Understanding and calculating the “Enhanced CPP” changes
2019 is the first year where the changes announced in June 2016 were be put in place. The Minister of Finance announced an agreement in principle with the provinces that would “strengthen the Canada Pension Plan (CPP) for future generations.” These proposed changes became known as the enhanced CPP, and the legislation to enact these changes (Bill C-26) has now received royal assent.
What are the changes to the CPP?
The first change that you’ll notice is an increase in the cost of CPP contributions from a total of 9.9% to a total of 11.9%. This change will occur gradually over five years, according to the following schedule:
Employee contribution rate
|Employer contribution rate||Self-employed contribution rate|
Jan. to Dec. 2019
Jan. to Dec. 2020
Jan. to Dec. 2021
Jan. to Dec. 2022
|Jan. 2023 and later||5.95%||5.95%||
The above contribution rates apply to all pensionable earnings that are above the Year’s Basic Exemption (YBE) of $3,500, and below the Year’s Maximum Pensionable Earnings (YMPE), which is $57,400 for 2019. These earnings from 2019 forward will be known as “first additional pensionable earnings.”
Yearly Additional Maximum Pensionable Earnings (YAMPE)
Another change to the CPP under Bill C-26 is a higher ceiling for earnings on which contributions will be required, which is called the Yearly Additional Maximum Pensionable Earnings (YAMPE.) This change will be phased-in over two years, with a 7% increase in 2024 (to $61,400 in 2019 dollars) and a 14% increase in 2025 (to $65,400 in 2019 dollars).
The total contribution rate for earnings between the YMPE and the YAMPE will be 8.0% (4.0% each for both the employee and the employer) and these earnings will be known as “second additional pensionable earnings.”
Related Article: How much will you get from Canada Pension Plan in Retirement?
CPP benefits are increasing as well
The good news is that these increased contributions will allow the enhanced CPP to replace 33.33% of your “average lifetime earnings” rather than the current 25%. Along with the higher YAMPE, this will result in a maximum retirement pension being approximately 50% more than it is currently.
The not-quite-so-good news is that this increase is being phased-in over a 45-year period. That means that no one will receive this 50% higher maximum retirement pension until 2065.
That doesn’t mean that pensions won’t be increasing before then. Pensions will start to increase slowly, beginning in 2019. The following table shows approximately how much of an increase someone will see in their monthly age-65 retirement pension (2019 maximum is $1,154.58), if they’re earning at or above the YAMPE level each year.
Year of earnings
|Maximum amount of increase|
|2025 and after||
These increases are cumulative though, so that if you earned at the YAMPE level for the seven years of 2019 through 2025, your maximum retirement pension in 2026 would be $1,207.83 ($1,154.58 + $53.25), and the maximum will continue to increase by $14.98 for each year of additional earnings at the YAMPE level for 2026 and beyond (up to a maximum of 40 years of earnings in total).
Using this formula, the maximum CPP retirement pension in 2065 (in 2019 dollars) will be approximately $1,753.78 monthly ($1,154.58 + (40 x $14.98)), or approximately $21,045 yearly.
How to calculate a CPP retirement pension after the “Enhanced CPP” changes?
I generally don’t like the way that the government abbreviates everything, but sometimes there’s a purpose to it. For purpose of this article, I’m going to use the abbreviation RTR-FBC to stand for “retirement pension – for benefit calculation,” which is the value of a CPP retirement pension before applying any age-adjustment factor if the pension starts before or after age 65.
Starting in 2019, the RTR-FBC will consist of three parts, as follows:
Part 1 (the basic component, or basic RTR-FBC)
This part is the “old calculation” and it replaces 25% of a contributor’s average monthly pensionable earnings (AMPE), as described in this earlier article.
The basic component or basic RTR-FBC is currently the answer to Step 5 in that article, and it will soon become Step 5a when that article is updated to reflect the enhanced CPP changes.
Part 2 (the first additional component, or first additional RTR-FBC)
Starting in 2019, pensionable earnings up to the YMPE will be subject to an additional contribution rate of 1.0%. (This rate increase will actually be phased in over five years, from 2019 through 2023.) Under the enhanced CPP legislation, these earnings from 2019 onwards will be known as “first additional pensionable earnings.”
The first additional RTR-FBC will replace 8.33% of these first additional monthly pensionable earnings (FAMPE), phased in over 44 years and calculated as follows:
Step 1 – The first additional pensionable earnings must first be adjusted to a current-year value. To do this, each year of first additional pensionable earnings must be divided by the YMPE for the year of the earnings and multiplied by the average YMPE for the five years ending with the year that the pension starts.
For purposes of this calculation, these adjusted earnings will now be called the first additional adjusted pensionable earnings (FAAPE), and they are very similar to the APE which is calculated by Step 2 in the above link under the basic RTR-FBC calculation. The only difference between FAAPE and APE is that the FAAPE values are pro-rated for the years 2019 through 2022, because the contribution rate increase (1.0% for employees and employers or 2.0% for self-employed people) is also pro-rated for those same four years.
The pro-rated values for the FAAPE for 2019 through 2022 are as follows:
- 2019 – FAAPE = 15% of APE
- 2020 – FAAPE = 30% of APE
- 2021 – FAAPE = 50% of APE
- 2022 – FAAPE = 75% of APE
Step 2 – FAAPE will be totaled for all years and averaged over 480 months. Once we are past 2058, only the best 40 years of FAAPE will be totaled. The result of this calculation is the first additional monthly pensionable earnings (FAMPE).
