The Canada Pension Plan (CPP) is a government-sponsored retirement pension plan that provides a basic level of earnings for contributors upon retirement, disability, or death. As of 2019, the CPP is being gradually enhanced to provide higher benefits and greater financial stability to today’s workers, the seniors of tomorrow. The enhancement is achieved through a nominal increase in the amount that workers contribute to the CPP.
The CPP enhancement only affects those who work and contribute to the CPP in 2019 or after. It adds two additional components to the CPP, which are not separate benefits but a ‘top-up’ to the base CPP. The first additional component was phased in between 2019 and 2023, while the second additional component will be phased in between 2024 and 2025. Depending on how long you have worked and contributed to the enhanced CPP, the enhancement will increase the maximum CPP retirement pension by as much as 50% for individuals who have worked for 40 years or more and will also increase survivor and disability pensions.
You can contribute to the CPP if all of the following conditions applies if you:
To understand the new enhancement (item 3), we first need to discuss the status quo until 2023. The CPP now consists of three components:
Between 2019 and 2023 (item2), the contribution rate for employer and employees was phased in by 1% point (from 4.95% in 2018 to 5.95% in 2023) on earnings between $3,500 and the original earnings limit as per schedule below (Source: Canada.ca):
| Year | Employer/Employee rate | Self-employed rate |
| 2019 | 5.10% | 10.2% |
| 2020 | 5.25% | 10.5% |
| 2021 | 5.45% | 10.9% |
| 2022 | 5.70% | 11.4% |
| 2023 | 5.95% | 11.9% |
Let’s look at an example for 2023 and calculate the CPP payable without the new CPP enhancement. Assume you will earn $90,000 a year in 2023, your CPP contributions will be calculated as follows:
Lesser of earnings ($90,000) or maximum pensionable earnings ($66,600):
| Maximum pensionable earnings for the tax year 2023: | $66,600 |
| (Deduct) Basic exemption amount | ( 3,500) |
| The total pensionable earnings: | $63,100 |
The contribution rate for the original range is 11.9%, split equally between you and your employer (5.95% each). Therefore, the CPP contributions for 2023 are:
| Portion paid by you: | $63,100 x 5.95% | = $3,754.45 |
| Portion paid by your employer: | $63,100 x 5.95% | = $3,754.45 |
| Total payable to CPP: | $7,508.90 |
Starting 2024, in addition to the first pensionable earning limit we discussed earlier in the previous section, a new “year’s maximum pensionable earning limit” will be introduced to supplement, not replace, the original limit. As at the date of this blog, the year’s maximum pensionable earnings for 2024 and 2025 are as follows (table source: Canada.ca):
| Year | Additional maximum annual pensionable earnings | Employee and employer contribution rate | Maximum annual employee and employer contribution | Employee and employer contribution rate |
| 2025 | $81,168 estimated figure | 4% | $398 estimated figure | $797 estimated figure |
| 2024 | $73,200 | 4% | $188 | $376 |
The amount of the second earning ceiling is:
7% higher than the first earning ceiling ($68,500) in 2024
14% higher than the first earning ceiling in 2025 ($71,200 estimated) and following years.
Let’s look at an example for 2024 and calculate the CPP payable with the new CPP enhancement. Assume you will earn $90,000 a year in 2024, your CPP contributions will be calculated as follows:
Lesser of earnings ($90,000) or maximum pensionable earnings (Lets assume $68,500):
| Maximum pensionable earnings for the tax year 2024: | $68,500 |
| (Deduct) Basic exemption amount | ( 3,500) |
| Gross pensionable earnings: | $65,000 |
| Second earning ceiling (81,168-71,200): | $4,700 |
| Total pensionable earnings: | $69,700 |
| CPP: gross pensionable earnings: | $65,000 x 5.95% = $3,867.50 |
| CPP: second earning ceiling: | $4,700 x 4.00% = $188.00 |
| Total payable to CPP by you: | $4,055.50 |
| Total payable to CPP by employer: | $4,055.50 |