July 19, 2024 • 9 mins
Welcome to The Ride: Life Work and Wealth podcast, brought to you by Green Private Wealth, where we empower you to optimize your financial journey. Today’s episode delves into the changes that were made to the Canada Pension Plan in 2024 and what you need to know about them. Key Points Covered: Overview of CPP: Discussing the …
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:02):
Welcome to the rye, Life, work and wealth
brought to you by green private wealth. A
trade name with harbor fried Wealth management.
We're here to give you tips and strategies
to help you get ahead and have your
money start working smarter for youth. We don't
just tell people plan for a secure tomorrow.
We help you plan for it better today.
Let's get to it.
(00:23):
Hi, everyone. Welcome back, and thanks for joining
on another episode of the ride. My name
is Mike Mc, and I'm your host for
today's episode where we're gonna be talking about
some of the recent changes to the Canada
pension plan. And what you need to know
about them.
Now these changes came into effect at the
beginning of January this year and they're called
(00:44):
phase 2
But before we get into them, now they
may affect you, let's start by reviewing the
basics of Cp
overall.
In a nutshell, Cp is a mandatory
contributor
pension plan that covers nearly all Canadian workers
with the exception of those living come in
Quebec, who are covered under their own plan,
(01:06):
the Quebec pension plan, which is very similar,
but for today, we'll only focus on Cp.
Cp provides basic income replacement for its members
and their families when a Cp member retire.
Dies
or becomes disabled.
It's funded by contributions from employees,
(01:26):
employers and self employed individuals,
and the investments in the plan itself are
professionally managed by the Cp
investment board.
In terms of when you start to take
the payments
You have the option to start them as
early as age 60,
or you can delay them to as late
as age 70.
Now that we've done a quick rundown of
(01:47):
the basics.
Let's talk about the changes.
In 2019,
the enhancements to Cp
were initially introduced, with the goal of potentially
increasing the maximum Cp retirement pension by up
to 50 percent
for younger people by the time they retire.
Phase 2, the 1 I had mentioned initially
(02:08):
is the latest of these enhancements
which started in January of this year, and
what that means is that some higher income
earning individuals will be paying more into the
plan,
but they will also see an increased benefit
upon retirement.
These future benefits you receive are combination essentially
of the contribution that you make as an
(02:30):
employee
and those that your employer makes on your
behalf.
As of 2024,
means The contribution rate for employees has increased
to 5.95
percent, which is then matched by your employer
with an additional 5.95...
Percent going into your plan.
And if you're self employed, essentially, you pay
(02:52):
both the employee and the employer portion, which
adds up to be 11.9
percent.
This
contribution rate applies essentially to any income above
the basic
exemption amount of 3500.
Up to the yearly maximum
pension earnings
or Y
amount of 68500
(03:14):
dollars as of 2024.
What this meant in the past is if
that you've made over this amount, this yearly
maximum pension earnings.
None of that income would go towards your
Cp
contributions,
But now with these enhancements,
this amount eligible for the contributions is being
gradually
(03:35):
increased
And if you ever wanted to figure out
how much you're putting in each year in
terms of dollar value. The way that you
figure that out is, you take the maximum
pension earnings amount to... With the 1 I
mentioned at 68500
for 2024,
then you subtract the basic exemption amount of
3500
And then you multiply this by 5.95
(03:57):
percent, the contribution rate for yourself.
And what that equals out to be is
3806
7 dollars and 50 cents that you're putting
in. And then your employer who's also matching
contributions will also be adding this amount to
your 50 Cp pension as well.
And over time, these contributions, they add up
(04:17):
to be a nice sized view in retirement
that Essentially, you and your employer
assuming you're not self employed have been contributing
to over your working years.
However,
things have really started to change lately and
starting in 01/01/2024
this year, the second Cp
earnings ceiling was introduced.
(04:39):
And what they're calling it is the year's
additional maximum pension bolt earnings or y a.
This second ceiling or Cp 2 as it's
being called
is based on the value of the first
ceiling or the Y,
as I mentioned, which changes yearly based on
(05:02):
inflation index, things so that it keeps up
with the standard of living.
For 2024,
the second earning ceiling was set at an
amount that is essentially 7 percent higher than
the Y p.
And for 2025,
we're actually gonna see this jump higher up,
with that second ceiling being 14
(05:22):
percent higher than the Y mp.
So, essentially, this change,
is going to impact high income earning individuals
whose annual earnings are above the 68500
threshold that I mentioned
and it'll be capped off at 73200
of earnings for 2024.
(05:42):
What this means is that
The earnings between 641200
are gonna be subject to that second layer
of Cp
contributions
and it'll be an additional 4 percent from
both the employee,
yourself and your employer.
And again, self employed individuals pay for both
(06:04):
portions of this.
And what this amount adds up to be
is essentially an additional 188
dollars from you, and an additional hundred and
88 dollars from your employer. Which is 376
dollars in total that be contributed to your
Cp
pension.