Step 3 – The first additional component or first additional RTR-FBC is then simply 8.33% of FAMPE.
Part 3 (the second additional component, or second additional RTR-FBC)
Starting in 2024, the ceiling up to which CPP contributions must be made will be increased. The YMPE will still exist and this new ceiling will be called the “Yearly Additional Maximum Pensionable Earnings” (YAMPE). The YAMPE will be increased in two steps, to 7% above the YMPE in 2024 and 14% above the YMPE in 2025 and later years.
For example, using the 2019 YMPE of $57,400 as the starting point, this would make the YAMPE $61,400 in 2024 and $65,400 in 2025. The actual numbers will depend on the YMPEs for 2024 and 2025 once they are announced.
Starting in 2024, pensionable earnings above the YMPE and below the YAMPE will be subject to a CPP contribution rate of 4.0% for employees and employers, or 8.0% for self-employed people. These earnings will be known as “second additional pensionable earnings.”
The second additional RTR-FBC will replace 33.33% of these second additional monthly pensionable earnings, phased in over 40 years and calculated as follows:
Step 1 – The second additional pensionable earnings must first be adjusted to a current-year value. This process is the same as Step 1 above, where you divide the earnings by the YMPE for the year of the earnings and multiply it by the average YMPE for the five years ending with the year that the pension starts.
For purposes of this calculation, these adjusted earnings will now be called the second additional adjusted pensionable earnings (SAAPE).
Step 2 – SAAPE will be totaled for all years and averaged over 480 months. Once we are past 2063, only the best 40 years of SAAPE will be totaled. The result of this calculation is the second additional monthly pensionable earnings (SAMPE).
Step 3 – The second additional component or second additional RTR-FBC is then simply 33.33% of SAMPE.
Once you have calculated all three parts above (if applicable), you add them together to get the total RTR-FBC.
The last step is then to apply any age-adjustment factor if the pension is payable before or after age 65. This factor is fully explained in Step 6 of the “old calculation” at the above link, but it is basically:
- Reduce the pension by 0.6% for every month if starting before age 65; or
- Increase the pension by 0.7% for every month if starting after age 65.
Wrapping up on Enhanced CPP
As you can see, if you’re thinking of applying for your CPP earlier than 2025, the enhanced CPP will be of little value to you. However, for each year of pensionable earnings beyond 2024, the changes mean that your maximum CPP retirement pension will be approximately 1.3% more than under the current rules.
On June 21, 2018, Royal Assent was given to the legislation to introduce two “drop-in” provisions to the enhanced CPP calculations. These changes apply only to the enhanced calculation and do not in any way alter the existing child-rearing and disability dropout provisions that still exist for the basic portion of the CPP calculation. These two changes are as follows:
- if you have low or no pensionable earnings due to child-rearing (up to age 7), you will be able to drop-in earnings based on your average earnings for the five-year period immediately prior to the birth of the child. This provision applies to first additional pensionable earnings for 2019 and subsequent years and to second additional pensionable earnings for 2024 and subsequent years.
- if you have no pensionable earnings due to being eligible for a CPP disability pension, you will be able to drop-in earnings based on 70% of your average earnings for the six-year period immediately prior to the onset of your disability. This provision applies to first additional pensionable earnings for 2019 and subsequent years and to second additional pensionable earnings for 2024 and subsequent years.
Related article: Making sense of Child Rearing Drop Out for CPP
CPP is such an incredibly bad return on investment that it’s very nearly just a tax. A pension would track your contributions and offer returns/payouts similar to what you pay in and include a principal amount.
CPP payout compared to modest market rate investments are incredibly poor.
CPP is essentially tied to inflation today. Based on this assumption lets do some math…
find a compound interest calculator like this one http://www.moneychimp.com/calculator/compound_interest_calculator.htm
enter your personal contribution (hint this year it’s 2564.10 assuming you make more than the approx $54K a year)
now remember the Gov demands your employer contribute an equal amount also (Self employed you contribute both!). So times 2.
assume a conservative rate of return 5% (remember this is a MASSIVE fund that can usually at least match average market returns of 7% or better over the long run. Particularly given how much CPP are paying their investor team!)
5% return on your $2554.10×2 yearly contirbution would be $545,072.36 in principal! (in 2017 $’s!)
now the enhanced current max payout of the $’s YOU contributed is just under $14,000 a year… No ownership of the principal. No passing to your heirs.
Horrible return – look to the 4% safe withdrawal rule with that principal and one can see there is a huge gap on the CPP payout vs if this was a real investment/RRSP/TFSA/Pension fund.
I agree a minimum safety net is required but taking money from people in a falsely marketed “Pension” is scary. It leads some to believe they will be looked after when the opposite is true. One has to disregard CPP and invest on your own!
Perhaps a solution would be the Australian model that better matches a pension vs Canadian CPP that starts to look remarkably like a tax.
Just wondering where the $545,072.36 comes from. Is that over so many years?
In order to collect max CPP you must pay in for 85% of 47 years. That is 40 years of 47.
Plug both your own contribution amount and your employers ($5108.20) into a compound interest calculator. Assume a 5% return (this is exceptionally conservative as real returns typically average 7% or more)
Now lets assume that’s your “principle” amount… you have that to live on, will to family etc.
Now lets explore the 4% rule for living on a fixed amount. (google it)
Rough math shows substantially more than CPP payouts for 40 years AND you still have a chunk to will to family.
