It’s a new year, and that means many changes are coming to the Federal Government programs that Canadians rely on. Many of these changes are already in place: for example, $7,000 worth of new tax-free savings account (TFSA) contribution room has already been added for the year.
Less well publicized are the increases in the Canada Pension Plan (CPP), Old Age Security (OAS), and maximum pensionable earnings — the latter being a factor in how much CPP you get. In this article, I will explore the changes in CPP and OAS that are set to roll out this year.
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Higher payouts
Both CPP and OAS payments will be higher this year than last year, simply due to inflation indexing. The CPP inflation adjustment is a simple numerical adjustment made to payout amounts based on the prior year’s inflation rate. Specifically, the adjustment is based on the inflation rate in the 12 months’ ended October of the prior year. The inflation rate was 2.7% in the 12 months ended October 2024, so this year, CPP payments are going up 2,7%. The OAS inflation adjustment is calculated quarterly, making it harder to say where OAS will fall for the year. However, Canada sees positive inflation most of the time, making it likely that OAS will go up in 2025.
CPP enhancement
Another factor that will impact CPP payments next year is CPP enhancement. The CPP enhancement program aims to take CPP benefits from 25% of a recipient’s working-age income (now) to 33% (after the program is fully rolled out). Enhancement started with a series of increases in the CPP contribution rate from 2019 to last year. That phase is over. Starting this year, the maximum pensionable earnings will increase until it eventually covers $81,200 worth of earnings. This higher amount will provide recipients with considerably more coverage if they earn more than average.
CPP enhancement will affect your payments to some extent if you start taking them after 2019. However, the effect will be strongest for those who paid into the CPP program for their entire working lives after enhancement commenced. The first such Canadians will not start retiring for another 30 years or so. Nevertheless, if you take CPP for the first time this year, you’ll get a little more than you would have gotten otherwise due to enhanced CPP.
Investing to supplement CPP and OAS
If you’re worried that you still won’t get enough CPP to make ends meet even with all the increases described above, you could consider investing in index funds.
Consider BMO Canadian Dividend ETF (TSX: ZDV). It’s a diversified exchange-traded fund (ETF) of Canadian dividend-paying stocks, which holds 50 stocks in total. That’s a considerable amount of diversification. Also, ZDV holds stocks from across quite a few different industries, including banking, energy, and utilities. So, there’s plenty of room for one group of stocks in its portfolio to make up for weakness in another. Finally, the fund has a 3.77% dividend yield, which is above average, and a 0.39% total expense ratio, which is about average. Overall, ZDV has a lot to recommend it. It could certainly help you supplement your CPP.
