How the CRA is Changing the Canada Pension Plan in 2024: Who Will Receive an Additional $1,660 and Who Won’t

Key Takeaway Box

• The Canada Revenue Agency (CRA) has announced an additional $1,660 in Canada Pension Plan (CPP) payments for eligible recipients, starting in 2024.
• This is part of the CPP enhancement, which aims to increase the retirement income of Canadians by about 50%.
• The extra CPP payment will be based on a second earnings ceiling, which will be $73,200 in 2024.
• Only those who work and contribute to the CPP in 2019 or after will benefit from the CPP enhancement.
• The extra CPP payment will be subject to income tax and may affect other benefits, such as the Guaranteed Income Supplement (GIS).

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Introduction

Hello, Hustlers! Welcome to another informative article from HustleHub, your trusted source of financial news and tips. Today, we are going to talk about a hot topic that has been circulating on social media and online forums: the extra CPP payment.

You may have heard or seen some posts claiming that the CRA will add $1,660 extra in CPP payments for retirees, starting in 2024. Is this true? Who will get it? How will it affect your retirement income? In this article, we will answer these questions and more, using facts and reliable sources. Let’s get started!

What is a Canada Pension Plan?

Before we dive into the details of the extra CPP payment, let’s do a quick recap of what the Canada Pension Plan (CPP) is and how it works. The CPP is a contributory, earnings-related social insurance program that provides income replacement to contributors and their families in the event of retirement, disability or death¹. It forms one of the two major components of Canada’s public retirement income system, the other component being Old Age Security (OAS).

The CPP covers virtually all employed and self-employed people in Canada, excluding Quebec, which operates its own comprehensive plan, the Quebec Pension Plan. The CPP is funded by the contributions of employees, employers and self-employed people as well as the revenue earned on CPP investments. The CPP is governed by the federal government and the provinces, and is enabled by the CPP legislation.

The amount of CPP retirement pension that you receive depends on your average earnings throughout your working life, your contributions to the CPP, and the age you decide to start your CPP retirement pension. The standard age to start the pension is 65. However, you can start receiving it as early as age 60 or as late as age 70. If you start receiving your pension earlier, the monthly amount you’ll receive will be smaller. If you decide to start later, you’ll receive a larger monthly amount. There’s no benefit to wait after age 70 to start receiving the pension. The maximum monthly amount you can receive is reached when you turn 70².

IMPORTANT LINKS:

• What Expenses Can You Deduct from Your Rental Income? (Updated 2024)
• How to Get Your EITC Refund Faster in 2024
• CPP, RRSP, TFSA, FHSA, AMT and OAS Changes: What You Need to Know for 2024
• What Happens to Your CPP and OAS Benefits When Your Spouse Dies?
• How to Get the Grocery Rebate Payments in Canada in January 2024

Benefits from OAS, GIS and CPP

In addition to the CPP retirement pension, there are other benefits available under the CPP and the OAS programs that can help you supplement your retirement income. These include:

• Old Age Security pension: a monthly, taxable benefit that is available to almost all Canadians aged 65 and over. For 2023, the maximum monthly OAS benefit is $687.56³.
• Guaranteed Income Supplement: a monthly, non-taxable benefit that is available to OAS pensioners with low income. The amount of GIS that you receive depends on your marital status and your previous year’s income (or in the case of a couple, your combined income). For January to March 2024, the maximum monthly GIS benefit is $1,026.96 for single, divorced or widowed pensioners, and $641.35 for pensioners with a spouse or common-law partner who receives the full OAS pension⁴.
• Allowance: a monthly, taxable benefit that is available to the spouse or common-law partner of an OAS pensioner who receives the GIS and is aged 60 to 64. The amount of Allowance that you receive depends on your previous year’s income (or in the case of a couple, your combined income). For January to March 2024, the maximum monthly Allowance benefit is $1,186.77⁵.
• Allowance for the Survivor: a monthly, taxable benefit that is available to the surviving spouse or common-law partner of an OAS pensioner who is aged 60 to 64 and has low income. The amount of Allowance for the Survivor that you receive depends on your previous year’s income. For January to March 2024, the maximum monthly Allowance for the Survivor benefit is $1,448.12⁶.
• CPP disability pension: a monthly, taxable benefit that replaces part of your income if you have a severe and prolonged disability that prevents you from working at any job on a regular basis. The amount of CPP disability pension that you receive depends on how much and for how long you contributed to the CPP. For 2023, the average monthly CPP disability pension is $1,065.47, and the maximum monthly amount is $1,457.60⁷.
• CPP survivor’s pension: a monthly, taxable benefit that is paid to the surviving spouse or common-law partner of a deceased CPP contributor. The amount of CPP survivor’s pension that you receive depends on the age of the survivor, the amount that the deceased contributor had contributed to the CPP, and whether the survivor also receives a CPP retirement or disability pension. For 2023, the average monthly CPP survivor’s pension for new beneficiaries aged 65 and over is $358.62, and the maximum monthly amount is $737.80⁸.
• CPP children’s benefit: a monthly, taxable benefit that is paid to the dependent children of a deceased or disabled CPP contributor. The children must be either under age 18, or between 18 and 25 and attending school full-time. For 2023, the flat monthly rate for each eligible child is $266.43⁹.
• CPP death benefit: a one-time, lump-sum payment that is paid to the estate of a deceased CPP contributor. The amount of CPP death benefit that is paid depends on how much and for how long the deceased contributor had contributed to the CPP. For 2023, the maximum CPP death benefit is $3,750[^10^].

