The Canada Pension Plan (CPP) is a cornerstone of Canada’s social security system, designed to provide financial support to workers after retirement. In 2019, the Canadian government introduced the Canada Pension Plan enhancement to help Canadians save more for retirement.
This enhancement increases the amount of the Canada Pension Plan retirement pension, post-retirement benefits, disability pensions, and survivor pensions.
The enhancement began on January 1, 2019, and affects all workers, employers, and self-employed individuals contributing to the Canada Pension Plan.
The enhancement is intended to help working Canadians accumulate more pension benefits, ensuring greater financial security in retirement.
It is structured to gradually increase Canada Pension Plan payments over time for those who make additional contributions to the plan.
Second Additional CPP Contributions: 2024 and 2025
The second stage of the Canada Pension Plan enhancement, referred to as CPP2, started on January 1, 2024. This phase focuses on higher-income earners who will make additional contributions on earnings beyond the first earnings ceiling (also known as the year’s maximum pensionable earnings, or YMPE).
The second earnings ceiling, also called the year’s additional maximum pensionable earnings (YAMPE), was introduced in 2024.
Key Details:
- First Earnings Ceiling (YMPE) for 2024: $68,500
- Second Earnings Ceiling (YAMPE) for 2024: $73,200
- Second Earnings Ceiling (YAMPE) for 2025: $81,200
The CPP2 contributions apply to workers earning above the first earnings ceiling but below the second earnings ceiling.
These contributions ensure that higher-income individuals contribute more to the Canada Pension Plan, which in turn increases their retirement benefits.
How Second Additional CPP Contributions Are Calculated
The CPP2 contribution is calculated on income between the first earnings ceiling and the second earnings ceiling. The contribution rate is:
- 4% for employees and employers (each contribute 4% on the portion of income above the first earnings ceiling but below the second earnings ceiling).
- 8% for self-employed individuals (they pay both the employee and employer contributions).
For example, if an employee earns $75,000 in 2024, their income exceeds the first earnings ceiling of $68,500 but is below the second earnings ceiling of $73,200. The employee will contribute 4% on the income between $68,500 and $73,200.
Self-employed individuals will contribute 8% on the same portion of income.
Impact of CPP Enhancement on Employers, Employees, and Self-Employed Individuals
The Canada Pension Plan enhancement will have a lasting impact on Canadian workers. The additional contributions will increase the Canada Pension Plan retirement pension and related benefits, resulting in higher future payouts for contributors.
The CPP2 contributions, which started in 2024, will also benefit higher-income workers by increasing their pension benefits.
For employers, they will match the employee contributions to the Canada Pension Plan. In the case of self-employed individuals, they must contribute both portions (employee and employer) themselves. As a result, self-employed Canadians will face a higher contribution rate than those employed by others.
How Much Will CPP Contributions Increase for 2025?
Starting in 2025, the Canada Pension Plan enhancement will continue to increase the amounts that individuals receive, particularly for those who contribute to the CPP2.
The maximum contribution limit is set to increase by 14% in 2025 compared to 2024. This means workers earning higher wages will contribute more to their Canada Pension Plan, ensuring they receive higher future retirement benefits.
2025 CPP Contribution Rates and Amounts
| Contribution Type | 2024 Rate | 2025 Rate | Amount (2024-2025 Earnings Ceiling) |
|---|---|---|---|
| Employee Contribution | 5.95% | 5.95% | Up to $68,500 (YMPE) |
| Employer Contribution | 5.95% | 5.95% | Up to $68,500 (YMPE) |
| Self-Employed Contribution | 11.9% | 11.9% | Up to $68,500 (YMPE) |
| CPP2 Contribution (employees) | 4% | 4% | Between $68,500 and $73,200 (YAMPE) |
| CPP2 Contribution (self-employed) | 8% | 8% | Between $68,500 and $73,200 (YAMPE) |
The Canada Pension Plan (CPP) enhancement is designed to ensure that Canadians have better financial security in retirement.
With the CPP2 contributions starting in 2024 and continuing into 2025, higher-income workers will see an increase in their pension benefits.
The Canada Pension Plan enhancement will provide more comprehensive retirement support, especially for those who contribute for longer periods and at higher income levels.
FAQs
1. Can I still apply for CPP if I delay my retirement?
Yes, you can delay taking Canada Pension Plan benefits until age 70. Delaying your Canada Pension Plan benefits will result in higher monthly payments once you start receiving them.
2. What happens if I earn above the second earnings ceiling?
If you earn more than the second earnings ceiling ($73,200 in 2024), your contributions to the CPP2 will stop. However, your contributions to the base Canada Pension Plan and first additional Canada Pension Plan will continue until you reach the first earnings ceiling.
3. Will my CPP benefits be affected by the Canada Pension Plan enhancement?
Yes, the Canada Pension Plan enhancement will increase the amount of your Canada Pension Plan retirement pension, disability pension, and other benefits, depending on your contributions to the base Canada Pension Plan and CPP2.
