Enhancement program allows beneficiaries to increase premiums
Canada Pension Plan (CPP) benefits are on the rise because of CPP enhancement, a program with the goal of increasing CPP benefits from one-fourth of a pensioner’s previous income to one-third, as reported by Yahoo.
Since 2019, the contribution rate for CPP benefits has gradually increased by 1% by January 1, 2023 for employees and employers and 2% for self-employed individuals, the Canada Revenue Agency said in a report.
The program allows beneficiaries to increase the premiums they pay for in their CPP in order to give them more benefits in the future. The benefits of those who retired before the start of the enhancement will not be affected.
How does the CPP enhancement work?
With the beneficiaries of the CPP being workers in Canada outside of Quebec over the age of 18 earning more than $3,500 in a year, contributions are either deducted by employers or contributed in full depending on one’s net business income (for self-employed individuals).
The amount contributed to the CPP is based on annual earnings between a minimum and a maximum amount. The maximum is set by the government each January based on the increases in the average wage of workers in Canada which is called Year’s Maximum Pensionable Earnings (YMPE). This is announced every November.
With the CPP enhancement, there will be an additional CPP contribution known as second CPP contributions. This includes the Year’s Additional Maximum Pensionable Earnings (YAMPE) which is a second and higher limit that will allow workers to invest an additional portion of their earnings to the CPP.
Set to start on January 1, 2024, workers with income above the YMPE will contribute an additional percentage of the income they earn above the YMPE up to the YAMPE.
The two phases of the CPP enhancement make it so that the first will increase the premiums paid by workers from 5.1% to 5.9% and the second will increase the threshold for maximum amount of pensionable earnings from $66,600 to $81,000.
While this will cause beneficiaries to contribute more for their CPP premiums, they will be able to collect considerably larger amounts of benefits in the future.
