The Canada Pension Plan will undergo five new changes beginning January 1, 2019 and become known as the Canada Pension Plan (CPP) Enhancement. The purpose of these changes made by the Ministry of Finance, as an agreement in principle with the provinces of Canada, is to “strengthen the Canada Pension Plan (CPP) for future generations”.
The five new Canada Pension Plan changes include;
Child rearing “drop in”
When you decide to stop working or reduce your work hours to become a primary care giver, the CPP Enhancement has set up a “drop in” amount. This will equal the parent’s average earnings which effect the period during the five years prior to a birth or adoption of a child. The drop-in amount only takes shape if the amount is higher than the actual earnings for children under seven years old.
Disability “drop in”
Individuals with severe and prolonged disabilities who receive the CPP disability pension will be eligible for the CPP Enhancement drop in amount. The drop in amount would work out to 70% of the individual’s earnings within six years prior to the onset of the disability.
Definition “Drop In Provision”
A new definition called “Drop in Provision” for child rearing and disability will be recognized as a public pension feature in several jurisdictions. The intent of this is to take the form of a “drop in” to help protect the value of benefits during periods individuals are receiving limited to no earnings.
Changes to death benefit
The death benefit will change to a flat payment of $2,500 for anyone that is an eligible contributor, despite the amount of actual earnings.
To qualify for the current CCP survivor’s pension for an individual under 45 years old would need to be disabled or have dependent children. For individuals under 35 years old receive no payable benefits especially if not disabled or no children.
The new changes for anyone currently receiving survivor’s pension that is under the age of 45 will automatically have their survivor’s pension increase in 2019. Anyone denied survivor’s pension under the age of 35 when their spouse died can now reapply effective 2019.
Disability protection for retirement
For individuals that become disabled under 65 years old are currently not eligible for the larger CPP disability pension. Under the new 2109 CPP Enhancement individuals that do become disabled before age 65 will receive an additional payment. No further details on the amount or how long an individual will receive payments for CCP disability pension.
Percentage of CPP Changes
The percentage change for CPP contributions will take affect gradually over 5 years. The following contribution rate schedule shows;
|Jan to Dec 2019||5.10%||5.10%||10.20%|
|Jan to Dec 2020||5.25%||5.25%||10.50%|
|Jan to Dec 2021||5.45%||5.45%||10.90%|
|Jan to Dec 2022||5.70%||5.70%||11.40%|
|Jan 2023 and later||5.95%||5.95%||11.90%|
The pension amounts will increase so that individuals will receive 33% of their regular pay cheque. This will be based on how much and how long an individual contributes to the CPP Enhancement. To receive the full 33% increase individuals will be required to contribute for the next 40 years.
CPP Pensionable Earnings
These contribution rates apply to pensionable earnings that are above the Year’s Basic Exemption (YBE) of $3,500 and below Year’s Maximum Pensionable Earnings (YMPE) of $55,400 for 2019. Earnings starting in 2019 will be recognized as “first additional pensionable earnings.” To view other CPP contribution rates click on this link.
Contact Banka & Company, CPA if you have any questions or concerns regarding the new CCP Enhancement.