Canada Launches Pension Enhancement Plan

Enhancement will increase benefits and contributions for working Canadians.

The Canadian government will launch the Canada Pension Plan (CPP) enhancement beginning in 2019, which will increase benefits and contributions, including a boost of up to 50% for the youngest Canadians.

Working Canadians will receive higher benefits in exchange for making higher contributions, and the enhancement also increases the CPP retirement pension, post-retirement benefit, disability pension, and survivor’s pension.

Prior to 2019, the CPP retirement pension replaced one quarter of a member’s average work earnings up to a maximum limit. But under the enhancement plan, that will begin to grow to one-third of a member’s average work earnings, and the maximum limit will gradually increase by 14% by 2025.

The enhancements will also raise the maximum CPP retirement pension by up to 50% for those who make enhanced contributions for 40 years.

“If you are receiving the CPP (or QPP) retirement pension and you continue to work and make CPP contributions in 2019 or later, your post-retirement benefits will be higher,” said the Canadian government in a release.

Canadians working and living in Quebec contribute to the Quebec Pension Plan (QPP), which provides similar benefits as CPP.

The Canadian government said that the enhancements, combined with the middle-class tax cut, will translate to a savings of almost C$60 ($44) per paycheck in 2019 compared with 2015 for a single person earning C$48,000, and almost C$210 in paycheck deductions for a single person earning C$75,000. It also said that a typical middle-class family of four will receive, on average, about C$2,000 more each year.

The increase in contributions under the enhancement plan will be phased in gradually over seven years in two steps. Beginning in 2024, a second, higher limit will be introduced, allowing Canadians to invest an additional portion of their earnings to the CPP.

Before 2019, employees and employers each contributed 4.95% on earnings to the CPP, but under the enhancement, those rates will be 5.10% in 2019, gradually rising yearly to 5.95% in 2023. Self-employed Canadians are responsible for both the employee and employer portions.

Additional changes to the CPP include greater benefits to parents whose income drops after the birth or adoption of a child; to people with disabilities; to spouses who are widowed at a young age; and to the estates of lower-income contributors.

“Canadians deserve fair and dignified retirements that recognize their hard work. That is why the Government of Canada took the initiative to strengthen and improve the Canada Pension Plan,” Filomena Tassi, Canada’s minister of seniors, said in a release. “These changes will help today’s workers plan for their retirement while building strong systems that support Canadians in their older years.”

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