Retirement savings gap
Learn more about the upcoming changes to the Canada Pension Plan (CPP) and how you benefit.
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Overview of the Canada Pension Plan
The CPP is a mandatory program that provides pensions and benefits when people retire, become disabled or die. It covers almost all working Canadians over the age of 18, including people who are self-employed.
The CPP is funded by contributions from employers and employees, as well as investment earnings generated by the Canada Pension Plan Investment Board.
Working collaboratively with the federal government and other provinces and territories, Ontario advocated for a national solution to improve the retirement security for working Canadians.
On June 20, 2016, the government of Ontario, along with eight other provinces and the federal government, reached a historic agreement-in-principle to enhance the CPP. The legislation to implement the enhancement came into force in March 2017.
Details of the enhanced CPP
The enhanced CPP will provide retirement income security for workers in Ontario and across Canada by:
- replacing 33% of your pre-retirement income, up from 25%
- raising the level of earnings on which you pay CPP contributions and gain CPP benefits by 14% when it’s fully implemented in 2025
- phasing in contribution increases gradually over seven years, beginning January 1, 2019
- making employees’ contributions to the enhanced CPP tax-deductible, which will reduce income taxes for many middle-income workers
What the CPP enhancement means for you
The enhanced CPP:
- will provide secure and predictable retirement income to almost all working Canadians
- will provide retirement benefits that are indexed to inflation, which protects your purchasing power in retirement
- is low risk because almost all Canadians pay into it and it’s protected against employer bankruptcy or insolvency
- is portable, meaning most workers can contribute to it, and benefits can be accessed anywhere in Canada
- is low cost compared to most other retirement savings plans or programs
Case study: payouts under the enhanced CPP
With the enhanced CPP, over a 40-year career:
- + $1
Table: CPP enhancement payout by salary
|Salary individual earns every year while working (in 2018 dollars)
|Current CPP benefit
|Enhanced CPP benefit
|Current CPP + enhanced CPP benefits
Impact on your taxes
What will change:
- you’ll get a tax deduction – rather than a tax credit – for your contributions to the enhanced CPP, reducing income taxes for many middle-income workers
What will stay the same:
- a tax credit for your contributions to the current CPP
- how much you can contribute to your RRSP
Impact on low-income workers
To offset higher CPP contributions by low-income workers, the Working Income Tax Benefit (WITB) -- a federal refundable tax credit that benefits low-income workers -- will increase by $250 million. This means that low-income workers will be able to benefit from the enhanced CPP while getting help with the cost of making contributions to it.
In its 2018 budget, the federal government announced the Canada Workers Benefit. The Canada Workers Benefit would build on the foundation of the WITB and be further enriched to help low-income workers.
Learn more about the Canada Workers Benefit.