Breaking Down the Changes to CPP Deductions: From Monday on, people with middle-class incomes will see a bigger chunk of their paychecks go toward Canada Pension Plan payments.
In 2019, both the Quebec Pension Plan and the CPP started bringing in better benefits that are meant to give Canadians more money when they retire. This was the start of a larger pension reform. Individual payments and the amount matched by the company have mostly been going up so far.
The downside is that Canadians will get bigger checks when they finally start getting their benefits.
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Breaking Down the Changes to CPP Deductions in 2024
But beginning in 2024, the CPP will have a second salary cap. People who make more than a certain amount now have to pay more in taxes.
Alim Dhanji, a senior wealth adviser at Assante Financial Management Ltd. in Vancouver, said, “The main goal of these changes is to strengthen benefits and improve overall financial stability for people who are planning to retire.”
Before, everyone who makes more than the base amount (currently $3,500) pays a set amount of their salary, up to a limit that goes up a little each year and was $66,600 last year. When you work for yourself, you pay both the employee and company amounts.
The enhanced pension plan now has two salary caps as of this year.
The first level is similar to the old system. Like before, workers put a set amount of their wages into the CPP, up to a limit set by the government. In 2024, that limit is $68,500. People who make that much or less won’t see any changes to the amount they contribute.
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For people who make more than that, there is now a second payment level that goes up to $73,200.
The people in this group pay an extra 4% on their second-tier earnings, which are between $68,500 and $73,200.
That means an extra $188 will be taken out of your pay in 2024. Overall, people who make more than $73,200 a year will put in $300 more in 2024 than they did the previous year.
The new CPP rules, which are being phased in over the course of next year, are meant to give Canadians a lot more money in retirement. They will now get one-third of their eligible income, up from one-quarter of their eligible income.
Everyone who has paid into the CPP since 2019 will get bigger payments, but it will take decades for all of them to show up, so the youngest workers will benefit the most. In 40 years, when people retire, their income will be more than 50% higher than that of people who are now getting pensions.
Dhanji said that the changes won’t affect who can get a retirement pension, benefits after retirement, a disabled pension, or a survivor’s pension.
Dhanji said that the new second level will affect both employees and employers because companies will have to match their employees’ higher contributions.
He said that the slowly rising rate has been affecting employers since 2019. Tax rates went up by almost a full percentage point between that year and 2023 for both workers and their companies.
As a rule, Canadian companies match the money their workers earn in pensions. The amount of the pension is split between the company and the worker, but freelancers and people who work for themselves have to pay both parts: 11.9% for the first tier and 8% for the second layer.
“From a financial planning standpoint, employers can find assurance in the fact that these changes are designed to benefit their employees during retirement … contributing to enhanced financial well-being,” Dhanji stated.
