The Canada Pension Plan has been in the spotlight as the Alberta government proposes creating its own retirement plan. For answers to questions about Alberta’s potential divorce from the CPP, see: https://www.cbc.ca/news/business/cpp-app-pension-questions-1.7011117.

If you earn employment income, did you know you’ve been contributing more? In 2019, CPP reforms were put in place to address the decline in workplace pension plans and increase future benefits. In 2024, higher-income earners can expect to pay even more.

The reforms amended the CPP 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 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: https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-enhancement.html

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^{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}