Some people will pay more into the Canada Pension Plan in 2024
Published November 27, 2023 at 9:52 am
Changes to the Canada Pension Plan (CPP) means some people will pay more, but also get more in retirement.
Most people are used to the Canada Pension Plan deductions from their paycheques — the plan started back in 1966 in Canada. The pension plan is a federal retirement fund, which people can start receiving at 60 years old (the standard age is 65).
The Canadian Government recently announced changes to the plan and earlier this month released the numbers for 2024.
Starting in 2019, the government gradually increased the amount people pay.
Before Jan. 1, 2019, employees saw 4.95 per cent on their pensionable earnings (up to $66,600) taken off their paycheque with employers making an equal contribution.
But from 2019 to 2023, the contribution rate for employees was increased gradually from 4.95 per cent to 5.95 per cent. Those who are self-employed pay both the employee and employer portions — at 11.9 per cent in 2023.
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So anyone over 18 years old (up to 69 years old) who made more than $3,500 annually contributed 5.95 per cent of their paycheque to the CPP. But the year’s maximum pensionable earnings was $66,600 for 2023.
This means the maximum people paid into the CPP in 2023 was $3,754 or double that, $7,509 for self-employed people.
Starting in 2024, however, the year’s additional maximum pensionable earnings increases to $68,500. The 5.95 per cent contribution rate remains the same. So this would increase the 2024 maximum CPP contribution to $3,867.50 (compared to $3,754 in 2023).
And new for 2024 is what is known as a “second tier” for higher earners — in 2024 this “second earnings ceiling” will be $73,200.
So, if you make between $68,500 and $73,200 will be subject to “second CPP contributions” (CPP2) at an employee/employer rate of four per cent, with a maximum contribution of $188 each. The 2024 self-employed CPP2 contribution rate will be eight per cent, and the maximum self-employed contribution will be $376.
A person who earns $73,200, for example, would pay an additional $188 a year plus the $3,867.50 for the first tier contribution. However, people can claim tax credits on their income taxes.
And those who don’t earn that much won’t see a change on their paycheque this year.
Bottom line, if you make less than $66,600 a year, your monthly CCP payments will remain the same in 2024. Those making more than that will see additional funds coming out of their paycheques.
The good news is the increases now will mean higher payouts once you retire. Pensions will increase based on how much and for how long you contributed to the enhanced CPP.
Millennials and GenZers stand to see the biggest increase once they retire. Those near the end of their working lives will only see a small increase.
For more information on the changes, see the Canada Pension Plan (CPP) and the CPP enhancement information page here.
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