Canada Pension Plan Enhancements
Some of you may have noticed that your employer is with-holding more Canada Pension Plan (CPP) in 2019 than they did in 2018. This increase is the first of several steps to increase the CPP benefits receivable in the future. CPP currently is designed to provide income comparable to replace one-quarter of your pensionable earnings in retirement. The changes being implemented over the next few years will increase that coverage to one-third of pensionable earnings. The first change will occur between 2019 and 2023. During this period the CPP contribution rate will be increased. The second change will take effect in 2024 by adding the “Year’s Additional Maximum Pensionable Earnings (YAMPE).”
During the period 2003 through 2018, 4.95% of your pensionable income was with-held from gross pay and remitted to the Government for CPP. Your employer matched that 4.95%. For 2019 the rate increases to 5.10% with annual increases to follow for the next four years. The with-holding amounts for 2020 will be 5.25%, 2021 will be 5.45%, 2022 will be 5.75 and in 2023 the rate will be 5.95%. This increased rate will allow you to receive higher CPP payments when you are retired.
Each year the “Maximum Annual Pensionable Earnings (MAPE)” amount increases as well. Any income up to the MAPE amount (less the basic exemption amount, which has been set at $3,500 since 1996) is subject to CPP at the contribution rate. For 2019 the MAPE is set at $57,400. For 2018 the MAPE was set at $55,900. Contrast this with 2009 when the MAPE was $46,300. Each year the MAPE is increased to reflect higher wages and higher CPP contributions ensuring that the CPP payments in retirement can be funded.
In 2024 an enhancement to be referred to as the YAMPE will be implemented. This is a second tier of CPP contributions that affects people earning more than the MAPE amount. In 2024 this amount will be 7% of MAPE. In 2025 the amount increases to 14% of MAPE. Since YAMPE is a percentage of MAPE, as MAPE increases so will YAMPE. The contribution rate on YAMPE will be 4% and it will only be calculated on earnings that are above MAPE and less than or equal to YAMPE.
Here are some examples of two taxpayers earning different salaries. Let’s assume their wage remains constant throughout the examples. Al makes $50,000 per year. In 2019 he will pay CPP of $2,371.50 ((50,000 – 3,500) x 0.051) which his employer will match. Barb makes $80,000 per year. In 2019 she will pay CPP of $2,748.90 ((57,400 MAPE – 3,500) x 0.051) which her employer will match.
Assuming the same previous annual salaries and an estimated MAPE of $65,700, in 2023 Al will pay CPP of $2,766.75 ((50,000 – 3,500) x 0.0595) which his employer will match and Barb will pay CPP of $3,700.90 ((65,700 MAPE – 3,500) x 0.0595) which her employer will match.
Assuming the same previous annual salaries and an estimated MAPE of $67,700 and YAMPE of $72,400 (67,700 + (67,700 x 0.07) truncated to nearest 100), in 2024 Al will pay CPP of $2,766.75 ((50,000 – 3,500) x 0.0595) which his employer will match and Barb will pay CPP of $4,007.90 (((67,700 MAPE – 3,500) x 0.0595) + ((72,400 - 67,700) x 0.04)) which her employer will match.
Assuming the same previous annual salaries and an estimated MAPE of $69,700 and YAMPE of $79,400 (69,700 + (69,700 x 0.14) truncated to nearest 100) in 2025 Al will pay CPP of $2,766.75 ((50,000 – 3,500) x 0.0595) which his employer will match and Barb will pay CPP of $4,326.90 (((69,700 MAPE – 3,500) x 0.0595) + ((79,400 - 69,700) x 0.04)) which her employer will match.
The increase in the contribution rate affects CPP contributions for everyone with earned income higher than $3,500 per year. The second tier of pensionable income with a 4% contribution rate affects only pensionable earnings in between the annual MAPE and YAMPE.
Increasing the contributions to CPP allows benefits in the future to be increased. The maximum CPP benefit per month in 2018 was $1,134.17. With the enhancements, the maximum benefit will increase to up to $2,075.
Here is a link to Canada Revenue Agency where there is more information and examples that include the estimated increases to the MAPE: https://www.canada.ca/en/revenue-agency/news/2018/10/the-canada-pension-...
For more information please consult with your professional advisor.