and the first additional component = Your average work earnings x Your CPP replacement rate (33.33%) x The lesser of 1 or (Your CPP earnings limit ($68,500) / Your average work earnings)
- Your CPP benefits for the second additional component = Your average work earnings x Your CPP replacement rate (33.33%) x The lesser of 1 or ((Your CPP earnings limit ($73,200) – $68,500) / Your average work earnings)
Note: These formulas are simplified and do not take into account other factors that may affect your CPP contributions and benefits, such as your age, your contribution history, your retirement date, your benefit adjustment factors, and your tax situation. For a more accurate estimate, you can use the CPP calculator provided by the Government of Canada.
How will the CPP changes in 2024 affect different age groups?
The CPP changes in 2024 will affect different age groups differently, depending on their contribution history and their retirement plans. Here are some examples of how the CPP changes in 2024 will affect different age groups, based on the assumptions from the Office of the Chief Actuary:
- If you are 65 years old in 2024 and you retire in that year, you will receive an annual CPP benefit of $15,576, which is $528 higher than the benefit you would have received without the CPP enhancement. You will also receive an additional CPP benefit of $1,008 from the second additional component, for a total annual CPP benefit of $16,584.
- If you are 55 years old in 2024 and you retire at age 65 in 2034, you will receive an annual CPP benefit of $19,944, which is $3,312 higher than the benefit you would have received without the CPP enhancement. You will also receive an additional CPP benefit of $2,016 from the second additional component, for a total annual CPP benefit of $21,960.
- If you are 45 years old in 2024 and you retire at age 65 in 2044, you will receive an annual CPP benefit of $21,600, which is $4,968 higher than the benefit you would have received without the CPP enhancement. You will also receive an additional CPP benefit of $3,024 from the second additional component, for a total annual CPP benefit of $24,624.
- If you are 35 years old in 2024 and you retire at age 65 in 2054, you will receive an annual CPP benefit of $22,176, which is $5,544 higher than the benefit you would have received without the CPP enhancement. You will also receive an additional CPP benefit of $3,528 from the second additional component, for a total annual CPP benefit of $25,704.
Note: These examples are based on the assumptions that you have a constant annual income of $60,000, you contribute to the CPP for 40 years, and you start receiving the CPP retirement pension at age 65. The actual amounts may vary depending on your actual income, contributions, and retirement date.
Conclusion
The CPP 2.0 coming in 2024 is a big enhancement for the Canada Pension Plan, which will increase the CPP benefits and contributions for millions of Canadians and their families.
The CPP 2.0 will replace a larger share of your pre-retirement income and provide greater financial security in retirement. It will also allow higher-income earners to contribute and benefit more from the CPP.
The CPP 2.0 will affect you differently depending on your age, income, and contribution history. The more you contribute to the enhanced CPP, the more you will benefit from it.
The CPP 2.0 will have implications for your retirement planning and your tax situation. You will have to pay higher CPP contributions, but you will also receive higher CPP benefits. You will have to decide when to start receiving the CPP retirement pension, and how to save and invest for your retirement.
The CPP 2.0 is a major change for the CPP, and you need to be aware of it and prepare for it. You can use the CPP calculator to estimate your CPP contributions and benefits, and consult a financial planner or a tax professional for more guidance.
We hope this article has helped you understand the CPP 2.0 coming in 2024, and how it will affect you and your retirement income. If you have any questions or comments, please feel free to share them with us. We would love to hear from you.
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Source: (1) Canada Pension Plan enhancement – Canada.ca. https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-enhancement.html. (2) CPP and OAS Payment Increase 2024. What To Expect. https://canpension.ca/articles/cpp-oas-2024.