Pension plan introduces second tier of taxable earnings
As of January 1, contributions to the Canadian Pension Plan increased, as the maximum annual pensionable earnings rose to $68,500 from $66,600 in 2023. This brings the maximum annual employee and employer contribution to $3,867.50, an increase of $113.05 from last year.
However, those who make more than the annual maximum pensionable earnings must now deduct the second additional CPP contributions (CPP2). The additional maximum annual pensionable earnings sit at $73,200 and is estimated to rise to $79,400, according to the Canadian Revenue Agency. This additional ceiling will require those in this group pay an additional four per cent on their second-tier earnings, or the amount they make between $68,500 and $73,200.
For 2024, that means a maximum of $188 in additional payroll deductions, with Canadians earning over $73,200 contributing an extra $300 in 2024. Despite the increase in yearly contributions, the CPP enhancement will increase the amount working Canadians receive upon retirement, strengthening the financial security of future retirees through a small, gradual increase in the amount they contribute to the CPP.
The CPP enhancement only affects those who work and contribute to the CPP in 2019 or after and means that the CPP will begin to grow to replace one third (33.33 percent) of the average work earnings received after 2019, instead of one quarter (25 percent) like it did prior to the revamp, according to the Canadian Government.
Canadian employers match their workers' pension earnings as a part of the policy. While freelancers and those who are self-employed are responsible for paying both portions, which is a combined 11.9 percent for the first tier and eight percent for the second tier.
Once fully phased in, the enhanced CPP is targeted to increase maximum CPP benefit by about 50 percent.
