Middle-income earners will start seeing a larger portion of their paycheques going towards Canada Pension Plan (CPP) contributions as of the start of 2024. “The primary objective of these changes is to strengthen benefits and enhance overall financial stability for prospective retirees,” said Assante Financial Management senior wealth advisor Alim Dhanji in a Monday interview with The Canadian Press. A broader pension revamp began in 2019 as the Quebec Pension Plan and CPP began phasing in enhanced benefits intended to provide more financial support for Canadians after they retire. So far, individual contributions and the employer’s matching portion have gone up. The tradeoff is Canadians will see higher payouts once they start collecting their pensions. As of 2024, the CPP includes a new second earnings ceiling. For people who make more than a given amount, additional payroll deductions will apply. Everyone earning more than the base amount ($3,500) used to contribute a set portion of their income up to a maximum amount ($66,000 last year) that increases a little every year. Self-employed workers pay the employer and employee portions. Effective this year, the enhanced CPP has two earnings ceilings. The first tier resembles the old system, as workers contribute a set portion of their earnings to CPP up to the government-set threshold of $68,500 for 2024. People earning that amount or less would not see any changes to their current contribution rates. For anyone earning more than that amount, the second contribution level would top out at $73,200. People in this group pay an additional 4% of their second tier earnings or the amount they make between $68,500 and $73,200. For 2024, that means a maximum $188 in additional payroll deductions. People earning more than $73,200 will be contributing an extra $300 in 2024. The upgraded CPP policies, which continue phasing in through next year, were designed to boost retirement income for Canadians — an increase of one-quarter of eligible income to one-third. Anyone who has paid into the CPP since 2019 will receive higher benefits, but the full effects will take decades to materialize, so the youngest workers stand to gain the most. People retiring 40 years from now will see their income go up by more than 50% compared to the current pension beneficiaries. Dhanji noted the changes will not affect the eligibility criteria for retirement pensions, post-retirement benefits and disability and survivor pensions. With the second threshold, he said they will affect employers and employees, since they are required to match their workers’ higher contributions. He acknowledged employers have been affected by the phased increase since 2019. Between 2019 and 2023, workers and their employers saw contribution rates rise by almost one percentage point. Employers match their workers’ pensions as part of the policy. While the pension amount gets split between the employer and workers, freelancers and self-employed workers are responsible for paying the two portions — 11.9% for the first tier and 8% for the second one. “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,” said Dhanji. An Alberta Pension Plan (APP) could save Albertans billions of dollars each year, with lower contribution rates, higher benefits and stronger benefit security for families and retirees, according to a September report conducted by LifeWorks. READ MORE: UPDATED: Report says Alberta provincial pension move could save people billions“This report shows a made-in-Alberta pension plan could put more money in the pockets of hard-working families and business owners and improve retirement security for seniors,” said Alberta Premier Danielle Smith. “We want to hear from you because it’s your pension, your choice.”
