This article was reviewed by Jay Brecknell, CFP®.
By now you are most likely familiar with making contributions to CPP, the federal program that helps ensure all Canadians are financially supported during their retirement years. But have you noticed a slight increase in your contributions over the last six years? We’ll tell you all about why you’ve seen an increase in a moment, but first, a little background information.
CPP (and Old Age Security-OAS) are designed to provide a liveable income for retirees; a retirement income that provides basic income, though not necessarily enough to comfortably live off of, let alone adventures or luxuries.
Unfortunately, there has been a noticeable decline in how much Canadians have been managing to save for retirement, and it has many concerned for their senior years. The Federal Government decided to step in and introduce a CPP enhancement strategy to help Canadians increase their retirement savings, ensuring their needs would be met once they have retired.
For those of you who have already retired, with no intention of returning to work, the CPP enhancements won’t affect you—but you may want to share this article with your younger friends and family members who are still working. For those currently employed, self-employed, and are employers, the CPP enhancement will affect your current income and expenses but will be a benefit to you in the long run. Read on to find out more.
What is the CPP enhancement and why is it necessary?
I think we would all agree that every working Canadian deserves to be financially secure in their retirement. However, there is a growing concern that this may not be the case. The Government of Canada opted to increase the CPP contributions made by Canadians due to three primary factors:
- Canadians are struggling to save for retirement—largely due to inflation and cost of living increases—with many people saying they are concerned they will not have enough money to last their retirement.
- Many workplaces have shifted from having retirement benefits where employers directly invest in a savings plan on behalf of employees, to a matched contribution system that requires employees to be financially able to contribute (many are not).
- The cost-of-living increases and inflation means that retirees need a larger income to survive, let alone thrive.
Designed to be a gradual adjustment to reduce the impact felt by Canadians in the present, but still provide benefits in the future, the CPP enhancements began in 2019, and the final phase happened this January, in 2025. The percentage of income contributed to CPP has gradually increased over the last six years, as has the Yearly Maximum Pensionable Earnings (YMPE) or first earnings ceiling.
Below, you can see a graph taken from the Government of Canada website which showcases the increases in both the tax percentage and the YMPE.
As you can see, from 2019 to 2025, the contribution rate for employees has increased by 1%, and the YMPE has increased by $15,400. These increases help to ensure that at the time of their retirement, Canadians will receive a greater retirement benefit and be more financially secure during their senior years.
For high-income individuals, a secondary contribution amount was created as part of the CPP enhancement program and introduced in 2024. This secondary contribution is known as the Year’s Additional Maximum Pensionable Earnings (YAMPE), or ‘second earnings ceiling’. This additional contribution rate only applies to earnings above the YMPE ceiling ($71,300 as of 2025) and only to earnings up to $81,200 (as of 2025).
Canadians with many working years ahead will see the most benefit from the CPP enhancement, while those with limited or no working years remaining, will see the least effect. With payments being automatically deducted it is unlikely, but possible, that Canadians may notice a reduction in their pay today, however, the long-term benefits outweigh that cost. Keep in mind, the CPP enhancement program is targeted to assist low-income Canadians receive enough retirement income to support basic cost of living needs; it is not to be relied upon for your sole retirement income source.
How it affects employees
For those who are employed by a company, there isn’t much you need to worry about and no steps you need to take. You may notice the increased CPP contribution rate as a slight reduction on your income statement, but since it has only increased by 1% over the course of six years, the effect on your income is minimal. The impact this will have on your retirement income though will be significant. A case of prolonged gratification, where there may be a little short-term discomfort for long-term rewards.
How it affects employers
Since employers match the CPP contributions of their employees, the CPP enhancement will increase the wage expenses of employers. Accounting departments will need to ensure they are up-to-date and are deducting the appropriate amount from employee paycheques for their CPP contributions. While this will be an increased expense for employers, all employer contributions to the CPP are tax-deductible.
How it affects the self-employed
Self-employed Canadians are essentially responsible for paying both the “employee” and “employer” contributions of CPP, effectively making their CPP contributions double that of an employed Canadian. However, their “employer” portion is also a tax-deductible amount. If you are self-employed, you will also need to be aware of the YAMPE if you are earning more than $71,300 and make additional contributions as necessary.
Unlike employees who make CPP contributions on each paycheque, self-employed persons may make their contributions annually at tax time. Similar to employed Canadians, those who are self-employed may feel the deductions on their income but will be rewarded in the long term with a higher CPP retirement income to support them in their golden years.
Summary
For Canadians, CPP (and OAS) helps to ensure everyone has basic financial stability and security in their old age. To contend with the cost-of-living increase and inflation, the CPP enhancement is designed to increase the amount of retirement income Canadians receive so basic needs are continued to be met. We want to emphasize that even with the CPP enhancement, the retirement income provided by CPP and OAS is meant to be enough to cover basic living essentials, but even then, it can be challenging. It’s important to not fall into a false sense of security believing CPP and OAS will be enough for retirement. That said, the CPP enhancement will be a long-term benefit for those with many working years ahead of them who will see the greatest benefit from this enhancement.
CPP and OAS are here to provide a base level of comfort and security during retirement, not provide Canadians with enough income to enjoy travel, hobbies, or indulgences during their retirement. If you want a vibrant, fulfilling retirement, it is highly advisable to save and invest throughout your working life to create your own nest egg for your retirement. For advice about how to save for your retirement, or regarding when you would be best to begin withdrawing CPP and OAS, please reach out to one of our advisors today.