Yes, CPP deductions are going up again – but the jump is smaller than you might expect.
Canadians are set to see another sizable increase to their Canada Pension Plan contributions in 2024. But even for higher earners, who are most affected by the changes, the pension deduction bump won’t be quite as large as the one employees, employers and self-employed workers faced as recently as 2022.
Employees and employers will pay up to $113.05 more in CPP contributions for the year. For self-employed Canadians, who pay both the employee and employer portions of CPP contributions, the increase works out to a maximum of $226.10. This reflects the usual, annual adjustment to the CPP earnings cap, which captures changes in the general level of wages.
Higher earners and their employers, starting this year, will also have to contribute an additional amount up to a second, higher earnings cap. The extra deduction works out to a maximum of $188 for employees and employers and $376 for self-employed workers. Over all, higher-earning employees stand to pay a maximum of $301.05 in CPP contributions compared to last year, with self-employed Canadians paying $602.10 more at most.
Here are the changes to CPP deductions starting in 2024
The increases are steep compared to the small annual adjustments Canadians grew accustomed to in more than a decade before 2019, when Ottawa began phasing in a series of CPP enhancements aimed at boosting benefits for new generations of retirees. But compared with the past five years, the 2024 deductions boost is relatively small.
Let’s start by looking at contributions tied to the first earnings cap. Between 2004 and 2018 Canadians faced annual contribution increases of anywhere between $89.10 and as little about $20. But this year’s maximum contribution increase of $113.05 is the lowest since 2019.
Even for workers and employers subject to the second earnings cap, the maximum deductions increase of $301.05 falls short of what Canadians shouldered in 2022, when the maximum contribution rose by an exceptionally large $333.35. (The hit was even harder for the self-employed, for whom the maximum increase was twice as much, or $666.70.)
Recent history conspired to make the increases of the past few years steeper than expected for Canadians, said David Field, a certified financial planner at Papyrus Planning.
It “couldn’t be worst timing,” Mr. Field said of the implementation of the CPP enhancements.
In 2022, for example, the CPP earnings cap jumped by 5.4 per cent, the largest percentage increase since 1992. The outsized climb was partly because of the impact of pandemic job losses, which had disproportionately affected low-income workers.
The ceiling is based on an average weekly earnings through a 12-month period. Unusually high unemployment among lower-wage Canadians meant these workers didn’t factor into the calculation, which skewed the average higher.
The gradual implementation of CPP enhancements then continued through a period when Canadians saw their wallets squeezed by high inflation and interest rates.
This year, however, the impact of the reforms is more muted. For one, the earnings cap rose by a more moderate 2.8 per cent, up to $68,500 from $66,600 last year. Employees and employers must each pay 5.95 per cent of earnings up to that cap, except for a basic exemption of $3,500.
It helps also that, for the first time since 2019, the contribution rate isn’t increasing this year, as the implementation of the first phase of the enhancement plan is complete.
For higher earners, this year ushers in a second earnings cap set at $73,200 for 2024. They and their employers will also have to contribute 4 per cent of earnings between $68,500 and $73,200, which amounts to an additional $188 at most for the year.
The second ceiling is set to increase further in 2025, which the Canada Revenue Agency estimates will result in a maximum of $388 in extra contributions for higher earners and their employers for that year.
While the timing of these CPP increments has been unfortunate, it’s important to remember the larger contributions will result in bigger benefits after Canadians retire, Mr. Field said.
“People will often look at it as a tax, and it’s not a tax.”
