Your Canada pension payout is about to improve — but it will cost you up front.

Written by:

Srivindhya Kolluru

Toronto Star

October 15, 2023

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Canadians contributing to their Canada Pension Plan during their working years can save up for retirement without lifting a finger.

But experts say enhancements to what CPP pays out in retirement in 2024 and 2025 might come as a surprise to working Canadians today with a greater CPP deduction coming off every paycheque to fund the improved pension.

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Improved payouts in 2024 and 2025 will see Canadians’ CPP grow to match about a third of their work earnings made after 2019.

Working Canadians making more than $3,500 in 2023 will contribute 5.95 per cent of their income to the CPP up to the yearly maximum pensionable earnings, which sits at $66,600. That amount, also known as the first earnings ceiling, is adjusted for inflation every year, says Cindy Marques, certified financial planner and director at Open Access Ltd.

But in the coming years, Canadians who earn more than the first earnings ceiling will see their maximum limit of earnings protected by the CPP jump by four per cent if your income is between the first ceiling and next year’s YMPE. The second earnings ceiling will be set at seven per cent above the first one, and in 2025, the following ceiling will be set at 14 per cent above the first ceiling.

On a consumer level, this change means that Canadians making around $70,000 a year will find it taking a lot longer to max out their contributions. According to Marques, the upside is that these changes will increase how much of your income you can protect during your working years to be later replaced by the CPP program. Workers can claim a 15 per cent non-refundable credit on their base CPP contributions, along with certain tax deductions.

Once the plan is phased in completely, the enhancement is set to grow Canadians’ maximum CPP retirement benefit by about 50 per cent. The downside, however, is the front-end sticker shock.

“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,” says Marques, adding that these folks need to pay both the employer and employee contribution up to a set maximum. (As of 2019, around 15 per cent of Canada’s population reported being self-employed, according to Statistics Canada.)

“We’re talking a few hundred dollars more per year that has been happening with the increases over the last few years, so it’s not an earth-shattering amount of money,” says Heath. “But with many people already a little bit on edge about the cost of living, this is just one more thing to worry about.”

Marques agrees. “It’s going to impact a lot of consumers who do look forward to that point of the year where their paycheques will be larger,” says Marques. “Just assume your regular pay with all of the deductions is probably what it’s going to be for the entire year, and not to bank on it getting higher because you may not max out if your income is not high enough to surpass that second ceiling.”