Question Period Note: PUBLIC ACCOUNTS OF CANADA 2024 FOR EMPLOYMENT AND SOCIAL DEVELOPMENT CANADA

Canada’s federal and provincial governments have enhanced
the Canada Pension Plan.

Canada’s federal and provincial governments have enhanced the Canada
Pension Plan (CPP), with a historic agreement reached by Canada’s
Ministers of Finance. The enhanced CPP represents a major step in
improving retirement outcomes for workers. It will help Canadians to
achieve a secure and dignified retirement.
 The Canada Pension Plan enhancement will boost the Canada Pension
Plan payments that working Canadians will receive when they retire from
one-quarter of their eligible earnings, to one-third. The enhancement will
also increase the level of earnings covered by the Plan.
 To make sure these changes are affordable, they are being phased in
slowly until 2025 so that the impact on the economy and employers is small
and gradual. The contributory burden on low-income workers is being
mitigated by increasing the Canada Workers Benefit.
 Survivor and disability pensions will also increase, further strengthening
the financial security of workers and their families.

The CPP is a sustainable contributory social insurance program that provides partial
income replacement for Canadian workers and their families in the event of retirement,
disability or death. Federal and provincial governments are joint stewards of the CPP. The
Plan covers almost all employed and self-employed persons in Canada outside Quebec,
which administers the comparable Québec Pension Plan. In 2023-2024, CPP contributions
totalled $81.6 billion. There were 6.6 million CPP beneficiaries per month on average,
representing a total annual benefit value of $60.8 billion.
Monthly CPP retirement pensions, which are indexed annually, are intended to provide a base
upon which contributors can add income from the two other pillars of Canada’s retirement
income system: Old Age Security benefits and private savings and investments, including
employer pension plans.
The CPP enhancement will increase income replacement rate from one-quarter to one-third of
pensionable earnings. It will also increase the limit on pensionable earnings by 14 percent by
2025. Together, these two changes will increase retirement pensions by between 33 percent
and 50 percent, depending on an individual’s career earnings.
The first part of the phase-in of the CPP enhancement was completed in 2023 with the CPP
enhancement contribution rate reaching its permanent level of 1 percent (paid by employers and
employees) on earnings up to CPP’s base earnings ceiling, for a combined contribution rate
(base and enhancement) of 5.95 percent (paid by employers and employees). Starting January
1, 2024, an additional earning ceiling, called the Year’s Additional Maximum Pensionable
Earnings (YAMPE), set at 7 percent above the base earnings ceiling was introduced. Workers
with earnings above the base earning ceiling contribute at a rate of 4 percent on those earnings,
up to the YAMPE (employers match these contributions). In 2025, the YAMPE will be increased
another 7 percent, reaching its permanent level of 14 percent above the base earnings ceiling.
This will complete the seven year phase-in of the CPP enhancement. Self-employed individuals
pay both the employee and employer shares.
The enhanced CPP will be fully funded. Each year of contributing to the CPP enhancement will
allow workers to accrue partial additional benefits. Fully enhanced benefits will be available 40
years after the CPP enhancement is phased-in.
To offset the impact of higher contributions on low-income workers, the Government of Canada
increased the Canada Workers Benefit, formerly known as the Working Income Tax Benefit.
This is a refundable tax credit that supplements the earnings of low-income workers. In addition,
the protection provided by the CPP’s Year’s Basic Exemption of $3,500 means low-income
workers already have lower effective contribution rates, and thus smaller increases in actual
contributions relative to their CPP benefits. The enhanced CPP contributions are also tax
deductible to further mitigate the effect of the increased contributions on Canadians.

The base component of the Canada Pension Plan (CPP) replaces
25 percent of average career earnings up to the Year’s Maximum
Pensionable Earnings (YMPE) which is set at $68,500 in 2024.
 The CPP enhancement, which began on January 1, 2019, will increase the
earnings replacement rate from one-quarter provided by the base
component of the Plan to one-third of pensionable earnings. It will also
increase the upper limit on pensionable earnings by 14 percent between
2023 and 2025.
 Starting on January 1, 2024, a second earnings ceiling called the Year’s
Additional Maximum Pensionable Earnings (YAMPE) was implemented as
part of the CPP enhancement. It was set at $73,200. The additional
contribution rate on earnings above the YMPE and up to the YAMPE for
2024 is 4 percent. The maximum additional contribution from employees
and employer for 2024 is $188 each.
 Each year of contributing to the enhanced CPP will allow workers to accrue
partial additional benefits, with fully enhanced benefits available after
approximately 40 years of making contributions.
 Finance Canada has estimated that, once fully mature, the CPP
enhancement will reduce the number of families at risk of an insecure
retirement by a quarter.
 To ensure eligible low-income workers do not face undue burden from
these extra contributions, the Government of Canada also enhanced the
Canada Workers Benefit (CWB), which replaces the Working Income Tax
Benefit (WITB).