Here’s The Fact Check

Now that we have reviewed the basics of the CPP and the OAS programs, let’s get back to the main question of this article: will the CRA add $1,660 extra in CPP payments for retirees, starting in 2024? The answer is yes, but with some qualifications.

The extra CPP payment is part of the CPP enhancement, which is a gradual and phased-in increase of the CPP benefits and contributions that started in 2019 and will continue until 2025 and beyond. The CPP enhancement aims to increase the retirement income of Canadians by about 50% when fully implemented¹¹.

The CPP enhancement adds two additional components to the CPP: the first additional component, which was phased in between 2019 and 2023, and the second additional component, which will be phased in between 2024 and 2025. These components are not separate benefits, but a ‘top-up’ to the base CPP.

The first additional component increases the CPP retirement pension by up to 14% for those who contribute to the enhanced CPP for 40 years. It also increases the CPP disability and survivor’s pensions by the same percentage. The first additional component is based on the same earnings ceiling as the base CPP, which is $68,500 in 2024.

The second additional component introduces a second earnings ceiling, which will be $73,200 in 2024, and will increase each year after that. The second earnings ceiling is 14% higher than the first earnings ceiling. The second additional component increases the CPP retirement pension by up to 33% for those who contribute to the enhanced CPP for 40 years. It also increases the CPP disability and survivor’s pensions by the same percentage. The second additional component is based on the second earnings ceiling.

The extra CPP payment of $1,660 that the CRA announced is the maximum yearly amount that a CPP contributor can receive from the second additional component in 2024, if they earn more than the second earnings ceiling of $73,200. This amount is equivalent to $138.33 per month. However, not everyone will receive this amount, as it depends on several factors, such as:

• How much and for how long you contributed to the CPP before and after 2019
• How much you earn and contribute to the CPP in 2024 and beyond
• When you decide to start your CPP retirement pension
• Whether you also receive a CPP disability or survivor’s pension

The CRA has provided a table that shows the estimated monthly CPP retirement pension amounts for different earnings levels and start dates, based on the CPP enhancement. You can find the table here.

The extra CPP payment will be subject to income tax, just like the base CPP and the first additional component. The extra CPP payment may also affect other benefits that are based on income, such as the Guaranteed Income Supplement (GIS), the Allowance, and the Allowance for the Survivor. These benefits are reduced by 50 cents for every dollar of income you receive above a certain threshold. For example, if you are a single, divorced or widowed OAS pensioner who receives the maximum GIS benefit of $1,026.96 per month, and you also receive the extra CPP payment of $138.33 per month, your GIS benefit will be reduced by $69.17 per month (50% of $138.33), resulting in a net increase of $69.16 per month.

Who Gets It?

The extra CPP payment is not a universal benefit that applies to all CPP contributors and beneficiaries. Only those who work and contribute to the CPP in 2019 or after will benefit from the CPP enhancement, including the extra CPP payment. This is because the CPP enhancement is designed to increase the retirement income of future generations of Canadians, not the current ones.

According to the CRA, about one-third of CPP contributors will receive the full increase from the CPP enhancement, while another one-third will receive a partial increase. The remaining one-third will not receive any increase at all. The CRA has provided some examples of how the CPP enhancement will affect different types of CPP contributors and beneficiaries. You can find the examples here.

If you want to know how much extra CPP payment you can expect to receive, you can use the CPP Retirement Pension Estimator, which is an online tool that allows you to estimate your CPP retirement pension based on your earnings and contributions. The estimator takes into account the CPP enhancement and shows you the breakdown of the base CPP, the first additional component, and the second additional component. You can access the estimator here.

Conclusion

In this article, we have discussed the facts and details of the extra CPP payment that the CRA announced for eligible retirees, starting in 2024. We have explained what the CPP enhancement is, how it works, and who will benefit from it. We have also provided some resources and tools that can help you estimate your CPP retirement pension and plan your retirement income.

We hope you found this article informative and useful. If you have any questions or feedback, please feel free to leave a comment below. And don’t forget to subscribe to HustleHub for more financial news and tips. Until next time, Hustlers, keep hustling!

Source:(1) Canada Pension Plan – Overview – Canada.ca. https://www.canada.ca/en/services/benefits/publicpensions/cpp.html. (2) Canada Pension Plan – Canada.ca. https://www.canada.ca/en/employment-social-development/programs/pension-plan.html.