Higher-income earners will soon contribute more to CPP, but get more too
Canada Revenue Agency earlier this month announced the new 2024 numbers for Canada Pension Plan (CPP) contributions, and while the CPP earnings limits and corresponding contributions do go up each year, starting Jan. 1, 2024, phase two of the CPP enhancements means that some higher-income earners will be contributing more, but will also get more in return.
Before sharing the new 2024 figures, let’s review the basics. The CPP is a mandatory contributory pension plan that covers nearly all Canadian workers, other than those in Quebec, who are covered by the Quebec Pension Plan (QPP). The CPP provides basic income replacement for its contributors and their families when the contributor retires, dies or becomes disabled. The CPP is financed by contributions from employees, employers and self-employed individuals, and the funds are professionally managed by the CPP Investment Board.
Enhancements to the CPP began in 2019 and, once fully implemented, could potentially increase the maximum CPP retirement pension by up to 50 per cent for younger workers just starting out. Phase two of the enhancements begins in January 2024.
Both employees and business owners are required to contribute to the CPP based on pensionable earnings. Since 2019, the CPP contribution rate has gradually increased every year to 5.95 per cent in 2023 from 4.95 per cent in 2018 (before the enhancement), for a total increase of one percentage point for both employees and employers. If you’re self-employed, you pay both the employee and employer portions, for a 2023 contribution rate of 11.9 per cent.
For 2023, Canadians over 18 who make more than $3,500 annually contribute 5.95 per cent of their employment income (above that base amount) to the CPP, up to the
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