Enhancements to the Canada Pension Plan

Posted on Oct 20, 2016

The Federal government recently announced changes to the CPP to enhance the benefits received by future retirees. The current maximum benefit is $13,110. In today’s dollar terms, the enhanced CPP represents an increase of nearly $7,000, to a maximum benefit of nearly $20,000.   These enhancements come with a corresponding increase in CPP premiums to be phased in over time. Details of these changes are as follows:

  • The “income replacement” level (the portion of the pensionable earnings limit that the CPP is intended to replace in retirement) will be increased to one third of eligible earnings.
  • The upper earnings limit will be increased by 14%, which is projected to equal roughly $82,700 upon full implementation in 2025. For comparison, the upper earnings limit in 2017 will be $55,300.
  • There will be a gradual 7-year phase-in beginning on January 1, 2019, stating with a 5-year contribute rate phase-in below the Yearly Maximum Pensionable Earnings, followed by a 2-year phase-in of the upper earnings limit.
  • Enhanced benefits will accumulate gradually as individuals pay into the enhanced CPP. Young Canadians just entering the workforce will see the largest increase in benefits.

As an example, an individual with earnings of $54,900 will contribute about an additional $6 a month in 2019. By the end of the 7-year phase-in period, contributions for that individual would be about an additional $43 per month.   Accompanying these changes to the CPP will be an increase in the Working Income Tax Benefit with the stated goal of ensuring eligible low-income workers are not financially burdened as a result of the the increased CPP premiums. There will also be a change to the tax credit with respect to CPP contributions to account for the increased portion of the employee CPP contributions.

Please call our office if you have any questions.  We would be happy to arrange a meeting to discuss how these measures may apply to your situation.