CPP 2024 Updates: What You Need to Know about Changes to Canada Pension Payments

Updated on February 23, 2024

Even the most skilled accountant can’t predict the future, especially when it comes to the Canada Pension Plan (CPP). However, I can keep you informed about upcoming significant changes. In 2024, the CPP is undergoing major improvements to ensure a more secure financial future for Canadians in retirement. These changes, announced in 2016, have been gradually rolling out since 2019 over a seven-year period. Financed by increased contributions, these improvements aim to reduce the risk of a potential retirement income deficit for many Canadians. Stay informed about the Big Changes in CPP 2024 by checking this page for updates.

CPP 2024 Transformations

Starting in 2024, there will be a new cap on pensionable earnings known as the year’s additional maximum pensionable earnings (YAMPE), in addition to the existing earnings ceiling (YMPE). The YAMPE will be implemented over a two-year period, with the 2024 YAMPE calculated at 107% of the YMPE and the 2025 YAMPE at 114%. Similar to the YMPE, the YAMPE will increase annually with wage growth. Contributions for earnings between the YMPE and YAMPE will have a different rate, including a 4% contribution for the difference, and self-employed individuals will contribute 8%.

All employees and independent contractors are required to contribute to the Canada Pension Plan (CPP), and you may have noticed a gradual increase in the required amount. This adjustment is part of funding modifications to the CPP program, aiming to raise the maximum CPP retirement payout by almost 50%. The contribution increases are being implemented in phases, with phase one starting in 2019 and phase two set to begin in 2024.

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CPP 2024 Updates

The Canada Revenue Agency has disclosed the current changes to the CPP system and outlined significant improvements slated for 2024 and 2025. This information is vital to keep you well-informed about both recent adjustments and upcoming developments.

Except for workers in Quebec covered by the Quebec Pension Plan (QPP), nearly all Canadian employees are mandatory participants in the CPP. This pension plan ensures a financial safety net for contributors and their families in the event of retirement, death, or disability. The CPP Investment Board manages the funds contributed by employers, workers, and independent contractors to the program with expertise.

CPP Contribution Rate for 2024

Since 2019, the CPP contribution rate has been progressively increasing annually, starting at 4.95 percent in 2018 (before the enhancement) and reaching 5.95 percent in 2023, marking a one percent combined increase for both employers and workers. If you’re self-employed, paying both the employer and employee portions results in a 2023 contribution rate of 11.9%.

For Canadians aged 18 and above earning more than CAD 3,500 annually, contributions to the CPP are 5.95% of their job income beyond the base level, up to the maximum pensionable earnings (YMPE) of CAD 66,600 for the year. With the impending improvements, this YMPE is referred to as the FEC.

2024 CPP Changes: Stay Informed Now

Starting in 2024, a higher earnings cap, known as the year’s extra maximum pensionable earnings (YAMPE), will be introduced, providing increased protection for a larger portion of your income through the CPP. This new cap does not replace the previous one, the year’s maximum pensionable earnings (YMPE), ensuring extended coverage for higher incomes and the potential for larger future benefits with increased contributions.

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Both employers and employees will contribute more, and if you’re self-employed, you’ll be responsible for both the employer and employee contributions. If your income falls below the initial earnings cap, you won’t experience additional CPP rate increases. However, for those with higher incomes, starting January 2024, a second CPP contribution rate and earnings limit will apply, known as the year’s additional maximum pensionable earnings (YAMPE) or sometimes referred to as SEC.

Increased CPP Benefits in Effect

The positive news is that the expanded CPP, rather than replacing the current 25% of your Average Lifetime Earnings (ALE), will now cover 33.33% with the additional contributions. This results in a maximum retirement pension approximately 50% higher than the current amount, alongside the increased Year’s Additional Maximum Pensionable Earnings (YAMPE). However, the downside is that this increment will be phased in gradually over a 45-year span. Consequently, eligibility for the 50% increase in the maximum retirement pension won’t occur until 2065.

Year Maximum amount of increase
2019 CAD 1.44
2020 CAD 2.89
2021 CAD 4.81
2022 CAD 7.21
2023 CAD 9.62
2024 CAD 12.30
2025 and after CAD 14.98

 

 

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