Someone please show me how the CPP alternative is not a tax… you can’t touch your “principle”. you can’t will it to family. You get less monthly/yearly from CPP then if you invested modestly on your own.
I read your comments ,with interest l am a Canadian living in Australia . The view here is we wish we had a CPP type plan. We just finished a Royall Commission looking into banking and the superannuation a large chunk of which is controlled be the banking sector and the commissions determination was that the sector is corrupt beyond belief and is imposing massive compensation to be paid by the banks superannuation arm.l encourage you to read the Australian Mutual Provident or AMP pensions scandal .Also the superannuation industry has no vehicle to provide pension income in the way CPP does leaving people to depend on the market for their investments.CPP invests heavily in Australia in everything from roads to utilities,long term income producing assets that the superannuation industry here struggle to emulate. I am age 72 and gratefully receive my monthly CPP pension which I contributed to for over 31 years also I’m struggling to find an investment vehicle which is not market dependent for my Australian superannuation savings. My superannuation provider offered an annuity returning 2%.
I would like to see CPP accept peoples other retirement savings and invest it for them.
It is great that they are increasing but I will be long gone before anyone gets the maximum. I am a year away from 65. I think that employers should contribute more twice as much as they do. And really this is poverty level pensions. So how is this addressing the current issues. Our government is partially responsible for the current state of affairs with people having little to no pension when they changed the rules a long time ago now allowing companies to go from defined benefit to defined contribution. And correct me if I am wrong but were companies also required to provide pensions.
I agree. Employers should take a minimum of 10% of the employees salary and invest it in an RRSP for them, as most don’t seem capable to invest it themselves.
Everyone wants employers to pay. Where does that money come from? Are increased wholesale and retail prices acceptable? Ultimately there are only “X” dollars in the system.
My thoughts exactly. And consider that one employer – governments at levels – is funded by the non-government employees’ income taxes.
Government employees are actually funding themselves with their income taxes, lavishly I think.
Don’t comment on something you don’t know anything about. The Government already deducts a minimum of 10% of an employees pay to put into their “gold plated pension plan” which is invested for them. Look it up, it is called the superannuation contribution rate. They also pay income taxes like everyone else on their income.
People don’t want government telling them what to do with their money so the government entices them with the RRSP and yet a lot of people still won’t save thinking the CPP and OAS will be enough. Then they bash the public servants who are forced to save 10% of their pay for having a nice pension.
My comment was that employers should take a minimum of 10% of the employees salary and invest in an RRSP for the employee. Therefore there would be no additional cost to the employer, other than paying a living wage.
Murray.. I see your point better now. Sadly many people have limited knowledge in saving or investing. Mandating 10% savings would work well for those people. Let’s go one step further. Employees can pick one of a) mandatory 10% investment that remains owned by the employee and can be moved to another employer OR OR OR participate in CPP. I’d take the 10% solution and never contribute nor draw from CPP.
What a concept..Id be responsible for my own financial well being.
As with anything else, nobody thinks about us who are already on pension!
Food prices are rising, gas going up, medical bill which are not covered by OHIP.
We have to live on the on the meage pensions we have.
Even the Govt ignores us in their budgets
Why is it always the governments fault and not the individual fault for saving funds for retirement?
I think part of the reason people are so disillusioned about the CPP in particular is how it’s been presented for decades and because of the illusion its name implies.
Too many people people are cajoled into “the nanny state” will take care of me.
The CPP is not a pension plan because no one can live comfortably on the benefits, or at all if you’re single.
The CPP is not a pension plan.
It is a Personal Pension Plan supplement.
The CPP is indexed at a fictitious rate that will never keep up with any level of inflation.
The CPP is not a pension plan because it is not a pension fund; the personal and employer contributions – 10% of one’s salary to an earnings ceiling – are not accumulated in one’s name and the benefits end upon death. A Personal Pension Fund becomes part of one’s estate upon death.
Too many people think they don’t earn enough to consider accumulating a Personal Pension Fund, when they actually can, especially when it’s part of daily living starting with one’s first job – whatever that job is.
Basic financial literacy is non-existent in Canada. In school, any school level, we are taught the capital of Peru (useful?), but nothing about something as basic to a retirement strategy as “the rule of 72”.
People like Don can earn money from their retirement capital. But too many are distressed because they find out upon retirement that the CPP is nowhere near enough, even combined with OAS and GIS. They find out that their RRSP goes up in smoke because of the outrageous amount of income tax withheld and then assessed on April 30th.
They worry. Complain. Rage at the nanny state that isn’t. The same energy and amount of time could be spent making their retirement capital work for them and generate actual cash.
When faced with welfare, when I retired 15 years ago, I went looking for ways to make my meagre capital generate cash – nothing else but monthly cash, the only objective/target I had. It is almost very easy today with the Internet and discount brokers and Google, and TMXMONEY, and email from companies and fund managers.
I still maintain that CPP, OAS and GIS are a Personal Pension PlanI still maintain that CPP, OAS and GIS are a Personal Pension Plan supplement and not an actual pension plan as the name implies.
As stated in Doug’s comprehensive information, the CPP is intended to replace 33.33% of your “average lifetime earnings”, which is an insult to all lower income earners.
Therefore, everybody needs to spend some time prior to retirement to learn about building a Personal Pension Fund that can support you when you retire, even before age 65 or whatever age you will be when you wish or need to retire.
Your Personal Pension Fund needs to generate enough income to support you, based on today’s lifestyle, adjusted for some reduced expenses (work related, no children) and for some new expenses (medical, cruise).
