In October the Federal Government introduced legislation to expand the Canada Pension Plan, following discussions earlier this year with the Provinces and Territories.To pay for the new benefit, workers and employers will be required to pay higher premiums. The proposed changes will have the greatest benefit for young workers entering the workplace now and in the future.
CPP Expansion Update
On October 6, 2016 the Federal Government introduced legislation to expand the Canada Pension Plan (CPP) – Bill C-26, An Act to amend the Canada Pension Plan, the Canada Pension Plan Investment Board Act and the Income Tax Act. The CPP is based on a worker’s earnings over their lifetime. If you earn more, you pay more premiums and receive a larger pension benefit when you retire. The current CPP program replaces approximately 25% of earnings up to a maximum limit. The proposed expansion will increase replacement income from 25% to 33% of earnings up to a new increased maximum limit.
Proposed Changes to CPP
- In order to give employers and workers time to adjust to the new proposed plan, the premiums will be phased in over a 7 year period from 2019 to 2025.
- Starting in 2019 contributions will gradually increase each year until they reach an additional contribution rate of 1% by 2023. The CPP contribution will be raised for both employers and employees to 5.95 percent from the current 4.95 percent by 2023.
- The proposed legislation is also recommending increasing the CPP maximum limit from $54,900 to $82,700. Currently CPP contributions are not collected on earnings over $54,900. Additional contributions will need to be collected to adjust for this change.
- The legislation is proposing a second additional contribution which will be phased in over a 2 year period from 2024 to 2025. This second additional contribution will impact middle and high income earners, who earn more than the current CPP maximum limit of $54,900.
ORPP Cancelled
As a result of the Federal Government commitment to expand CPP, the Ontario Government has cancelled the Ontario Retirement Pension Plan (ORPP).
More Information on CPP Expansion Update
Additional reading can be found here: Bill C-26 and CPP expansion.
