New CPP: What it Means for Average Canadian Workers

  • By: mvadmin
  • Date: December 22, 2018
  • Time to read: 3 min.

The new hike in the Canada Pension Plan means that they will collect more money to provide support later in retirement. This was adopted after the federal government and most of the provinces hashed out an enhancement plan.

The federal government will finalize the agreement by July 15 of this year and the new premiums will be collected from workers and employers starting in January 2019.

Read on to find out what this means for the average Canadian worker.


Wondering what will happen to your premiums? Under the new plan, CPP will replace fully one-third of a person’s pre-retirement income (up from the current 25 per cent replacement rate) up to a maximum amount of earnings that will also rise.

Currently, a worker and his or her employer each contribute 4.95 per cent of the worker’s income annually, on earnings between $3,500 and $54,900 a year, to the plan.

That will change with a one percentage point hike to premiums (up to 5.95 per cent each) phased in over five years, starting in 2019. By the time the higher premium is fully phased in, in 2024, a worker earning $50,000 annually will pay roughly $25 a month more in premiums or $296 more a year.

That will be followed by an increase in the maximum pensionable earnings level to $82,700 from $54,900, phased in over two years, meaning higher-income earners will pay further premiums but will stand to receive even higher retirement benefits.

The CPP premium on income between $54,900 and the new maximum, $82,700, will be lower and is expected to be 4.0 per cent rather than 5.95 a major news organization reported.


There will be changes to benefits as well. A middle-income Canadian entering the workforce now who earns an average of $50,000 a year would receive a pension of $16,000 a year in retirement, instead of the $12,000 allocated under the current regime, according to Finance Canada.But current retirees will receive no additional money. It is younger workers, who will contribute the higher rate for longer, who stand to gain the most when they eventually reach retirement age.

And with the significant increase to maximum pensionable earnings after 2025, higher income Canadians will receive higher benefits in the future.

What about lower income people?

There was concern that a premium increase would hurt lower income Canadians and that for a relatively small increase in retirement benefits they would have to shell out big dollars during their working years. However the federal government has agreed to expand an existing refundable tax credit known as the working income tax benefit (WITB) to offset the higher premiums

The federal government has agreed to expand an existing refundable tax credit known as the working income tax benefit (WITB) to offset the higher premiums. The maximum payout for that program is currently $1,800 for a family earning less than $28,000 a year.For higher income earners, the premium on the income above $54,900 will be tax deductible with taxpayers being able to “write off” the payments during tax time.

No Special “Ontario” plan

Ontario’s pension plan, which was almost finalized and set to roll out in 2018, was scrapped. The enhanced CPP will be less generous than the proposed Ontario retirement pension plan, which would have imposed higher premiums and delivered more benefits, a further $2,000 a year, roughly, for the average worker earning $50,000 a year.