Then use the rule of 72 (Google “rule of 72”) to estimate what that number will be for inflation, which the government is targeting at 2-3%.
If your figure for today’s cost of living expenses would be $40,000, inflation is 3%, your annual pre-tax income would be $80,000 in:
72 ÷ .03 = 24 years
How to generate $40,000 in pre-tax income, today? The next item is how to mitigate the income tax burden when retired.
$40,000 today. How much capital can give you that: depends on the return on investment (ROI). A 10% ROI requires $400,000. A 5% ROI requires $800,000. You decide how much ROI and capital accumulation you can achieve.
You decide which type of investment you feel good about (that’s a learning curve) and then decide how high the return on investment you feel good about (another learning curve). See if the strategy you are using today can get you there; for most people, you won’t get there.
How to find and then decide:
google tmxmoney dividend screener
click add criteria
• eliminate all criteria except “Exchange”
• select Current Dividend Yield
• change Condition to >= then 5
• you’ll get ±350 results
• click “Edit Columns”
• click “View more columns”
• deselect most useless fields for our purposes; keep
Symbol Company Name Price
• select “Dividend” then “Yield” and “Yield 5 year average”
• click Save
• click the Yield column to sort by Yield (up or down)
• if you copy the >7% results and paste them to a spreadsheet, you’ll have a list of ±150 TSX stock/funds that pay over 7%
• these are the headings/columns I used:
Symbol Company Name Price Dividend Volume Yield Yield (5 Y…
Now it’s up to you. Finding is easy: feel good about takes a while.
Mitigate income taxes:
The last thing you want to spend retirement income on is taxes.
The first step available to Canadians since 2009 is the TFSA used properly as a Tax Free Investment Account.
Try to avoid a large RRSP/RRIF because its withdrawals cost too much in income tax. What you might do is delay CPP payments and replace them with withdrawals – which are also very expensive in fees and sales taxes. Remember that all of an RRSP will be 100% taxable when you die or decide to retire in another country.
What is left as a Personal Retirement Fund account? The only real pragmatic and very inexpensive solution (after the net capital is over $50,000) is a Margin Account at a discount brokerage of your choice (also a learning process).
In the Margin Account, invest in the financial products you selected using TMXMONEY. One word about Margin Loans: they cost about 5% (October 2017), are 100% tax deductible and can be used to purchase tax-advantaged financial products that generate whatever you’ve chosen with TMXMONEY: 7%? 10%? 12%? 15%?
The progressive planners (some may be worriers) will take the time to have a happier retirement because they will have sufficient monthly income to achieve their chosen retirement activities. These planners will reduce their Kardashian time or TMZ time to do something profitable.
It takes more time when starting and very little when monitoring – a few minutes a day: monitoring is like checking if the soup is ready – it’s reassuring.
I know, I know, it’s a lot to read and I didn’t even discuss the types of tax-advantaged incomes.
You say “all of an RRSP will be 100% taxable when you die or decide to retire in another country”. I am planning to retire in another country. I was unaware of this issue. I was planning to withdraw gradually from my RRSP. Can you clarify? What about electing under section 217?
If I were to stop working at age 60 in 2022, but not collect my CPP until age 65 in 2028, would I still get the benifits of the enhanced pension even though I only contibuted more for a few years?
Hi Rod – Yes, if your earnings are max for 2019 thru 2022, your CPP at age 65 will be approx. $16 per month more as a result of the enhanced CPP changes.
Could Rod do this instead…
Contact CPP and see where he is at regarding number of years contributing. If he is at the maximum, opt out of contributing anything further for the final 5 years (may only be possible for self employed who take dividends). Take the equivalent of what he would have handed to the government and self manage it. At $2500/yr for 5 years he will have at least $12,500 in a cash account. That’s a lot more that a measly $16/mo X 12 months X 30 years = $5760.
Hi Bruce – The short answer to your question is “No”. CPP contributions are never optional for salaried employees, unless they are over age 65 and already receiving their CPP. There is the other option as you suggest, for self-employed people who may be able to take their earnings in the form of dividends instead of salary.
I should give you a slightly longer answer though, as you (and maybe others?) have misunderstood the numbers a bit. The $16/mo increase in Rod’s CPP that I mentioned is just how much the extra “enhanced contribution” portion would increase his CPP. That enhanced contribution portion would have totaled only $880.60 for the four years of 2019 thru 2022 (0.15% for 2019, 0.3% for 2020, 0.5% for 2021 and 0.75% for 2022) whereas the regular contribution portion of 4.95% would have totaled approx. $10,256 (4 x $2,564.10).
It’s only the extra $880.60 contribution that would have increased his CPP by $16/mo and the other $10,256 could increase his CPP anywhere from a further $0/mo to $114.28/mo (read this article: https://retirehappy.ca/much-one-year-maximum-cpp-contributions-worth/ )
Bill C-26 is the Citizen’s Arrest Act.
Can you give me the proper bill number?
Hi Beth – You’re looking in 2012, try 2016. Here’s a link to the Bill C-26 that I’m referring to: http://www.parl.ca/DocumentViewer/en/42-1/bill/C-26/royal-assent
I retired june/16 age 65.Will the enhancement help my wife(65)and myself?I am receiving $1092 but your article states $1114?Could you let me know why i wouldnt receive the latter?Thanks.Tom O’Neill
Hi Tom – If you’re already receiving your CPP, the enhancements won’t help you at all. The max for CPP starting in 2016 was $1,092.50 and it’s $1,114.17 for pensions starting in 2017.
