Starting in 2019, the Canada Pension Plan enhancement will be gradually introduced over the next 7 years.

Employers and employees alike need to be aware that these enhancements will bring about higher contributions for both parties. These higher contribution rates will eventually result in higher benefits.

Contribution Increases:

Contributions will increase from 9.9% between employee (4.95%) and employer (4.95%) contributions to a total of 11.9% over 5 years starting in 2019. Specifically, the contribution rates will increase by 0.15% in 2019 and 2020, 0.20% in 2021 and by 0.25% in 2022 and 2023. These contributions will be based on all pensionable earnings above the Year’s Basic Exemption (YBE), currently $3500, up to the Year’s Maximum Pensionable Earnings (YMPE), $55,900 in 2018.

Beginning in 2024, employees and employers will also be required to contribute 4% each on earnings between the YMPE and a new, second annual earning ceiling; the Yearly Additional Maximum Pensionable Earnings (YAMPE) limit. The YAMPE is estimated to be an increase of 7% of the YMPE in 2024 and then 14% in 2025.

Benefit Increases:

CPP benefits currently provides ¼ of your average work earnings, up to a yearly maximum earning limit ($1,134.17 per month in 2018). Beginning in 2019, the CPP will gradually grow to 1/3 your average lifetime earnings. However, the increase an individual will realize will be based on how long they have contributed to the new enhanced CPP program, with the full increase coming only after 40 years of contributions.

If you are already receiving CPP benefits, there will be no increase unless you are working in your retirement. Any contributions made after 2019 may result in slightly increased post-retirement benefits.

CPP Disability Benefits and CPP Survivor’s Pension will also increase starting in 2019. Again, these increases will be based on how much and how long you have contributed to the enhanced CPP.

To watch a webinar hosted by the Canada Revenue Agency (CRA) and Employment and Social Development Canada (ESDC) visit: https://www.canada.ca/en/revenue-agency/news/cra-multimedia-library/businesses-video-gallery/canada-pension-plan-enhancement.html

Disclaimer: This article is intended for general information only and is not intended as legal opinion or advice. The views and opinions expressed do not reflect the official position of BNG Bossy Nagy Group or any other affiliate.

Sources:

Canada Pension Plan Enhancement. (2017, April 11). Government of Canada. Retrieved from: https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-enhancement.html

Understanding and Calculating the “Enhanced CPP” changes. (n.d.). Retire Happy. Retrieved from: https://retirehappy.ca/enhanced-cpp/

Webinar: Enhanced CPP & You. (2018, August 8). Government of Canada. Retrieved from: https://www.canada.ca/en/revenue-agency/news/cra-multimedia-library/businesses-video-gallery/canada-pension-plan-enhancement.html