1 important other thing to note is that,
this isn't gonna impact anyone who's already collecting
(06:26):
their Cp. We've already had a few people
ask about this and essentially,
their pension is gonna stay the same.
This is just basically an enhancement to the
future Cp benefit of younger generations. And I
believe this is a good thing for anyone
saving for retirement.
So I know also 2 1 of the
things we've had come up with some of
(06:46):
our clients is. They're wondering why was this
second ceiling introduced? Is this... A red flag
or an alarm bell
that you know, maybe this the Candidate pension
plan is under underfunded and needs additional funding
or anything along those lines.
Well, what we tell our our clients, you
know, is is we really like to give
them peace of mind by reminding them that
(07:07):
the Candidate pension plan is 1 of the
best run pension plans in the world,
and we view this as a great opportunity
for high income earning new individuals and to
increase the amount that they can expect to
receive from the plan during retirement.
Now, although this enhancement to does come at
an extra cost.
(07:28):
The cost itself is not overly significant. And
over time, it's gonna add up to be
a pension that if 50 percent higher than
it would have otherwise been
after the enhancements are factoring, which, you know,
we definitely view as welcome news.
So, you know, that's that's really everything I
wanted to touch on for today. We hope
that you find this information regarding the changes
(07:49):
to Cp helpful. And if you did, Don't
forget to subscribe to our channel for more
personal finance tips. As always, feel free to
reach out to us through Facebook,
Linkedin.
Youtube or green private wealth dot com if
you'd like to learn more. See you next
time.
You've reached the end of another app sew
(08:09):
of the ride.
Connect with us on our website, green private
wealth dot com and don't forget to subscribe
to our podcast on itunes to spotify for
more financial insights.
Until next time.
Any of your opinion is expected presentation are
solely those are the representative and do not
necessarily represent those at Harbor Wealth Management Inc.
(08:29):
The information contained herein is obtained from sources
believed to be reliable. However, accuracy is not
guaranteed.
The information transmitted is intended to provide general
guidance on matters of interest for the personal
use of the viewer.
Sets for responsibility for its use and is
not to be considered a definitive analysis of
the law, and factual situations of any individual
or entity.
(08:49):
Any asset classes featured in this presentation are
for illustration purposes only and should not be
viewed as a solicitation to buy or sell.
Past performance does not necessarily predict future performance
and each asset class has its own risks.
As such, this content should not be used
as a substitute for consultation with
tax, legal, or professional advisors.
(09:10):
Prior to making any decision or taking any
action, you should consult with a licensed professional
advisor, criminal Fiber front Wealth Management Inc is
a member of the Canadian investor protection fund
and the Canadian Investment regulatory
organization, formerly Ii.
Welcome to the rye, Life, work and wealth
brought to you by green private wealth. A
trade name with harbor fried Wealth management.
We're here to give you tips and strategies
to help you get ahead and have your
money start working smarter for youth. We don't
just tell people plan for a secure tomorrow.
We help you plan for it better today.
Let's get to it.
(00:23):
Hi, everyone. Welcome back, and thanks for joining
on another episode of the ride. My name
is Mike Mc, and I'm your host for
today's episode where we're gonna be talking about
some of the recent changes to the Canada
pension plan. And what you need to know
about them.
Now these changes came into effect at the
beginning of January this year and they're called
(00:44):
phase 2
But before we get into them, now they
may affect you, let's start by reviewing the
basics of Cp
overall.
In a nutshell, Cp is a mandatory
contributor
pension plan that covers nearly all Canadian workers
with the exception of those living come in
Quebec, who are covered under their own plan,
(01:06):
the Quebec pension plan, which is very similar,
but for today, we'll only focus on Cp.
Cp provides basic income replacement for its members
and their families when a Cp member retire.
Dies
or becomes disabled.
It's funded by contributions from employees,
(01:26):
employers and self employed individuals,
and the investments in the plan itself are
professionally managed by the Cp
investment board.
In terms of when you start to take
the payments
You have the option to start them as
early as age 60,
or you can delay them to as late
as age 70.
Now that we've done a quick rundown of
(01:47):
the basics.
Let's talk about the changes.
In 2019,
the enhancements to Cp
were initially introduced, with the goal of potentially
increasing the maximum Cp retirement pension by up
to 50 percent
for younger people by the time they retire.
Phase 2, the 1 I had mentioned initially
(02:08):
is the latest of these enhancements
which started in January of this year, and
what that means is that some higher income
earning individuals will be paying more into the
plan,
but they will also see an increased benefit
upon retirement.
These future benefits you receive are combination essentially
of the contribution that you make as an
(02:30):
employee
and those that your employer makes on your
behalf.
As of 2024,
means The contribution rate for employees has increased
to 5.95
percent, which is then matched by your employer
with an additional 5.95...
Percent going into your plan.
And if you're self employed, essentially, you pay
(02:52):
both the employee and the employer portion, which
adds up to be 11.9
percent.
This
contribution rate applies essentially to any income above
the basic
exemption amount of 3500.