Thanks Doug.My cpp went to $1092 in jan/17 and was wondering why i didnt get the $1114?
Hi Tom – Once your CPP pension is in pay, it’s indexed yearly based on increases in the cost of living (as measured by the CPI). That doesn’t always match exactly with the increase in the maximum new pensions, which is based on increases to the YMPE (which reflects wage increases).
Thanks doug.In 2016 i had a total of 39 yrs of max contributions and maybe thats why i didnt receive the full cppp.?
Hi Tom – If you had 39 full years of max contributions and started your CPP at age 65 in 2016, the amount of your CPP should have been $1,092.50 in 2016 and it should have increased to $1,107.80 effective January 2017. If this is not what you are receiving, send a copy of your CPP statement of contributions to me at [email protected] and I’ll check it out for you.
This would not apply to me , correct, as I am retired
Hi Marlene – You’re 100% correct.
As detailed as Doug’s information is, CPP will still be insufficient for Canadians to retire on.
Since the revised CPP plan is meant to address 33.33% of your “average lifetime earnings”, it is still an insult to all lower income earners.
OAS becomes necessary and possibly trigger GIS benefits for lower income earners.
Is there also an indexing to inflation?? If not then the increases are not much help.
Hi Tom – Yes, all CPP benefits are indexed to inflation.
Better to say “indexed to a regularly modified government inflation index” which has little to do with real-world inflation.
The CPP & OAS inflation rates are really a fictitious rate that excludes many common products and services.
In my case, the combination doesn’t cover a normal rent increase.
How about those who are already retired. Say at age 72 and could use a better income? Anything in sight for those no longer in the work force? A “fix” for those in a fixed income position would help………Strengthen the current system for those already there would be good for the country!
Something needs to be done. Making “how money works” should be integrated in the educational system so people are aware and mindful of how retirement really looks like and encourage people early in life to start getting ready for retirement the moment they get their first paycheck. Get people to be on the saving mode rather than spending mode,etc.
I totally agree with your “how money works” comment.
But the emphasis must be on making the money work. It’s a tool or something like protein. Money is too often paired with emotions such as “the root of all evil”.
Saving should be renamed “allocating” rather than be confused with a discount on a loaf of bread.
TFSA should be renamed TFIA, I for investment. RRSP would become RRPF – Pension Fund.
Neither are Savings accounts.
Angelina, you are also right about starting early, regardless of the earnings of the first job are.
Someone wrote in this blog that ½ million dollars can be accumulated with the current CPP payroll taxes. That means that if an individual puts away double the CPP contribution amount that appears on the pay cheque stub in a Margin Account, one would easily accumulate $500,000.
Finally, CPP should be renamed CPPSNI as in Canada Personal Pension Safety Net Insurance.
Hi Claude – I think we get the picture. You’re not a big fan of the CPP. How many times do you think you need to make that point?
Once more, Doug.
Combined with the fact that most current CPP beneficiaries are complaining if not suffering, twice more.
So you screwed up during your working life and now are bitter that CPP isn’t enough. CPP was always intended to augment personal savings/workplace pension – personal accountability.
The plan from an actuarial standpoint is healthy and for the foreseeable future all of us will be recipients. Global economy, too high rates drive prospective employers away.
Ive been critical of recent “retire happy” articles for the lack of depth. This however is a great article and the comments very thought-provoking.
I’m clearly late to the party here but am in agreement with Claude and share his disdain for CPP.
We unfortunately live in a Nanny State, and the nanny is not a very good one. Read through the comments and you will find those who complain that CPP isn’t enough and that seniors are living in poverty. My response to that is you shouldn’t have decided to rely on the Gov’t for your well-being. You comment that you retired at 65, I’m going to presume you worked for 40+ years, you had 40+ years to save a bit of cash, yet you didn’t, that isn’t the governments fault.
As far as CPP goes and these new “taxes” being implemented on us, I’m clearly against them. The government is going to put additional stress on businesses and take money away from the working class (an extra 1% off each pay cheque), and for what? The possibility of an additional $4500 a year in retirement. But what if I get sick with cancer at 64 and have 2 years to live, then what? That $4,500 a year saved over a 30 year period might have bought a nice bucket list. Sorry it went to the gov’t, but don’t worry your spouse will get a survivors pension that’s barely worth the paper it’s printed on.
Overall I feel that the gov’t should stay out of peoples bank accounts, people should be able to decide what and how to spend/save their money. However the unfortunate reality is this isn’t possible because the majority of people like those who complain CPP is insufficient won’t save anything and there will be pressure on the gov’t to take care of them regardless.
Love this left with socialist country sometimes.
So if I am understanding this correctly, the base CPP will remain in place as well as the way Service Canada currently calculates drop out periods and minimum contributory months in order to qualify for the base CPP.
Then, separate from that, there will be an additional amount that will at no time actually replace the way the base CPP operates, and instead, will stand alone as a second pension on top of the base which will use the highest 480 months to determine the pension and will apply “drop-in” periods instead of “drop-out periods.”
Then, the second enhancement will be an additional stand-alone piece that will come into effect and will be applied to amounts between the base CPP and the upper limit.
These 3 parts will remain separate so that even someone starting to contribute in 2025, let’s say, will still be credited with the 3 different components? Initially, I had thought that by 2025 would be completely on the new system, along with the enhanced CPP’s method for calculating drop-ins.
