Canada Pension Plan (CPP) Changes: Costs and Benefits are Increasing
Starting January 1, 2019, the CPP will be enhanced. This means that both employees and employers will be required to contribute more, but, retirement, survivor, and disability pensions will also increase. The changes will be gradually phased in over 7 years: Phase 1 will take place from 2019 to 2023; and Phase 2 will take place in 2024 and 2025.
Phase 1 – The prior 4.95% base employer/employee contribution rate will increase annually to 2023, as follows, 5.10%, 5.25%, 5.45%, 5.70%, 5.95%.
Phase 2 – In 2024, an additional 4% contribution will be required on earnings in excess of the Year’s Maximum Pensionable Earnings (YMPE), up to 107% of the YMPE. For example, if the YMPE is $70,100, the additional limit will be approximately $75,000 ($70,100 x 107%). The 4% rate will be applied to the difference between the two numbers: $4,900 ($75,000 – $70,100). For 2025 and later, the 107% multiplier will be increased to 114%.
Eligibility for CPP benefits will not be affected, however, some benefits will increase. In 2019, the CPP retirement benefits will begin to grow, eventually covering 1/3 of average earnings up to the maximum amount (which will also be increasing by 14%). One’s benefits will depend on how much and how long they contributed to the enhanced CPP. Post-retirement benefits will also be increased. Disability benefits will be increased depending on one’s contributions, and the survivor’s benefit will also be increased based on the deceased spouse or common-law partner’s contribution.
Employers should budget for higher CPP costs on continual increases over the coming seven years.