Up to the yearly maximum
pension earnings
or Y
amount of 68500
(03:14):
dollars as of 2024.
What this meant in the past is if
that you've made over this amount, this yearly
maximum pension earnings.
None of that income would go towards your
Cp
contributions,
But now with these enhancements,
this amount eligible for the contributions is being
gradually
(03:35):
increased
And if you ever wanted to figure out
how much you're putting in each year in
terms of dollar value. The way that you
figure that out is, you take the maximum
pension earnings amount to... With the 1 I
mentioned at 68500
for 2024,
then you subtract the basic exemption amount of
3500
And then you multiply this by 5.95
(03:57):
percent, the contribution rate for yourself.
And what that equals out to be is
3806
7 dollars and 50 cents that you're putting
in. And then your employer who's also matching
contributions will also be adding this amount to
your 50 Cp pension as well.
And over time, these contributions, they add up
(04:17):
to be a nice sized view in retirement
that Essentially, you and your employer
assuming you're not self employed have been contributing
to over your working years.
However,
things have really started to change lately and
starting in 01/01/2024
this year, the second Cp
earnings ceiling was introduced.
(04:39):
And what they're calling it is the year's
additional maximum pension bolt earnings or y a.
This second ceiling or Cp 2 as it's
being called
is based on the value of the first
ceiling or the Y,
as I mentioned, which changes yearly based on
(05:02):
inflation index, things so that it keeps up
with the standard of living.
For 2024,
the second earning ceiling was set at an
amount that is essentially 7 percent higher than
the Y p.
And for 2025,
we're actually gonna see this jump higher up,
with that second ceiling being 14
(05:22):
percent higher than the Y mp.
So, essentially, this change,
is going to impact high income earning individuals
whose annual earnings are above the 68500
threshold that I mentioned
and it'll be capped off at 73200
of earnings for 2024.
(05:42):
What this means is that
The earnings between 641200
are gonna be subject to that second layer
of Cp
contributions
and it'll be an additional 4 percent from
both the employee,
yourself and your employer.
And again, self employed individuals pay for both
(06:04):
portions of this.
And what this amount adds up to be
is essentially an additional 188
dollars from you, and an additional hundred and
88 dollars from your employer. Which is 376
dollars in total that be contributed to your
Cp
pension.
1 important other thing to note is that,
this isn't gonna impact anyone who's already collecting
(06:26):
their Cp. We've already had a few people
ask about this and essentially,
their pension is gonna stay the same.
This is just basically an enhancement to the
future Cp benefit of younger generations. And I
believe this is a good thing for anyone
saving for retirement.
So I know also 2 1 of the
things we've had come up with some of
(06:46):
our clients is. They're wondering why was this
second ceiling introduced? Is this... A red flag
or an alarm bell
that you know, maybe this the Candidate pension
plan is under underfunded and needs additional funding
or anything along those lines.
Well, what we tell our our clients, you
know, is is we really like to give
them peace of mind by reminding them that
(07:07):
the Candidate pension plan is 1 of the
best run pension plans in the world,
and we view this as a great opportunity
for high income earning new individuals and to
increase the amount that they can expect to
receive from the plan during retirement.
Now, although this enhancement to does come at
an extra cost.
(07:28):
The cost itself is not overly significant. And
over time, it's gonna add up to be
a pension that if 50 percent higher than
it would have otherwise been
after the enhancements are factoring, which, you know,
we definitely view as welcome news.
So, you know, that's that's really everything I
wanted to touch on for today. We hope
that you find this information regarding the changes
(07:49):
to Cp helpful. And if you did, Don't
forget to subscribe to our channel for more
personal finance tips. As always, feel free to
reach out to us through Facebook,
Linkedin.
Youtube or green private wealth dot com if
you'd like to learn more. See you next
time.
You've reached the end of another app sew
(08:09):
of the ride.
Connect with us on our website, green private
wealth dot com and don't forget to subscribe
to our podcast on itunes to spotify for
more financial insights.
Until next time.
Any of your opinion is expected presentation are
solely those are the representative and do not
necessarily represent those at Harbor Wealth Management Inc.
(08:29):
The information contained herein is obtained from sources
believed to be reliable. However, accuracy is not
guaranteed.
The information transmitted is intended to provide general
guidance on matters of interest for the personal
use of the viewer.
Sets for responsibility for its use and is
not to be considered a definitive analysis of
the law, and factual situations of any individual
or entity.
(08:49):
Any asset classes featured in this presentation are
for illustration purposes only and should not be
viewed as a solicitation to buy or sell.
Past performance does not necessarily predict future performance
and each asset class has its own risks.
As such, this content should not be used
as a substitute for consultation with
tax, legal, or professional advisors.
(09:10):
Prior to making any decision or taking any
action, you should consult with a licensed professional
advisor, criminal Fiber front Wealth Management Inc is
a member of the Canadian investor protection fund
and the Canadian Investment regulatory
organization, formerly Ii.
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