If this is correct, can you tell me, if someone starts working in 2025, and only works for 2 years, assuming they are earning the maximum YMPE, if they go on disability, would they still qualify for the enhanced CPP portion which looks like it would be average adjusted earnings divided by 24, even though they do not qualify for the base CPP disability amount?
And to clarify. someone raising a child starting in 2023 would use the old drop-out formula for the base CPP and the new drop in for the enhanced portion?
Finally (sorry), if that is correct, how will the average earnings drop-in work if the person has only worked for one year before having a child? Will Service Canada just use the one year to determine the average (this is based on my assumption that they will not require a minimum amount of contributory months with the enhanced portion).
Hi Lynn – You ask several very good questions, and I’ll answer them to the best of my abilities.
First, you are 100% correct in your understandings re:
– calculation of base CPP portion will remain forever and will always use current dropout provisions;
– calculation of two new enhanced portions are stand-alone and will use the new drop-in provisions;
Thus, someone who is raising a child that is under age 7 in 2019 or later will use the old CRDO provision for the base CPP portion and the new CRDI (my new abbreviation) for the enhanced CPP portion(s).
I don’t understand the basis for your 2-year question about CPP disability, because there’s been no change (that I’m aware of) to the minimum qualifying period” (MQP), which requires contributions for at least 4 out of the last 6 years to qualify for CPP disability. This MQP applies to eligibility to both the base and enhanced CPP disability benefits.
Finally, I haven’t had enough opportunity yet to fully understand how the new drop-in provisions will function. I’ve only recently found the new legislation and it’s not in effect until 2019. I hope to know more soon!
I don’t know
I have followed your example above. By 2065, using constant 2017 dollars, you have a maximum CPP pension of $1,692,17. This represents $20,313/$55,300 = 36.73% of the YAMPE. Isn’t this supposed to be 33.33%?
Hi Marcel – My figure of $1,692.17 was based on 40 years of earnings up to the YAMPE (14% above the YMPE), which based on the 2017 YMPE of $55,300 would be $63,000.
would you be able to release some more concrete calculations, including assumptions, in some form that we can use to reference.
currently i’m doing indexed calculations, and i can’t easily match to the results that you have provided.
Hi Paul – I’m not really sure what you’re asking? Since I’ve given you the formulas and I’ve calculated the amounts for maximum earnings, I’m not sure what other “concrete calculations” you might be wanting. I’m using the 5-year average YMPE ending with 2019 for my calculations, so if you’ve indexed the YMPE you should be able to match my results if you divide your results by whatever 5-year average you’re using and multiply by $55,420.
What about people, who are working past 66 (in 2018), and have not applied for CPP yet, and still contributing to CPP. Any additional contributions for remainder 4 years (at higher rate), will result in Higher benefits, when I finally apply for CPP (let say at age 69.5)?
I may have to start collecting, if my contribution won’t result in Higher benefits.
Hi Robert – Any contributions in 2019 or later will always (at least for the next 40 years) increase the amount of your CPP whenever you start receiving it.
when you request for 12 month worth of retroactive CPP benefit. of which year benefit used to calculate the retroactive benefits lumpsum payment? I Imagine 12 month retroactive fall into previous year, when benefits were lower than current year.
Hi Robert – The benefit would be calculated using the YMPE as of the previous year, and then it would be escalated to the current year effective January using the applicanle CPI increase.
I am under the impression that anyone not liking the CPP is an employer, or wealthy. You know, those with quite a nice income from business who are cheering because minimum wage is not being raised ( gotta love having serfs ). Greed is alive and well and looking to suck more out of those with less. Saving for retirement is pretty difficult if your wages barely allow you to meet subsistence basic living needs. I am glad we are not the States, and I resent those who salivate when they look South and see the gutting of those who have little in order to give even more to those with a lot. Instead of picking on CPP, why are you people not crying about the amount of tax dollars wasted on Corporate welfare; all those subsidies, and bail outs, and prop ups. How about the greed of the banks? How about the jacked up prices on things like internet, gas, electricity? How about the recent price fixing on bread by those very rich grocery chains ( paying their workers not even a living wage)? Get your heads on straight. And by the way; I have plenty in the bank; saved; I have a very comfortable retirement. I just get sick of the rabid greed from those who have lots. I want a Canada where we take care of each other.
I could not agree with you more… Too much greed out there and not enough laws to stop it!
What about QPP for us folk in Montreal, Quebec. Are there any changes there? or will you write a separate article for QPP?
Hi Dicky – My expertise doesn’t extend to include the QPP, but I believe that they have brought in similar enhancements, although possibly not identical.
No. Too many laws sucking the life out of the country and too many people who think government should be trying to “fix” everything.
Where does the money contributed go if a person dies prior to taking any CPP money? Does it go to the government general slush fund, never to be seen by any living relatives of the deceased?
Hi Bill – It goes to pay death and survivor benefits if applicable, and if not it remains in the fund for other contributors. It never goes to general revenues (ie., slush fund).
Thanks for useful and full info. Good news!
I can’t say I understand a lot of what I am reading here so can I ask a dumb question? I am already collecting my CPP (took it at 60) and still working. I have received a small PRB each year. I am 65 now, still working and paying into CPP. Will the changes that took effect Jan 2019 increase my PRB going forward? Also, I see here I can stop contributing to CPP now which I wasn’t aware of. I would be able to keep what I pay for CPP deductions and sock that away which I think would be more than I’d get PRB. Will that deduction amt now be added onto my income and will I have to pay tax on it?
