How much more you’ll get from the CPP changes

Some will see around 50% more pension

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After the federal and provincial finance ministers announced the expansion of the Canada Pension Plan earlier this week, many were left wondering how much more they’d have to pay and how it would measure up to the boosted retirement income they’d receive.

To give us an idea of how much more Canadians will see siphoned off their paycheques and to determine the winners and losers of the plan, we worked with pension and retirement experts at Morneau Shepell to crunch the numbers and answer some of your burning questions regarding the new CPP.

How much smaller are my paycheques going to get?

Wait a minute! Before we dive deep, let’s clarify something: The following analysis is based on the projected “Year’s Maximum Pensionable Earnings” (YMPE), a figure defined by the Canada Pension Plan as the maximum cap for what is fair game to be “payroll taxed” by the government. That cap usually grows each year. The federal government also announced it would raise the salary cap so that higher-income earners would also contribute and receive more CPP. Between 2024 and 2025, the salary cap is expected to be boosted by 14% to $82,700.

Currently, the YMPE is $54,900, but in 2019 when the new pension plan comes into play, Morneau Shepell estimates that it will be around $60,200 and will grow by around 3.1% yearly. Right now, the maximum CPP benefit is calculated as 25% of the average of the maximum earnings cap for the last five years. In 2016, the maximum CPP benefit you can get is $13,110. Once the new plan is fully implemented, that maximum benefit will be boosted to be around 30% of the average of the past five years, which would be $17,478 today.

Details of increased CPP premiums released »

OK, but really, how much more will I be contributing?

The federal government announced that contributions from employees and employers is to increase by 1%, a boost that will be phased in starting 2019 and be in full effect by 2023. During this time, if you’re earning at least the maximum salary cap (that’s $60,200 in 2019, remember, and slightly higher in each subsequent year) you can expect to see between $90 and $680 less on your annual paycheque. That works out to around $7.50 to $56 less a month.

As well, Benefits Canada reports that starting 2024, you’ll have to pay an extra premium of around 4% just on the part of your salary between the old earnings cap and the upper limit. So, for instance, in 2024, the standard salary cap would be $70,100, while the raised salary cap would be around $74,900. You’d be contributing 4% (so around $192) on that approximate $4,800 difference.

And how much more will I be getting when I retire?

That’s the golden question. Morneau Shepell’s analysis suggests that for a 25-year-old, who is 40 years away from retirement in 2019, and eligible for the maximum benefit amount would reap the most rewards of the fully expanded regime. They would receive around 51% more in yearly payouts by the time they turn 65 compared to the current plan.

Lets look at the numbers:

If a 25-year-old earned at least the salary cap throughout their career (in 2019, that’s $60,200), come 2059 when they retire, they’d receive around $72,600 per year under the new plan, compared to the roughly $48,000 a year they would receive under the current CPP rules. Bear in mind, they would contribute about $69,800 more to the CPP over their career lifetime, according to Morneau Shepell.

Meanwhile, a 45-year-old would have another 20 years to contribute under the expanded plan, so they would receive around 25% more CPP. The maximum salary cap by the year 2039, when our hypothetical 45-year-old will retire is estimated to be $126,900, meaning the maximum pension they could receive is around $32,700 a year, compared with $26,100 under the current plan. That’s a $6,668 difference. Just remember that someone with 20 years to go until retirement would have to contribute about $22,300 more in total to get that additional income in their golden years.

By the time someone who’s 35 years old in 2019 retires, the maximum benefit will be around $49,000, or about 38% more than under the old plan.

Someone who is 55 in year 2019 and hopes to retire in 10 years will contribute approximately $7,400 more over that decade to get around $2,450 more a year in retirement. 

Of course, for those entering retirement in 2019, they won’t see any of the benefits that the landmark revamp of the national pension plan offers.

Go DIY on your own CPP »

So who are the winners and losers?

If you haven’t already surmised, younger Canadians just entering the workforce (who’d have plenty of years to contribute) stand to reap the most benefits under the new plan by, well, a lot when they turn 65.

Who gets the short end of the stick? Canadians with around 10 years to go until retirement by 2019 will have to contribute significantly more while receiving just 12% in additional CPP per year. That may not seem so bad—until you consider that a younger cohort will receive about 40% more in extra pension when they retire.

Millennials: Remember that these calculations are based on projections of what the yearly maximum cap will be—that max cap could be lower in reality or you could be earning less than that cap and therefore receive smaller CPP benefits. What you may be able to count on are those percentage amounts. Getting 50% more than you normally would in retirement is a huge boon. You can see it all for yourself in the chart Morneau Shepell provided below:

Age in 2019 Standard Yearly Maximum Pensionable Earnings (YMPE) Standard Annual Pension under old CPP Projected YMPE Increase in
Annual Pension Under New CPP
65 $60,200 $14,185 $60,200 $0 (0.0%)
55 $81,700 $19,225 $93,400 $2,452 (12.8%)
45 $110,800 $26,100 $126,900 $6,668 (25.5%)
35 $150,300 $35,380 $172,200 $13,595 (38.4%)
25 $204,100 $48,045 $233,500 $24,522 (51.0%)

Notes:

  1. These dollar values are based upon the assumption that the CPP’s maximum earnings cap will go up by 3.1% a year, with the boosted maximum CPP benefit adjusted to that amount.
  2. Increase is difference between original CPP and expanded CPP benefits, payable at age 65 and assuming the indvidiual has had a full working career (approximately 40 years) with earnings of at least the YMPE

11 comments on “How much more you’ll get from the CPP changes

  1. I am a 60 yr old disabled single man whom has been receiving CPP-disability approximately 10 years thus far. I am very concerned about my level of income when I am forced to leave the disability and go ‘old age’

    Reply

  2. Those of us who have been retired for a number of years, and over 65 years of age, will we see an increase in our CPP payments.

