Don’t Miss the Upcoming CPP Contribution Increase in 2024

Your CPP contribution will increase in 2024 if your annual income is high. See your CPP calculation from next year onwards.

| More on:
Senior couple at the lake having a picnic

Image source: Getty Images

Going back memory lane, a single person’s income could easily feed a family of four. But today, that doesn’t seem possible. The standard of living and inflation have increased to such great lengths that most households have double income. To keep up with the changing lifestyle, the Canada Revenue Agency (CRA) Canada Pension Plan (CPP) enhancement program aims to give you 33–50% more CPP payout when you retire. 

The rising CPP contribution  

But a higher payout needs a higher contribution. The CRA cannot increase the CPP contribution drastically as most people live paycheque to paycheque. Hence, it is increasing CPP in two phases. In the first phase, the CRA increased your CPP contribution rate from 4.95% in 2019 to 5.95% in 2023. This contribution was on the maximum pensionable earnings, which the CRA increases annually. 

Up to $3,500, no CPP is deducted. Any income above that qualifies for CPP up to the maximum limit. For instance, the 2023 maximum limit is $66,600. So a 5.95% CPP contribution applies to $63,100 ($66,600-$3,500). The 2023 maximum CPP contribution for employees is $3,754.45 ($6,100 x 5.95%). 

How will the 2024 CPP contribution impact your salary? 

In 2024 and 2025, phase two of the CPP enhancement will begin. You will continue paying a 5.95% CPP contribution on the maximum pensionable earnings the CRA determines. But if your annual income exceeds the maximum, you qualify for Phase 2 CPP with higher maximum pensionable earnings. 

Your employer will deduct a 4% CPP contribution on the income you earn above the phase one maximum and up to the phase two maximum pensionable earnings limit. I have prepared an estimated increase in your CPP contribution for 2024 and 2025. 

Year20232024*2025*
Original Maximum Pensionable Earnings$66,600$67,700$69,700
 Maximum contributory earnings Phase 1$63,100$64,200$66,200
Phase 1 CPP contribution (5.95%)$3,754.45$3,819.90$3,938.90
Phase 2 Maximum Pensionable EarningsNA$72,400$79,400
Enhanced earnings – Phase 2NA$4,700$9,700
Phase 2 CPP contribution (4%)NA$188$388
Total CPP contribution $4,007.90$4,326.90
Estimated CPP contributions (2023-2025*)

Let’s understand this table with an example. Amy is an employee and earns $80,000 in annual income in 2023 and 2024. 

  • In 2023, her CPP contribution will be $3,754.45 (5.95% of $63,100). 
  • In 2024, her total CPP contribution could increase to an estimated $4,007.90 as she qualifies for phase two CPP enhancements. Phase one CPP contribution (5.95% of $64,200*) + Phase two CPP contribution (4% of $4,700*). This $4,700 figure is the surplus earnings ($72,400*-$64,200).    

To sum it up, if your annual income is around $80,000, expect a $200–$400 increase in CPP contributions in the coming two years. 

Even the enhanced CPP is not enough 

If you contribute the maximum CPP for 40 years, only then will you get the maximum 50% increase in CPP payout. But what if the enhanced CPP is not enough? The CRA says that the CPP enhancement will replace 33% of your average earnings. You have to find a passive alternative for the remaining 66% and ensure those earnings grow with inflation.  

You can use the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) to create multiple passive income sources. Going by the 50:30:20 rule of budgeting, spend 50% on needs, 30% on wants, and 20% on savings. 

With an annual salary of $80,000, you have a bandwidth of $16,000 for savings, of which $4,000 goes into CPP. You can split the remaining $12,000 into TFSA and RRSP. A $6,000 investment every year in dividend reinvestment (DRIP) stocks can compound to a sizeable amount. 

A DRIP stock for retirement income 

BCE (TSX:BCE) is a DRIP stock that can give you a decent passive income and even grow it annually alongside inflation. The telco will fuel the modern world where drones and cars are connected to the cloud through its 5G network. BCE’s DRIP has been running for over 20 years. The company has been growing dividends at a 5% average annual growth rate. It has an average dividend yield of 5.56%, but you can lock in a 6.58% yield if you invest now while the stock trades closer to its 52-week low.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Person holds banknotes of Canadian dollars
Dividend Stocks

This 6.1 Percent Dividend Stock Is My Pick for Instant Income

Here’s what makes Transcontinental one of my top dividend stock picks right now for instant income.

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

For a Shot at $5,000/Year in Passive Income, Buy 1,000 Shares of This TSX Stock

Do you know you can build passive income with TSX stocks? A $22,000 investment can give you a shot at…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

A new Canoe EIT Income Fund (TSX:EIT.UN) investment could earn almost 9% yield annually, and the monthly dividend stock has…

Read more »

RRSP (Registered Retirement Savings Plan) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

RRSP Wealth: 2 Great Dividend Stocks to Own for Total Returns

Dividend stocks like Fortis Inc (TSX:FTS) can be great additions to a well-diversified portfolio.

Read more »

edit Sale sign, value, discount
Dividend Stocks

3 Cheap Stocks to Add to Your TFSA Before They Get Expensive

The stock market has some lucrative TFSA stocks trading at multi-year lows. Now is a good time to buy these…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

How to Build a Bulletproof Monthly Passive-Income Portfolio With Just $10,000

Here’s how to build a diversified portfolio with dividend stocks that, as a group, pay out in every month of…

Read more »

A plant grows from coins.
Dividend Stocks

Invest $10,000 in 2 TSX Stocks for $606/Year in Passive Income

Shares of these two fundamentally strong companies can start a worry-free passive income stream.

Read more »

dividends grow over time
Dividend Stocks

2 Top Dividend Stocks That Keep Raising Their Payouts

In addition to their solid dividend growth track record, these top dividend stocks also offer strong growth potential for the…

Read more »