In 2019, the federal government began an expansion plan designed to increase the retirement benefits Canadians would receive from the Canada Pension Plan (CPP). The goal was to raise the benefit to 33% of the average Canadian’s earnings, up from 25%. Part of achieving this has been a steady increase in CPP premiums over the past six years. CRA’s announcement of the CPP maximum pensionable earnings for 2025 represents the last step of the CPP expansion plan.
Quick Recap of Changes:
Stage 1: Increase in Premiums (2019-2023)
In 2018 both employees and employers paid premiums of 4.95% on earned income between $3500 and $55,900. The income above and below these amounts were not subject to CPP contributions by either party. The threshold of $55,900 is known as the yearly maximum pensionable earnings or YMPE, and is indexed annually. Between 2019 and 2023, both employer and employee contribution rates increased from 4.95% to 5.95%.
Stage 2: New Additional Premium on Higher Income (2024-2025)
Starting in 2024, a new concept and calculation for higher income earners was introduced.
It is important to understand that there are two salary ceilings when determining an individual’s CPP contribution. The first ceiling is used for the standard CPP calculation, the YMPE, set at $71,300 for 2025. The second, called the Year’s Additional Maximum Pensionable Earnings (YAMPE) is calculated for income earned up to 7% over the YMPE ($81,200 for 2025). The premium for earnings between the YMPE ($71,300) and YAMPE ($81,200) is an additional 4% for both employees and employers.
The YAMPE ceiling is now set at 14% over YMPE for 2025 and future years. The basic exemption amount for income not subject to CPP contributions remains at $3500.
The Self-Employed – If you are self-employed, you already know that as both employee and employer, you bear the cost and pay both sides of the premium.
I hope you found this helpful.
Have a great weekend,
Tracey and Paige
Sources:
https://www.investmentexecutive.com/newspaper_/business-owners-brace-for-second-stage-of-cpp-expansion/ https://pipsc.ca/labour-relations/pension-benefits/canada-pension-plan-enhancement-2024
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