If you earn employment income, you may have noticed more of your paycheque going towards CPP/QPP contributions. For higher-income earners, starting in 2024, expect to pay even more. Back in 2019, CPP/QPP reforms were put in place to address the decline in workplace pension plans, amending the CPP/QPP in two ways: i) increasing the income replacement to 33.33 percent from 25 percent of eligible earnings, and ii) increasing the upper limit for eligible earnings. The first phase (2019 to 2023) gradually increased the contribution rate by one percentage point on earnings between $3,500 and the maximum pensionable earnings (MPE) limit. The second phase begins on January 1, 2024 and requires employees and employers to contribute an additional four percent on earnings between the MPE and a new ceiling. With a 2024 MPE of $68,500, the new ceiling will be 73,200 in 2024 and $78,000 in 2025.1
What is the potential impact?
Under the old rules, those retiring at age 65 in 2023 could receive a maximum annual CPP/QPP benefit of $15,460.2 Under the new rules, this would increase to $23,490, or by over 50 percent. Consider also that this doesn’t account for the 0.7 percent per month enhancement for those delaying benefits after age 65, which further increases the benefit. Studies continue to show that deferring to age 70 may be a financially wise choice should you live beyond average life expectancy.3
However, it will take time before the full impact is realized. Those retiring in the near term will see only modest enhancements since benefits are based on an average of the best 40 years of earnings.
For details on the CPP changes, see: https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-enhancement.html or for QPP:https://www.rrq.gouv.qc.ca/en/programmes/regime_rentes/Pages/regime-supplementaire.aspx
1. For 2024, 107% of MPE; for 2025, 114% of MPE;
2. For Q1 2023, $1,306.57 under the old regime less $18.24 enhanced benefit = $1,288.83.
www.advisor.ca/tax/tax-strategies/what-clients-should-know-about-the-cpp-reforms/; www.canada.ca/en/revenue-agency/news/2023/05/the-canada-pension-plan-enhancement--businesses-individuals-and-self-employed-what-it-means-for-you.html;
3.www.fpcanada.ca/docs/default-source/default-document-library/fpw/globe-article-delay-cpp.pdf
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