How changes to Canada Pension Plan benefits affect your wallet today and retirement tomorrow via financialpost
Since 2019, the CPP contribution rate has gradually increased every year, to 5.95 per cent in 2023 from 4.95 per cent in 2018 , for a total increase of one per cent for both employees and employers. If you’re self-employed, you pay both the employee and employer portions, for a 2023 contribution rate of 11.9 per cent.
If you earn less than the first earnings ceiling, there will be no further CPP rate increases for you. For higher income earners, however, a second CPP contribution rate and earnings ceiling will begin in January 2024, and will only affect workers whose income is above this “second earnings ceiling,”As of 2024, if you have earnings above the first earnings ceiling, you’ll contribute an additional four per cent of your income between the first earnings ceiling up to the second earnings ceiling.
To illustrate, assume Stephanie has an annual income of $100,000, which is higher than the second earnings ceiling each year. She will make base and first CPP contributions at a rate of 5.95 per cent and, beginning in 2024, second CPP contributions at a rate of four per cent on the difference between the annual YAMPE and the YMPE.
In 2025, if we assume the YMPE increases again to, say, $69,700, Stephanie will contribute $3,939 on her income below the first earnings ceiling. The second earnings ceiling will be set 14 per cent higher than the first earnings ceiling, resulting in a YAMPE, or second earnings ceiling, of approximately $79,400. Stephanie will contribute second CPP contributions at a rate of four per cent on her income between the YMPE and the YAMPE, or $388. Thus, her total CPP in 2025 would be $4,327.
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