Tuesday, June 25, 2024

What you need to know about new changes to Canadian Pension Plan contributions


For people earning over a certain amount per year, the Canadian government is adding a second contribution toward the Canadian Pension Plan (CPP), which will be deducted off every pay cheque. 

The changes are effective as of January 1st. 

The CPP was first introduced in 1966 as a mandatory pay deduction for every employee, employer and self-employed Canadian in order to supplement income when someone turns 70-years-old or retires and begins accepting CPP money. 

The new changes may impact the way all businesses do payroll with a “second ceiling” enhancement, meaning if someone makes a certain amount of money beyond a specified threshold, they will be required to make a second contribution. 

Basically, how much the government deducts is based on annual earnings with a maximum that can be deducted every year with minor annual adjustments. This is called the Year’s Maximum Pensionable Earnings (YMPE); it’s typically announced every November and is based on the average wage in Canada. 

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Going forward, there will be two earnings ceilings rather than just one: the usual YMPE and the newly implemented Year’s Additional Maximum Pensionable Earnings (YAMPE).

If someone’s earnings are above the YMPE ceiling, they will contribute an additional percentage of the income they earn above that threshold.

As is shown above, for those who make over $68,500, an additional 4% will be deducted on every dollar they make over that amount, up until the second ceiling which is set at $73,200.

The maximum contribution for this second ceiling is a mere $188. In the years to come, Canada says that the second ceiling will be higher than this first year’s.

“In 2024, the second earnings ceiling will be set at an amount that is 7% higher than the first earnings ceiling,” reads the Government of Canada’s website. 

“In 2025, the second earnings ceiling will be set at an amount that is 14% higher than the first earnings ceiling. From 2026 on, the first and second earnings ceiling will increase incrementally each year, but the contribution rates will remain the same indefinitely.”

Those who earn less than the first earnings ceiling will not see further contribution rate increases.

Curtis Blandy

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