In 2019, the government commenced a two-part enhancement to the Canada Pension Plan (CPP), with full implementation to be completed in 2025. Phase 1 occurred from 2019-2023; phase 2 will occur from 2024-2025. Overall, the changes will require larger contributions but also will provide larger benefits.

Pre-CPP enhancement

CPP contributions for employees and employers under the pre-enhancement CPP model (referred to as base contributions) were calculated as 4.95% of the employee’s pensionable earnings to a maximum of the year’s maximum pensionable earnings (YMPE; for 2023, $66,600), less the $3,500 basic exemption.

Phase 1

Referred to as the first enhanced CPP contributions, these are calculated as a percentage of the YMPE, less the $3,500 basic exemption, with the contribution rate for employees and employers gradually increasing from 4.95% in 2019 until it reached 5.95% in 2023.

Phase 2

Referred to as second enhanced CPP contributions, the contribution rate for employees and employers will be 4% but will only be applied to earnings above YMPE up to the yearly additional maximum pensionable earnings (YAMPE) ceiling. For 2024, YAMPE will be set at a number 7% higher than YMPE, estimated at $72,400. For subsequent years, YAMPE will be 14% higher, estimated at $79,400 for 2025.

The rates discussed above apply separately to both the employer and employee. Where the individual is self-employed, they are responsible for both the employer and employee contributions.

The payout

The enhanced portion of CPP payouts will only be available to those who contributed since the enhancements were introduced in 2019. Employees that have fully participated under the enhanced contribution regime for sufficient years will receive maximum retirement benefits set at 33% of pensionable earnings, whereas benefits under the pre-enhancement regime would be 25%.

How Much You Can Receive Under CPP (Including the Enhanced Version)

Standard CPP

• Average Monthly Benefit (2024): The average monthly CPP payment for new beneficiaries is approximately $1,200 (before taxes).
• Maximum Monthly Benefit:
  • At age 65: Up to about $1,365 (for those who have made maximum contributions throughout their working life).
  • At age 70: If you delay taking your pension, it can increase by about 42%, making the maximum possible monthly payment around $1,938.

Enhanced CPP

• With the enhancements, you could potentially receive up to 50% more than the previous maximum CPP amount by the time the changes are fully implemented and assuming you made the maximum contributions required. A person who contributes the maximum amount for the next 4 decades could expect to receive a monthly benefit in the amount of approximately $5,000 which is an equivalent to $2,100 in today’s dollars. This represents a significant increase from the previous maximum of about $1,300.

Key Factors Affecting Your CPP Benefit

• Contribution History: The amount you receive depends on how much you contributed over your lifetime.
• Retirement Age: Taking your pension early (before 65) reduces the monthly amount, while delaying it until after 65 increases the payment.
• Average Income: People who consistently earned higher wages and contributed more to CPP will receive higher benefits.

In summary, the enhanced CPP means you will receive more in monthly benefits in the future, especially if you’ve contributed to the maximum over the course of your career.