Question Period Note: PUBLIC ACCOUNTS OF CANADA 2025 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 an 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 has boosted the Canada Pension
Plan payments that working Canadians receive when they retire from
one-quarter of their eligible earnings, to one-third. The enhancement also
increases the level of earnings covered by the Plan.
 To make sure these changes were affordable, they were phased in slowly
between 2019 to 2025 so that the impact on the economy and employers
was small and gradual. The contributory burden on low-income workers is
being mitigated by increasing the Canada Workers Benefit.
 Survivor and disability pensions have also been increased, 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 2024-2025, CPP contributions
totalled $88.3 billion. There were 6.8 million CPP beneficiaries per month on average,
representing a total annual benefit value of $65.1 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, which includes
employer pension plans.
The CPP enhancement increases income replacement rate from one-quarter to one-third of
pensionable earnings. It also increases the limit on pensionable earnings by 14 percent.
Together, these two changes will increase retirement pensions by between 33 percent and 50
percent, depending on an individual’s career earnings.
In 2023, the first part of the phase-in was completed, with the CPP enhancement contribution
rate reaching its permanent level of 1.0 percent (paid by employers and employees) on earnings
up to the base CPP’s earnings limit ($71,300 in 2025), for a combined contribution rate (base
and enhancement) of 5.95 percent (paid by employers and employees). The increase to the
earnings limit was phased-in over 2024 and 2025, and workers with earnings above the base
CPP limit now contribute at a rate of 4.0 percent on those earnings, up to the new enhanced
limit of $81,200 in 2025 (employers match these contributions). Self-employed individuals pay
both the employee and employer shares.
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The enhanced CPP is fully funded. Each year of contributing to the enhancement allows
workers to accrue partial additional benefits, and they will be entitled to full benefits under the
enhanced CPP starting in 2065, 40 years after the full implementation of the new contribution
rates.
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 $71,300 in 2025.
 The CPP enhancement, which began on January 1, 2019, increases the
earnings replacement rate from one-quarter to one-third of pensionable
earnings. It also increases the upper limit on pensionable earnings by 14
percent.
 Each year of contributing to the enhanced CPP allows 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 replaced the Working Income Tax
Benefit (WITB).