The Canada Pension Plan (CPP) is a financial assistance program that pays monthly taxable benefits to Canadians when they retire. Contributions from employees, employers, and self-employed individuals fund the program.
Similarly, Canada’s Employment Insurance (EI) program offers temporary income support for unemployed Canadians. Mandatory contributions from employees and employers fund it.
Canada’s CPP and EI programs changed in 2024, adjusting the amount employees will see deducted from their paycheques going forward.
Here’s what to know.
Changes to EI Maximums in 2024
In 2024, the ceiling for EI contributions increased from $61,500 to $63,200, meaning Canadians will pay EI premiums on a higher earnings threshold. Employee contributions increased from $1002.45 to $1049.12.
As of January 1, 2024, the new EI maximums are as follows:
- Maximum annual insurable earnings: $63,200
- Premium rate: 1.66%
- Maximum employee contribution: $1049.12
- Maximum employer contribution: $1468.77
These changes ultimately represent a higher payroll cost for employers, as they must contribute a higher portion of employee earnings to EI. Employees will see more significant deductions on their paycheques until they reach the maximum annual contribution.
However, higher contribution rates to EI also mean recipients will receive a higher payout if they lose their job and need to rely on EI. Increased payouts will better help support them amidst the cost of living increases we’ve seen over the past few years.
To adapt to these changes, work on building an emergency fund and living below your means so you’re resilient against deducting a few extra dollars from your paycheque.
Changes to CPP Maximums in 2024
As of January 1, 2024, the CPP has seen several key changes to enhance retirement benefits for Canadians.
- An increase in Maximum Pensionable Earnings (MIE): The maximum pensionable earnings rose from $66,600 in 2023 to $68,500 in 2024. A larger portion of an employee's income is now subject to additional CPP contributions.
- Introduction of the Second Earnings Ceiling (CPP2): The year’s additional maximum pensionable earnings (YAMPE) is a second contribution tier, CPP2. The YAMPE maximum is $73,200. Anyone earning above $68,500 will contribute an additional 4% on their earnings between $68,500 and $73,200. The YAMPE CPP max will increase by 14% each year.
While these increases may sound dramatic, those paying the second additional CPP contributions (CPP2) will contribute an additional $300 in deductions in 2024.
These changes are meant to boost future retirement income for those who collect CPP retirement pension. The CPP enhancement plan aims to move from providing one-quarter of a Canadian’s former income to one-third. However, Canadians close to retirement won’t see as significant an impact from the increased maximum contribution as someone who retires 40 years from now.
The increase in the maximum CPP contribution could affect the cash flow of current workers, as they will see slightly larger portions of their paycheques withheld. Cash flow planning is essential so Canadians can ensure they have enough liquidity to meet their financial goals and obligations.
Ways to maximize CPP benefits
Considering how you’ll support yourself in retirement is key to ensuring you have the funds you need. Here are some ways to maximize your CPP benefits and put more money in your pocket when you retire.
- Put off collecting CPP benefits: You’re eligible to begin receiving CPP at age 60, but your pension increases by 0.7% for each month you delay after age 65, up to age 70.
- Contribute longer: Working past age 65 can boost your pension, making your later years more comfortable.
- Increase your income: CPP contributions are based on a percentage of your earnings, so the more you earn, the more you’re paid. Increasing your income will put more money in your pocket immediately and when you retire.
- Plan for increased contributions: If you’re within the CPP2 threshold, know that your contributions will increase year over year, and adjust your cash flow and savings plans accordingly.
Comparison of EI and CPP changes
The recent changes to Canada’s CPP and EI programs reflect their shared goals: to provide support for Canadians who are not currently working. Both of these programs are funded by contributions from employers and employees, but they offer support for different demographics.
With increased contribution thresholds and percentages for both programs, they will have increased funding and be able to provide increased benefits for the populations they support.
In the near term, these changes reflect higher payroll deductions for Canadians. In the long term, the changes represent enhanced financial support during retirement and unemployment, which should provide better financial security in both circumstances.
What You Need to Know and Do
Both employees and employers must be aware of these important changes to the Canada Pension Plan and Employment Insurance for 2024.
Key takeaways for individuals include an increase in CPP contribution rates and EI contribution rates, resulting in slightly higher payroll deductions. Increased contributions will also enhance future benefits, such as higher retirement payouts for CPP and improved support during unemployment for EI.
Businesses and employers should plan to update payroll systems to reflect the new contribution rates and maximum insurable earnings, ensuring compliance. Employees should communicate these changes to employees to help them understand their pay adjustments and manage their expectations.
Employers should also budget for the increased payroll expenses due to higher employer contributions.For detailed guidance and further information, visit the official Government of Canada websites for CPP and EI for comprehensive details and updates.
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