    Reply

  3. so how much will I receive now??? I am almost 58 an live on widows and disability pension which comes to$804/m….barely enough to live on I can tell you that…so will I receive MORE money once this goes thru???

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    • I am 81 years old and receive 1,041.77 that is not sufficient to live on what will I receive in the following years ?

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  4. Hah, we are planning to retire in 2019 around age 60 and I guess this will mean I am not going to see any of the changes. Oh, well; My choice! I will get what I paid into it and my 23 yr old son will see a difference in his retirement

    Reply

  5. I am 72, male – my daily combined pension is $ 55/day ( CCP/OAS/GIS/Trillium )
    Justine Trudeau is a shyster.
    He will roast in Living Hell.

    Reply

    • You are pulling from 4 differnt pensions. How are you getting Garanteed Income Suppliment and Trillium ontop of CPP and OAS, sadly I am ignorant regarding the two additional income areas you are receiving benefits through. I will be looking that up, thank-you for mentioning those. I won’t get OAS because I will receive $1204. a month from work pension, $4.00 over the limit to receive an additional $449. a month from the OAS. (that is $445. less a month for $4. a real slap in the face, they could just deduct the $4. maybe I was misinformed, which would be a blessing) So yes how are you pulling form 4, unless 3 of them keep you under $1200. a month but that doesn’t add up if one minus $449. a month from the $1669.47 you are getting monthly because that is $20.47 over the limit for OAS. Do tell me, why in your world is Trudeau a shyster (which is the upmost in Germany anyway, insult/put down anyone can deliever to another human being) when you are receivng $1669.47 a month in benefits compared to those living as stated by the comments here on $805. a month. Complain but don’t put someone down that’s actually trying to improving the situtation. Perhaps suggest ways that the situation could be improved, you are old enough to pass on the wisdom, belive me good info is always needed. A person living on $25.96 or $805 appreciates any increase to the living
      allowance.

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      • So I looked up the government pages and it is a bit confussing, I don’t understand people only receiving CPP and OAS and not the GIS, pensions are going up but by mimiscual amounts. I know that someone earning $200,000.00 a year compared to someone earning $20,000.00 a year has put in more money to CPP. But, in my opinion every person contributes to the best of their wage ability. I know that there has been a ceiling limit to what CPP took off of a paycheck, it was arround the $2500. mark yearly. I know that at $30,000 dollar income I paid the ceiling amount the same as a person making $200,000. So, why in the end arn’t all the people
        receivng the same benefits. The cost of everyday needs is the same, meaning food, heat, electrical, housing tax, (its as per usage, it is pro-rated, so yes, someone living in a one room house compared to a ten room house will pay less, but the dollar amount for use is the same accross the board) Morgages and rent is different, large home versus a small home or location.
        CPP, OAS, GIS should be the same for everyone, atleast the person earning more than minimum wage can be thankful that they had the ability to get to where they are be it good luck, a helping hand, hard work, brain ability, etc. But in the end, making more money means being able to save for retirement along with taking nice vacations also. So again, government income should be the same for all peole and maybe, just maybe, no one will be warming their hands over garbage tins and living in carboard boxes. Unfortunately with the way the government is doing now, their will be more for the rich and less for the harder working poor. I think working in a mine, working as a mechanic, working on telephone lines, etc. especially in the blistering cold and extreme heat is far harder than working in an air conditioned/heated nice enviornment then in the end receivng more money and more pension. Everyones job is important, don’t have a cleaning lady at a hotel, cut out the janitor at a school, take away the garbage disposal person, take away the person that makes the surgical equipment for hospital, take the little guy out and see what happens to a country. So all the people who look down at the minimum wage person needing a little helping hand, remember you are livng the good life off of the sweat and hard work. Pension should be the same for all people!

        Reply

        • I meant to say, with the new changes to the CPP, now someone earning $200,000. compared to $20,000. will be paying more, prior to the changes as far as I knwo everyone paid the same ceiling limit.

          Reply

  6. I don`t understand why baby boomers are still thinking Me Me Me…
    The changes are designed for the future retirees. It always cant be you you you.
    Boomers are the greatest generation, experienced prosperity, job security and etc but also very selfish too!

    Reply

  7. Good plan but 40-50% income replacement would be better, considering the demise of employer pension plans Those on such plans should have their CPP benefits reduced The CPP/OAS/GIS system is great for married couples but unfaitly penalizes single/widowed seniors. The CPP Survivor benefits are overly complex and unfair.

    Reply

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