'Many employees and employers are currently struggling with inflation and higher interest rates'
The 2024 version of the enhancements to the Canada Pension Plan has already kicked in, but a couple of stakeholders are claiming this will cause extra hardship for employers and workers.
Effective Jan. 1, employees and employers will each contribute an additional 4% on earnings above Year's Maximum Pensionable Earnings (YMPE) – the first earnings ceiling, equivalent to $68,500 – up to the amount of Year’s Additional Maximum Pensionable Earnings (YAMPE) – the second earnings ceiling, equivalent to $73,200.
Here’s the breakdown of contributions for 2024 and 2025:
|
Year |
Contribution rate split (employee/ employer) |
YMPE, or first earnings ceiling |
YAMPE, or second earnings ceiling |
Maximum yearly CPP2 contribution (employee/employer) |
|
2024 |
4% |
$68,500 |
$73,200 |
$188 |
|
2025 |
4% |
$69,700 (estimated) |
$79,400 (estimated) |
$388 (estimated) |
These will be on top of the extra contributions that most Canadian employees and employers began making as part of the CPP enhancement on Jan. 1, 2019.
Here’s the breakdown of the initial enhancement:
|
Year |
Contribution rate split (employee/ employer) |
YMPE, or first earnings ceiling |
Maximum yearly contribution (employee/employer) |
|
2018 |
4.95% |
$55,900 |
$2,594 |
|
2019 |
5.1% |
$57,400 |
$2,749 |
|
2020 |
5.25% |
$58,700 |
$2,898 |
|
2021 |
5.45% |
$61,600 |
$3,166 |
|
2022 |
5.7% |
$64,900 |
$3,500 |
|
2023 |
5.95% |
$66,600 |
$3,754 |
Meanwhile, self-employed individuals who meet the criteria will contribute 8% of their net business income starting this year.
“Once mature, the CPP enhancement will increase the maximum CPP retirement pension by about 50%. It will also increase the survivor and disability pensions,” said the Canada Revenue Agency (CRA).
Those who earn less than $68,500 this year will continue to pay the original CPP contributions of 5.95% – matched by employers.
Take-home income will decrease across Canada this month due to CPP and federal Employment Insurance (EI) changes, as was outlined by the Canada Employment Insurance Commission in its summary of the 2024 Actuarial Report on the Employment Insurance Premium Rate.
Inflation, interest rates, tax relief
While the CPP enhancement will bring a lot of good for workers in the long run, a couple of stakeholders pointed out that, in the short term, the changes will hurt employees.
"I would have to say that many employees and employers are currently struggling with inflation and higher interest rates, and although it may be a good idea to ensure that the CPP program is producing appropriate future retirement benefits, these additional costs are compounding affordability issues currently being faced by many employees and employers," John Oakey, vice-president of taxation at the Chartered Professional Accountants of Canada in Toronto, said in a CTV News report.
This year’s payroll bill will be a “big hit” for middle-class Canadian workers and their employers, added Franco Terrazzano, federal director of the Canadian Taxpayers Federation, in the same report.
"But even worse, Canadians aren't getting any significant tax relief from the federal government."
Rising costs is the top concern for employers this year, according to a previous report from Peninsula. And about 19.5 million Canadians are currently facing financial vulnerability, according to a separate study from the Financial Resilience Institute.