Hi Deb – Yes, if you continue to make contributions, your next PRBs will be slightly larger due both to the enhanced CPP changes and because of the age-adjustment factor. If you opt out of making any further contributions, you won’t be able to deduct the contribution amount from your taxable income (because you won’t be making a contribution), so “Yes” you will have to pay tax on that “savings”.
I’m retiring in 2019 (at age 56) and therefore won’t be contributing much more into the CPP program. I plan to take my CPP in 2033 at age 70. I assume that since I won’t paying much additional premiums over the previous rates, I won’t benefit (much) from the Enhanced CPP rules, correct?
Hi Alex – You are 100% correct.
I am 63 years old married and receive my pension which 789 $ my husband is retired. I don’t think the amount of my pension is right can you guide and help me….
Hi Julie – I can validate your CPP amount for $30 if you provide all the necessary information or I can do a full audit for $90 where you provide me with your written authorization and I get a copy of your file from Service Canada. If either of these services sound good, email me at DRpensions @shaw.ca
I am a self-employed individual who will continue to work as a self-employed individual in 2019 & 2020 also. I turned 65 years old on 13Sep2018. I applied for my CPP Retirement Pension on 21Jun2019 and requested retroactive CPP Retirement Pension from October 2018. My CPP application was approved in July 2019 and my first CPP Retirement Pension payment for July 2019 has been received . I also have received confirmation from the CPP that my retroactive CPP Retirement Pension (from October 2018 to June 2019) will be paid to me on 13Aug2019. While I continue to work as a self-employed individual in 2019 and in 2020, I would like to stop contributing to the CPP from 01Jan2019. I would greatly appreciate if you could please let me know:
1. Whether or not I can stop contributing to CPP from 01Jan2019 (retroactively) at this point in time since I am over 65, am self-employed and have started receiving my CPP Retirement Pension in July 2019 (retroactive to Oct 2018);
2. How do I notify the CRA immediately that I want to elect to stop contributing to the CPP (retroactively) from 01Jan2019 (since Schedule 8 (CRA Form) is not yet available for the tax year 2019).
1. The legislation doesn’t clearly allow (or disallow) retroactive opting out of CPP for self-employed persons, but the CRA procedures seem to allow it. See this weblink: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/cpp/you-stop-contributing-cpp.html
2. It’s my understanding that self-employed people just need to complete and submit Schedule 8 when you complete your 2019 income tax form.
Thank you so much Doug, I appreciate it very much!
Can I take the government to court for my cpp for all of it as iam and my employer are the ones paying in to it seeing that it is rightfully mine and not the government.i have been working since I was 18 and now 41
Doug, thank you for the article! Where did you find the maximum amounts of the benefit increases per year? For example, you mentioned $14.98 per year from 2025 onward. I’d like to see the source. Thank you!
Hi Alex – I used the legislation to calculate the amounts as I explain in the article, so I guess I am the source, unless the legislation is the source. Remember these are in 2019 values though and in 2020 values that would now be $15.26.
Thank you Doug! I was able to calculate those amounts myself after reading your article (and the CPP act).
And I noticed a very strange thing on the government website (CPP benefits page). The current maximum retirement benefit amount ($1,175.83 for 2020) only contains the base benefit (25% of AMPE) and no additional benefits yet. Apparently it has not increased by $1.44 as it was supposed to based on what we calculated.
Am I missing something big here? 🙂
Hi Alex – Good going! You’re correct in noticing that the advertised “maximum” is just the base amount, and I’m not really sure how long they will continue that because it will soon start to get confusing. They are paying the enhanced portion, so nobody is missing out on anything, but people are soon going to get confused. There are some reasons for publishing the maximum base amount, because there are some calculations (like the combined retirement/survivor’s benefit) that rely on that maximum amount rather than the true maximum.
Let’s say if I retire in 2024 at 65, after contributing max to the both cpp plans and wait till 70 (2029) to receive my cpp pension. My understanding is I would get 42% higher for regular cpp pension. Would I also be getting 42% higher for the enhanced portion.
Let’s say I would have received $1,000 for regular & $100 for enhanced in 2025. If I wait till 2029: Would these amounts be $1,420 & $142 respectively?
Hi Sam – Yes, you will you receive 42% more for both the regular CPP (called base CPP) as well as 42% of whatever enhanced CPP you have earned. But just to be real for the enhanced portion, if you contributed the maximum enhanced portion for the years 2019 thru 2024 (including the 7% higher YAMPE in 2024), that would total exactly $38.98 for the enhanced portion (in 2020 dollars), so $100 is not a realistic amount.
I read that 2021 max cpp earnings are 61,600$.
5 years average comes to 57,780$.
So Max Cpp payout would be 1,203.75 monthly.
Is that correct?
If yes, then does it Already include Enhanced cpp portion, Or that would be extra?
Hi Sam – Yes, you are correct with $1,203.75 as the maximum, but that is the base portion only and does not include the enhanced portion. Can you figure out the enhanced portion?
Thanks Doug for your reply.
Sorry Doug, I didn’t pay any attention to the Enhanced portion as I read in Financial Post: ….Still, Runchey says, “if you’re thinking of applying for your CPP earlier than 2025, the enhanced CPP will be of little value for you.”
& as I would be retiring at March 31/2024, so I ignored enhanced portion calculations.
