Canada Pension Plan (CPP) Enhancement (2020) – Since 2019, the CPP (Canada Pension Plan) has undergone gradual enhancements. The changes are linked to participants receiving higher benefits as an exchange for higher contributions. The CPP enhancement will only impact those if, from 2019, you are working and making payments to the CPP.
This enhancement has increased the CPP post-retirement benefit, retirement pension, survivor’s pension, and disability pension you might receive. Eligibility for CPP remains unaffected.
Effects On CPP Post-Retirement Benefit And Retirement Pension
Up until the year 2019, the CPP retirement pension was replacing 1 quarter of the participant’s work earnings (average). The average is worked out on the work earnings of the individual, up to the maximum earning limit every year. Other income sources such as private savings, workplace pensions, and the Old Age Security program, contribute towards the remainder of the individual’s retirement income.
The latest enhancement now means that the CPP will start increasing to replace 1 third of the work earning average that you receive after 2019. The maximum limit that is used to work out work earning averages will also slowly increase by 14% by 2025.
Your pension is also going to increase according to how long and how much you have contributed to this enhanced CPP. These CPP enhancements is going to increase the CPP retirement maximum pension by as much as 50% for the people that have made enhanced contribution over a period of 40 years.
This enhancement will also apply to the CPP post-retirement benefit. If you are currently receiving QPP or CPP retirement pension, and you carry on working and you have made CPP contribution in 2019, or after, then your post-retirement benefits are going to be higher.
Effects On CPP Survivor’s Pension
This enhancement will also increase CPP survivor’s pension, from 2019. The increase that you will receive is going to depend on the amount and for how long your partner that has passed away (spouse or common-law partner) paid towards the enhanced CPP. If you started receiving a survivor’s pension before the year 2019, there will be no changes made by this enhancement.
Changes To CPP Contributions
You will contribute towards the CPP when you are over 18, work in Canada (outside of Quebec), and you are earning over $3.500 a year.
You are only required to contribute from your employment earnings from $3,500 and the limit for annual earnings (this figure is adjusted every year, according to changes made to the average wage in Canada). In the year 2019, this limit was $57,400.
Before the 1st of January 2019, employees were contributing 4.95% based on their earnings to the CPP. Employers make a contribution that is equal to this percentage. For self-employed individuals, the contribution increases to 9.9% (which means they contribute towards the employer and employee portion).
This latest earning range covered by this Plan, will begin at the initial earnings ceiling (which has been estimated to be $69,700 by 2025), and then advance to the 2nd earnings ceiling and this will be 14% higher by the year 2025 (estimated at $79,400`). Similar to the 1st earnings ceiling, the 2nd is set to increase every year in order to reflect the wage growth.
So this means if you are earning more, you will be required to pay more towards the CPP benefits in the upcoming years.
Employers will also pay this same increase as their staff members are required to do. For self-employed individuals, they are required to contribute to the employer and employee portions. This will mean that once this phase-in completes you will be paying an 11.9% contribution rate on your earnings until it reaches the 1st earnings ceiling and 8% on the 2nd earnings ceiling. This will translate into increasing your overall benefit amounts.
If you are working for an employer, your CPP contributions will carry on being deducted automatically by the company you are employed at.