(Toronto) Starting Monday, middle-income people will start seeing more of their paychecks go toward Canada Pension Plan (CPP) contributions.
Posted at 8:54 am
Ritika Dubey The Canadian Press
An overhaul of pensions began in 2019, when the Quebec Pension Plan (QPP) and CPP began phasing in more benefits intended to provide more financial support to Canadians after retirement. So far, individual and employer contributions have increased so that Canadians receive higher benefits when they retire.
But starting in 2024, the CPP includes a new income cap. For those who earn more than a certain amount, additional payroll deductions now apply.
“The primary goal of these changes is to strengthen benefits and improve the overall financial stability of future retirees,” according to senior wealth advisor Alim Dhanji of Assante Wealth Management in Vancouver.
Previously, anyone earning income above the base amount (currently $3,500) contributed a fixed portion of their income, up to a maximum amount (last year it was $66,600) that increases slightly each year. Self-employed workers pay both the employee and employer’s share.
From this year the strengthened pension plan now includes two income limits. The first tier works similarly to the old system: as before, workers contribute a fixed portion of their earnings to the CPP, up to a government-set threshold of $68,500 for 2024. Those earning this amount or less will not see no change in their earnings. current contribution rates.
The news, for anyone earning more than this amount, is a second level of contribution which amounts to $73,200. People in this group pay 4% more on their second-tier 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 enhanced CPP policies, which will continue to be phased in until next year, are 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 materialize, so younger workers will have the most to gain. People retiring in 40 years will see their income increase by more than 50% compared to current pension recipients.
Alim Dhanji noted that the changes will not affect the eligibility criteria for pension, post-retirement benefits, disability pension and survivor’s pension.
The new second threshold will affect both employers and employees, he noted, as they are required to match the higher contributions of their workers.
Employers were hit by this gradual increase starting in 2019. Between that year and 2023, workers and their employers saw contribution rates increase by almost a percentage point.
Under this policy, Canadian employers match their employees’ retirement income. While the amount of the pension is shared between the employer and workers, freelancers and self-employed workers are responsible for paying both amounts: for a total of 11.9% for the first level and 8% for the second.
“From a financial planning perspective, employers can be assured that these changes are designed to benefit their employees during retirement, thus contributing to improved financial well-being,” according to Alim Dhanji.
2024-01-01 13:54:03
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