However, if you please explain me How you calculated
1) $1.44 for 2019 &
2) $2.89 for 2020,
then I would calculate the Enhanced portion for 2021 etc after understanding the logic.
Best regards, Doug!
Hi Sam – The enhanced portion is fairly easy to calculate, especially prior to 2024 when the 2nd additional portion begins.
The calculation for the 1st additional portion is always APE/40 years*8.33%/12 months and then remembering to adjust for the years 2019 thru 2022 because they’re the transitional years for the 1st additional portion.
So, using the 2019 figure 5-year average YMPE of $55,420, the 2019 maximum enhanced amount is calculated as being $1.44 using the formula:
$55,420/40*8.33%/12*15% = $1.44
And using the 2019 figure 5-year average YMPE of $55,420, the 2020 maximum enhanced amount is calculated as being $2.89 using the formula:
$55,420/40*8.33%/12*30% = $2.89
Oh I see. Thanks Doug for explaining it in details.
So that means by using:
1) 2019’s 5 year average it is $1.44
2) 2020’s 5 year average it is $2.94
3) 2021’s 5 year average it is $5.01.
Looks like it has gone up few pennies after 2019 by using the updated 5 year averages.
Thanks very much Doug!
Hi Sam – No, I’m using the 5-year average YMPE ending with 2019 ($55,420) for all of the calculations, because the later averages didn’t exist when I last updated the article. What is changing is the transition into full enhanced CPP mode. In 2019 the contribution rate increased 15% of the eventual 1% increase, so the benefit paid is 15% of the eventual 8.33% earnings replacement increase. In 2020, the contribution rate increases to 30% of the eventual 1% and, so the benefit paid is 30% of the 8.33% earnings replacement increase, and so on…
Yes, I totally agree with you.
Sorry, may be I was not very clear.
2019 2020 2021
Per Doug $1.44 $2.89 $4.81
Per mine $1.44 $2.94 $5.01
NOTE: Difference in 2020 & 2021 amounts is as Doug’s calculations were done few years ago & all are based on 2019 average, whereas mine are just done now, and so are based on factual averages for these years.
Hi Sam – Now I understand what you were meaning!
Let’s say in Dec/2020, I turned 65 & also retired
from work & I am eligible for Max cpp payment of $ 1,204 from Jan/2021.
Let’s say if I wait to start getting cpp till 70, & Max cpp payment is $1,350 in Jan/2026.
Would I get 142% of $1,350 Or $1,204. ?
Hi Sam – You would get 142% of $1,350.
Hi Doug, before the CPP enhancements were introduced, one had to contribute a percentage of the YMPE every year for 39 years in order to receive the maximum monthly CPP benefit. Will the YAMPE mean that one will have to contribute up to the higher YAMPE every year for 39 years in order to receive the maximum monthly CPP benefit? Or will it stay at the lower YMPE amount?
Hi Mark – That is a very good question, and the answer is going to depend on what you mean by “the maximum”. As of today, Service Canada seems to be satisfied to communicate that the maximum retirement pension for 2021 is $1,203.75, but that amount is really just the maximum amount of the “basic portion” of the retirement pension and it doesn’t include the enhanced portion at all. And because of the formula for calculating the enhanced portion, there truly isn’t a single maximum amount for 2021, because every month for the next 44 years, the true maximum will be increasing every month.
For example, including the enhanced portion, the true maximum CPP retirement pension is $1,208.26 for a benefit starting in January 2021, but it increases to $1,212.86 for a benefit beginning in December 2021.
I am turning 60:this year. Would you recommend taking the early payout and investing that money or wait till 65 or 70 years old? What would be the determining factors for that decision?
Hi Mike – Hee are my thoughts: http://www.drpensions.ca/when-to-take-your-cpp.html
Is the second part that is starting after 2024 optional? Is one able to opt out stick to the max 2023 contributions. I’m 30 and would rather use my funds how I deem fit.
Hi Mike – No, it’s not optional and it begins January 1, 2024.
How does the enhanced CPP worked in connection with the PRB? I am 65 next year (2023) and plan to work until 70 (in 2027). Due to low RRSP contributions, I was planning to start taking CPP at 65 and put it all into RRSPs. I also plan to continue with CPP contributions at work to take advantage of the PRB. I’m at the maximum CPP benefit right now but isn’t your CCP benefit set once you start it? Other than PRB, what would be the advantage to continued CPP contributions from 65 to 70? Would I also benefit from the enhanced CPP?
Hi Deb – The enhanced CPP will increase the amount of any PRB that you will receive. The PRB will be approx 33% more due to the enhanced CPP, and even more in 2024 or later years, if your earnings are above the YMPE.
It’s about enhanced CPP pension. I saw your Table showing max 28$ for it @ end of 2023.
Let’s say I’m eligible for max and retires at end of 2023 but defer CPP pension till Jan 2026. And let’s say max CPP enhanced is 45$ @ end of 2025. My question:
Would I be getting 116.8% (say I am 65 in Dec/23) of
in Jan/2026. (I excluded Regular CPP pension as I understand those rules).
Hi Doug, I have maxed out the CPP contribution for 44 years as of March 2023. I intend to continue contributing the max anllowed until 2029 when my Spouse is retiring and I will be 70. If I continue to max my contribution what can I anticipate as a yearly income at that time? At the age of 70 would I experience any clawbacks if I am still receiving an annual advisory income
Hi Don – You should receive at least $1,958.65, plus a bit more if your earnings for 2024 through 2029 exceed the YMPE. There is no “clawback” for CPP.