Your Canada pension payout is about to improve — but it will cost you up front.
Updated: Oct 9
Original article by:
Srivindhya Kolluru
Toronto Star
October 15, 2023
📰 Read the FULL ARTICLE here.
I spoke with the Toronto Star about the Canada Pension Plan enhancements and what they mean for your paycheque. Here are the highlights and my contributions.
Key Takeaways
CPP contribution rates have been rising since 2019 to fund bigger pensions down the road.
A second, higher earnings ceiling is being phased in for 2024 and 2025, so higher earners will contribute on more of their income.
Once fully phased in, the enhancement is expected to raise the maximum CPP retirement benefit by about 50 per cent.
The trade-off is bigger deductions now, which hit self-employed Canadians hardest since they pay both the employee and employer share.
Workers can claim a non-refundable tax credit on base CPP contributions, along with certain deductions.
My Perspective
The first earnings ceiling, known as the yearly maximum pensionable earnings, is adjusted for inflation every year. The new second ceiling means more of your income will be protected during your working years and later replaced by the CPP in retirement. That's the upside, but the up-front cost is real.
"It's a huge jump from the first ceiling to the second being 14 per cent as of 2025, which is going to impact entrepreneurs most heavily."
Many people look forward to the point in the year when they max out their contributions and their paycheques get bigger. With the second ceiling, that may come much later, or not at all, so plan your budget accordingly.
"Just assume your regular pay with all of the deductions is probably what it's going to be for the entire year."
Originally published in the Toronto Star by Srivindhya Kolluru on October 15, 2023. Use the link at the top of this post to read the full article.
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