Canada: pension system changes in 2024 for average workers

Under this policy, Canadian employers match the retirement income of their workers. (Photo: 123RF)

Starting Monday, middle-income earners will begin to see more of their paychecks go toward Canada Pension Plan (CPP) contributions.

Pension revisions began in 2019 as the Quebec Pension Plan (QPP) and CPP began to phase in expanded benefits to provide Canadians with greater financial support after retirement. So far, individual and employer contributions have been increased to give Canadians more benefits when they collect their pension.

However, starting in 2024, the CPP sets a new income cap. Additional payroll deductions now apply to those earning more than a certain amount.

“The primary goal of these changes is to strengthen benefits and improve the overall financial stability of future retirees,” says senior wealth advisor Alim Dhanji of Assante Wealth Management in Vancouver.

Previously, anyone earning income above the basic amount (currently $3,500) contributed a fixed portion of their income up to a maximum amount (last year it was $66,600), which increases slightly each year. Self-employed persons pay both the employee’s and the employer’s share.

As of this year, the expanded pension plan has two earnings ceilings. The first tier works much like the old system: as before, workers contribute a fixed portion of their earnings to the CPP up to a government-set cap of $68,500 for 2024. Those who earn that amount or less will see no change in their current contribution rate.

What’s new, for anyone earning more than that amount, is a second level of contribution, capped at $73,200. People in this group pay 4% more of their secondary income, which is the amount they earn between $68,500 and $73,200.

For 2024, that means a maximum of $188 in additional payroll deductions.

Overall, people earning more than $73,200 will contribute $300 more in 2024 compared to their contribution last year.

The strengthened CPP policies, which will be phased in through next year, have been designed to significantly increase Canadians’ retirement income. Anyone who has contributed to the CPP since 2019 will receive higher benefits, but it will take decades for the full effects to take effect, so younger workers will be most likely to benefit. People who retire in 40 years will see their income increase by more than 50% compared to current pensioners.

Alim Dhanji noted that the changes will not affect eligibility criteria for old-age pension, post-retirement benefits, disability pension and survivor’s pension.

The new second cap will affect both employers and employees, he noted, as they are required to match their employees’ higher contributions.

Employers are affected by this gradual increase from 2019. Between this year and 2023, contribution rates for employees and their employers have increased by almost a percentage point.

Under this policy, Canadian employers match the retirement income of their workers. While the amount of the pension is shared between the employer and the workers, freelancers and the self-employed are responsible for paying both shares – a total of 11.9% for the first tier and 8% for the second.

“From a financial planning perspective, employers can be confident that these changes are designed to benefit their employees during retirement, contributing to greater financial well-being,” says Alim Dhanji.

Ritika Dubey, The Canadian Press

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