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The Enhancements to the Canada Pension Plan

Posted by David Gobeil on

As of January 1, 2019, considerable complexity has been added to the Canada Pension Plan (CPP) with the addition of two new retirement benefits, two new contribution schemes and two schemes for employees to obtain tax relief for their contributions. The employee contribution rate will increase from 4.95% to 5.95% on earnings up to the Year’s Maximum Pensionable Earnings (YMPE), and will be 4% on earnings from the YMPE to 114% of the YMPE. The following information only touches on the complexity of these changes.

The first additional pension is an enhancement to the base CPP pension introduced in 2019 that increases your retirement pension by 8.33% of your average adjusted monthly pensionable earnings from 2019 and on.                       

The second additional pension is an enhancement to the base CPP retirement pension to be introduced in 2024 that may increase your retirement pension by up to 14% of your average adjusted monthly pensionable earnings from 2024.

Based upon the date payments commence and the maximum base CPP retirement pension at age 65, the Software calculates the Maximum retirement benefit at this age in current dollars for the first and second additional pensions.

If your client will have pensionable earnings in excess of the YMPE from now until starting to collect CPP retirement benefits, your client would be eligible for the Maximum retirement benefit at this age in current dollars for the first additional pension.

If your client will have pensionable earnings in excess of 114% of the YMPE from 2024 until starting to collect CPP retirement benefits, your client would be eligible for the Maximum retirement benefit at this age in current dollars for the second additional pension.

Canada Pension Plan

   Later of January 1,2019 & date payments commence

May 1, 2026

October 1, 2025

   Age later of January 1, 2019 & date payments commence

64 years, 351 days

63 years, 1 days

Base CPP Pension

   Maximum retirement benefit at this age in current dollars

$14,018

$12,084

   Adjustment for early or late commencement

0.00

%

-13.80

%

   Retirement benefits in current dollars

$11,694

$12,000

   Survivor's benefit

60.00

%

60.00

%

First Additional CPP Pension

   Maximum retirement benefit at this age in current dollars

$588

$448

   Retirement benefits in current dollars

$588

$0

Second Additional CPP Pension

   Maximum retirement benefit at this age in current dollars

$360

$211

   Retirement benefits in current dollars

$350

$0


I have also added cells in which you can enter a CPP Survivor’s Pension and a CPP Disability Pension. These would be amounts currently being paid to the client or spouse.

Maximum Survivor's Pension in current dollars

$7,520

$7,520

  Survivor's Pension in current dollars

$600

$100

Maximum Disability Pension in current dollars

$16,348

$16,348

  Disability Pension in current dollars

$12,000

$1,362

 

The CPP survivor’s benefit is a benefit paid to the survivor of a deceased contributor who met the minimum eligibility qualifications (CPP 58). The amount you receive as a surviving spouse or common-law partner will depend on:

  • whether you are younger or older than age 65;
  • whether you are receiving a retirement pension; and
  • how much, and for how long, the deceased contributor has paid into the CPP.

Unlike the CPP Disability Benefit, at 65 years of age, the CPP administration does not convert a CPP Survivor's Benefit to a CPP Retirement Pension. If the survivor is not eligible for a CPP Retirement Pension or the survivor's CPP Retirement Pension is less than the CPP Survivor's Benefit, the Survivor should not apply for a CPP Retirement Pension and continue to receive the CPP Survivor's Benefit for life.

The CPP disability pension is a pension that a contributor who becomes disabled may be eligible to receive (CPP 56). The value of the CPP disability pension depends on the disabled person’s age and entitlement to the CPP retirement pension.

The amount of a CPP disability pension is calculated as (the lesser of ((A + B) and C)), where:

A = a flat rate component;

B = (75% of the contributor’s CPP retirement pension); and

C = a maximum monthly amount.

You cannot receive both a retirement pension and a disability pension. At 65 years of age, the CPP administration converts your disability pension to a retirement pension.


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