CPP enhancement is in the process of working its way through the Canada Pension Plan (CPP) system. Beginning in 2019, the Federal Government raised the amount you pay into CPP ever so slightly each year. This year, the last of the CPP premium hikes will be complete. Starting next year, the Federal Government will begin the process of increasing the maximum pensionable earnings threshold. That will take place over the course of two years, ending in 2025. By the end of that year CPP enhancement will be complete, and Canadians who continue to pay CPP premiums may see an increase in their benefits. In this article, I’ll explore how much extra benefits you could get from CPP enhancement
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Up to 1/3 of your income
CPP enhancement aims to increase your pension coverage from one-quarter of your income to one-third. This is the goal, but how much you’ll actually get depends on a number of factors. These include:
- How high your income is. CPP premiums stop being taken out at a certain threshold, called ‘maximum pensionable earnings.’ Currently the threshold is $66,600. CPP enhancement will take it to $81,000. If you earn a very high income, say $500,000 per year, you will not get anywhere near one-quarter of your working age income back in the form of CPP benefits. The reason is that you’ll have earned too much money from which CPP premiums were not taken.
- How long you work for. If you have many lapses in employment over the course of your working life, you’ll likely get less in benefits than somebody who works full time non-stop from 20 to 60.
- How much of your career was in the post-enhancement period. Those who start working in 2025 will get the biggest boost from CPP enhancement. If your career “straddled” the transition from the old system to the new one, your mileage will vary. If you retired before 2019, you will see no benefit from CPP enhancement.
As you can see, there are many variables that go into determining whether you will see the full benefit from CPP enhancement. In the next section, we’ll look at how much you could get from enhancement should you receive the full one-third of income benefit.
How much that might be when you retire
Should you achieve the full one-third CPP enhancement benefit, you will get more pension income than you’d have gotten under the old system. Below is a table showing hypothetical income levels and how much pension income you’d get if you earned them.
| Old system | New system | |
| $40,000 | $10,000 | $13,333 |
| $66,600 | $16,650 | $22,200 |
| $81,000 | $16,650 | $27,000 |
A good passive income stock to consider
If you’re not sure whether CPP enhancement will make a difference in your life, you can look into investing. By buying quality dividend stocks that pay regular cash income, you can create your own “pension” inside an RRSP or TFSA. Consider Fortis Inc (TSX:FTS). Fortis Inc is a dividend-paying company that has raised the payout on its shares for 50 consecutive years. The yield today is about 4.4%. Fortis has managed to achieve its stellar dividend track record by being a regulated utility and investing consistently in growth. Over the last 10 years, its stock has outperformed both the TSX index and TSX utilities sub-index. As long as management keeps investing prudently in developing the company, the dividends should keep being paid, and even raised.
