Beginning in 2019, the Government of Canada will begin implementing changes to the Canada Pension Plan (CPP). The CPP enhancement applies to anyone over the age of 18 who works in Canada (outside of Quebec) and earns more than $3,500 a year. Changes will be phased in over a seven-year time period.
What will change?
As of January 1, 2019, CPP contributions will increase. Employees contribute to the CPP on employment earnings between $3,500 and the annual earnings limit, adjusted each year based on changes in the average wage in Canada. The annual earnings limit will gradually increase by 14% between 2019 to 2025.
Currently, the contribution rate on pensionable earnings is 9.9%, split between employees and employers at 4.95% each. Self-employed individuals pay the full 9.9%. By 2023, employees and employers will be contributing 5.95% each. Starting from 2024, employees and employers will begin contributing another 4% on earnings between the annual earnings limit and an additional earnings limit.
How will this affect CPP benefits?
Retirement, disability and survivor’s pensions will increase for CPP contributors. Eligibility requirements for CPP benefits remain the same. Currently, CPP retirement pension replaces 25% of your average work earnings, up to the annual earnings limit. In 2019, the income replacement rate will increase to 33.33%. Disability and survivor's pensions will also increase depending on the amount and length of time of your contribution.
For more details about the CPP enhancement, please visit this Canada Revenue Agency webpage. For information and resources on insurance, risk management and group benefits, please contact a CapriCMW Advisor.
