The Canada Revenue Agency (CRA) disclosed the anticipated adjustments in the Canada Pension Plan (CPP) for the year 2024, marking a significant change in maximum pensionable earnings and contribution thresholds.
In this blog, we’ll take a look at what exactly CPP is and what new changes have been announced for 2024.
What is CPP?
The Canada Pension Plan is a cornerstone of Canada's retirement income system, designed to provide financial support to Canadians in their later years. It operates as a mandatory public pension plan, ensuring that all working Canadians have a basic level of protection against the loss of income due to retirement, disability, or death.
Key features of the CPP include:
- Universal Coverage: The CPP covers virtually all workers in Canada, except for those in Quebec, who are covered by the Quebec Pension Plan (QPP). It includes employees, self-employed individuals, and those with varied employment histories.
- Funded by Contributions: The plan is primarily funded through mandatory contributions from employees, employers, and self-employed individuals. These contributions are based on earnings and are split equally between employees and employers. Self-employed individuals contribute both portions.
- Benefit Types: The CPP provides three main types of benefits:
- Retirement Pension: A monthly payment available to contributors who have reached the age of retirement, which can start as early as age 60.
- Disability Benefits: Financial assistance for contributors who are unable to work due to a disability.
- Survivor Benefits: Payments to the surviving spouse, common-law partner, and dependent children of a deceased contributor.
- Adjustable Pension Age: While the standard age for beginning to receive CPP retirement benefits is 65, individuals have the flexibility to start receiving reduced benefits as early as age 60 or to defer their pension to increase the amount up to age 70.
- Earnings-Related: The amount of CPP benefits an individual receives is related to how much and for how long they contributed to the plan during their working years.
What has Changed for 2024?
While the basic exemption amount will remain $3,500 for 2024, the maximum pensionable earnings for CPP in 2024 will rise to $68,500, representing an increase from the previous year's $66,600.
But unlike previous years, 2024 will mark the introduction of a second earnings threshold. This threshold will be set at $73,200.
This additional threshold marks an expansion in the CPP contributions framework, encompassing earnings between $68,500 and $73,200.
CPP contribution rates for both employees and employers will remain fixed at 5.95% for the upcoming year. Consequently, the maximum contribution for both entities will increase to $3,867.50, up from $3,754.45 in 2023. As usual, self-employed individuals will bear a doubled CPP contribution rate.
For earnings between $68,500 and $73,200, the contribution rates for employees and employers will stand at 4.00% in 2024. This alteration will lead to a maximum contribution of $188.00 in addition to the $3,867.50 for each party. Self-employed individuals within this bracket will again have to pay both the employee and employer portion.
These modifications in CPP thresholds and contribution limits underscore the government's commitment to aligning pension provisions with the evolving economic landscape, ensuring a more robust and secure financial future for Canadians.
Are you interested in how the new 2024 CPP changes will affect you? Get in touch with Koroll & Company today. Our team of chartered professional accountants would love to help.
