The new Canada Pension Plan enhancement and how it will affect you
Starting in 2019, the Canada Pension Plan (CPP) will be gradually enhanced, and whether you are an employer, an employee or self-employed, it will affect you.
The enhancement will increase the CPP retirement, disability and survivor’s pensions that a person may receive; eligibility for CPP benefits will not be affected.
Up until 2019, the CPP retirement pension replaced 1/4 of a worker’s eligible, pre-retirement employment earnings. Starting in 2019, CPP will begin to replace 1/3 of a worker’s average earnings.
The first phase of CPP changes will occur over a five-year period starting in 2019 and continuing until 2025. In 2019, employers and employees will contribute 5.1% of gross earnings, up from 4.95% in prior years. The amount will increase annually until reaching 5.95% of gross earnings in 2023.
So for example, an employee with an annual gross wage of $50,000 will pay $2,301.75 CPP in 2018 and $2,371.50 in 2019.
The second phase of CPP enhancement starts in 2024 and continues in 2025. At this time, employee and employer enhanced contributions will be calculated at 4% on earnings above the earnings ceiling (maximum) for the base CPP up to a new, second limit.
These contributions will be in addition to the contributions discussed above.
For further information regarding Canada Pension Plan enhancement, see the Government of Canada website.
Have questions? Need more help understanding the CPP enhancement and how it will affect your business? Give Apex Accounting, Chartered Professional Accountants, a call at 250-426-1976. We offer a complete range of corporate accounting services.