Question Period Note: CANADA PENSION PLAN – GENERAL

What is the Canada Pension Plan and its enhancement?

• The Canada Pension Plan provides contributors and their families with partial income replacement in the event of their retirement, disability or death. Its benefits are intended to provide a secure base upon which individuals can add income from other sources, such as Old Age Security benefits and personal savings and investments, to address their particular financial circumstances.
• The Canada Pension Plan was enhanced to increase the retirement security of today’s workers. Once mature, the enhancement will increase the Plan’s income replacement from one-quarter to one-third of pensionable earnings and also increase the amount of covered earnings. Benefits under the enhancement will grow slowly over time as individuals work and contribute.
• Canadian workers can count on the Canada Pension Plan. The Office of the Chief Actuary confirms that it is sustainable for the long term at its current contribution rates.

The Canada Pension Plan (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. All monthly CPP benefits are indexed annually. The CPP covers employed and self-employed persons in Canada (outside of Quebec). Quebec has a separate but comparable Quebec Pension Plan.

The CPP currently replaces 25 percent of average career earnings up to the Year’s Maximum Pensionable Earnings which is approximately the average wage and is set at $64,900 in 2022.

The CPP enhancement will increase income replacement from one-quarter to one-third of pensionable earnings. The band of earnings on which contributions are made will maintain the same lower earnings limit of $3,500. The upper earnings limit will be increased by 14 percent, which is projected to be equal to roughly $79,400 upon full implementation in 2025.

The contribution rate for the enhancement will be 2% (shared by employers and employees) on earnings up to the current earnings limit (added to the base CPP’s contribution rate of 9.9%) and 8% on earnings between the current earnings limit and the new enhanced limit. The enhanced CPP will be fully funded. Each year of contributing to the enhancement will allow workers to accrue partial additional benefits, with fully enhanced benefits available 40 years after full implementation.

Building on the enhancement, on December 11, 2017, Canada’s Finance Ministers agreed to strengthen the CPP to provide greater benefits to spouses who are widowed at a young age, to the estates of lower-income contributors, to parents whose income drops after the birth or adoption of their child, and to persons with disabilities.

None