New CPP Changes Are Here

Updated in 2020

New and interesting changes to the CPP were unveiled in 2018 at the meeting of finance ministers and went into effect in 2019. These changes were in addition to the ones previously announced that affect contribution rates and increase CPP payouts going forward.

Unlike the future CPP expansion or enhancements announced in 2016, the most recent updates are focused on Canadians who take time out of the workforce due to disability or to raise children, survivor benefit beneficiaries, and death benefits. The new changes are not expected to result in increases in CPP contribution rates.

Related: CPP and OAS Benefits for Surviving Spouses and Children Explained

New CPP Updates

Starting in January 2019, there was an increase in your CPP contribution rate from 4.95% to 5.10%. What this means is that your total annual CPP contribution will rise to 10.20% (your contribution + your employer’s contribution) of your pensionable earnings. Self-employed individuals pay the full amount.

In 2020, the contribution rates increase to 5.25% or 10.50% combined.

CPP contribution rates will continue to climb annually until 2023 when they level off at 5.95% (or 11.90% combined). See the table below for rates.

Previous CPP Updates

Drop-in and Child Rearing Provisions

Previously, the “drop-out” provision allowed individuals to drop-out up to 8 years of their lowest or zero income years when calculating the maximum CPP pension they qualified for. With the new “drop-in” provision, a higher income is assumed for these years and used to calculate retirement benefits. This is expected to increase CPP retirement benefits for those affected.

For example,

Child Rearing: If you left the workforce to raise and care for children under the age of 7, the new formula will use your average income over the last 5 preceding years.

Disability: If you were unable to work due to a disability, the new formula will use 70% of your average earnings in the preceding 6 years before your disability.

Survivor Benefits

Under current rules, you can only get the most out of CPP survivor benefits if you are 65 years of age or older. Between ages 45 – 64, survivor benefits are much lower and keep on reducing till zero$ at age 35.

The new updates mean that survivors get the benefit regardless of their age, disability, or children. Those whose applications have been rejected under the old rules can re-apply in 2019 when the new rules go into effect. About 40,000 individuals are expected to benefit from the new updates.

Related: Old Age Security Explained

Death Benefit

The CPP Death Benefit is a one-time payment to the estate of a deceased CPP contributor. Under current rules, the maximum amount payable as death benefit is $2,500 – this amount is prorated based on how long the deceased contributed to the CPP.

With the new update, the death benefit will be set at a flat-rate of $2,500 and no longer prorated on the deceased’s earnings or CPP contributions. Several groups have tried lobbying the government to increase the death benefit to at least $3,580 to accommodate increased funeral costs. It appears that this will not be happening with this round of updates.

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in the Toronto Star, The Globe and Mail, MSN Money, Financial Post, Winnipeg Free Press, CPA Canada, Credit Canada, Wealthsimple, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO and monitors his credit score for free using Borrowell.

5 thoughts on “New CPP Changes Are Here”

  1. Thank you for mentioning Pursuing Retirement’s Management Expense Ratio post Enoch (very much appreciated). I always enjoy your informative posts; this one on the new CPP changes is excellent. Most of the changes seem modest and appropriate, although the death benefit being changed to a flat rate makes no difference to me as I am not planning on dying any time soon.

    Reply
  2. This is a very informative site – thanks! I came to Canada and worked for 1 year and had 1 year of mat leave. Will the new Drop in for CPP penalize me since my 5 preceding years I wasn’t even in Canada for 4 of them?

    Reply
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