Enhancements to the Canada Pension Plan
According to the Canada Revenue Agency (CRA) an estimated 24% of Canadian families nearing retirement may not have enough income when they leave the workforce, partly due to the fact that Canadians are living longer and are carrying increased debt loads. As a result, the federal and Quebec governments introduced significant enhancements to the Canada Pension Plan (CPP) starting in 2019.
Increased CPP contributions will be phased-in over a 7-year timeframe from 2019 to 2025, allowing employees and employers time to adjust to the changes. These enhancements will increase the retirement, disability and survivor’s pensions you may receive. How much you will receive will depend on your pensionable earnings, period of contributions and your age at the commencement of your benefits.
Contributions
If you are over the age of 18 and work in Canada, you contribute to CPP on annual employment earnings between $3,500 and the annual earnings limit ($55,900 in 2018). The CPP uses a Statement of Contributions to show you a record of your pensionable earnings and contributions to the Plan. Your Statement shows your total CPP contributions for each year and the earnings on which your contributions were based. It also provides an estimate of what your pension or benefit would be if you and/or your family were eligible to receive it now. Employees can obtain a copy of their statement by contacting Service Canada
Overview of CPP changes
Phase 1:
Beginning in 2019 and through 2023, the contribution rate on earnings up to the annual earnings limit will gradually increase to 5.5% from the current rate of 4.95%, which has been in place since 1994.
|
Year |
Employee Contribution Rate |
Difference in Contribution Rate |
|---|---|---|
|
2019 |
5.10% |
0.15% |
|
2020 |
5.25% |
0.15% |
|
2021 |
5.45% |
0.20% |
|
2022 |
5.70% |
0.25% |
|
2023 |
5.95% |
0.25% |
Phase 2:
In 2024, employees will begin contributing 4% on an additional range of earnings that is beyond the basic annual earnings limit. Therefore, if you earn more, you will contribute more towards your CPP benefits in the future.
Your enhanced CPP contribution, as well as the new 4% contribution on the upper earnings value, will each be 100% matched by your employer.
To partially offset the increase to the CPP contributions, employee will receive a tax deduction for those contributions when filing their personal income tax return. Lower income earners could also be entitled to benefits under the new Canada Workers Benefit.
Employee Requirements
No action is required from employees – Effective from the first pay day in January 2019, the Payroll department will calculate CPP contributions from pensionable earnings using the increased rates. Employees will not see any additional deduction codes on pay stubs or T4 slips; deductions to an employee’s taxable income, based on enhanced CPP contributions will be automatically calculated by the CRA after filing personal income tax returns.
More information
More details on these changes and the related enhancements to your benefits can be found on the CRA’s website
More questions? Contact the Payroll Department at 250-721-7034 or email to payroll@uvic.ca