The Canada Revenue Agency (CRA) has announced changes to the maximum pensionable earnings under the Canada Pension Plan (CPP) for 2025. Here’s what you need to know:
What Are the New Earnings Limits?
In 2025, the maximum pensionable earnings under CPP will be $71,300. This is an increase from $68,500 in 2024. That means if you make up to $71,300 in 2025, your earnings will be covered for CPP contributions.
There’s also a second limit called the additional maximum pensionable earnings, which will be $81,200 in 2025 (up from $73,200 in 2024). This extra ceiling is part of a new expansion plan for CPP that started in 2019. The additional maximum pensionable earnings allow higher-income people to contribute more to CPP, resulting in higher potential retirement benefits.
What is the Additional Maximum Pensionable Earnings?
The additional maximum pensionable earnings is a second earnings limit under CPP that lets higher earners contribute more to the plan. Initially introduced in 2019, this second ceiling was set 7% above the first limit. Starting in 2025, it will be set at approximately 14% higher than the first ceiling. This change aims to boost Canadian retirement income by allowing contributions to a larger portion of their earnings.
For earnings between the first ceiling ($71,300 in 2025) and the additional ceiling ($81,200 in 2025), both employers and employees will pay an extra CPP contribution, known as CPP2. Employers and employees each contribute an additional 4% to these earnings, while self-employed individuals pay both portions, totalling 8%.
How Much Will You Contribute?
For 2025, if you’re an employee or employer, you’ll contribute 5.95% of your earnings up to the first ceiling. This means the maximum amount you can contribute is $4,034.10 each. If you’re self-employed, you’ll pay both parts, or 11.9%, which totals $8,068.20.
For the earnings between the first and second ceilings, there’s the extra CPP2 contribution rate mentioned above. For 2025, employees and employers will each pay 4% on these earnings, with a maximum of $396.00. Self-employed people pay twice this rate, up to a maximum of $792.00.
Other Limits to Know
- The basic exemption (earnings that don’t require CPP contributions) will stay at $3,500 in 2025.
- The RRSP limit for 2025 will be $32,490.
- The TFSA limit for 2025 is expected to remain at $7,000.
Why Is It Important to Know These Limits for Retirement Planning?
Understanding the CPP maximum pensionable earnings, including the additional earnings ceiling, is important for planning your retirement because:
- Maximizing CPP Contributions: Knowing the limits helps you understand how much of your income will be covered for CPP contributions, directly affecting how much CPP retirement income you’ll receive later.
- Better Retirement Planning: By understanding both the regular and additional contribution limits, you can better estimate how much you’ll receive from CPP in retirement. This information is important for making informed decisions about additional retirement savings like RRSPs and TFSAs.
- Planning for Additional Savings Needs: CPP alone may not be enough for a comfortable retirement. Knowing your potential CPP income, including the extra contributions possible with the additional earnings ceiling, can help you decide how much extra to save in other accounts so you can meet your retirement goals.
- Tax Benefits: Contributions to CPP are tax-deductible, reducing your taxable income while you save for retirement. Knowing your contribution limits helps you maximize these tax benefits each year.
- Peace of Mind: Having a clear idea of your retirement income sources, including CPP, gives you more control and peace of mind. This knowledge allows you to plan more effectively, ensuring you can meet your needs when you stop working.
These updates mean more people can save for retirement through CPP contributions, helping to build a stronger retirement system for everyone. Keeping track of these limits each year is a key part of a well-rounded retirement strategy.
These updates mean more people can save for retirement through CPP contributions, helping to build a stronger retirement system for everyone. Keeping track of these limits each year is a key part of a well-rounded retirement strategy. To get personalized guidance and make the most of your retirement planning, book an appointment with me today. For more insights and a deeper understanding of retirement planning, be sure to check out my book, “The Art of Retirement”.
