Canada’s Maximum Pensionable Earnings: Understanding Maximum Income and Contributions for Pensions

Updated on February 5, 2024

Explore the Information on Maximum Pensionable Earnings in Canada: Understanding Maximum Income and Contributions. Here, you will find details about recent changes to the CPP benefits structure at the start of the new fiscal year, aimed at enhancing long-term support. This article delves into the specifics of the adjustments made to the Maximum Pensionable Earnings in Canada.

Maximum Pensionable Earnings in Canada

The Canadian Federal Government establishes the minimum earning limit for each fiscal year, influencing the pension plan contributions based on the annual maximum pension limit. This upper limit represents the highest amount an individual can invest in the Canada Pension Plan (CPP) and is designated as the Yearly Maximum Pensionable Earnings.

Employers will deduct CPP contributions from their employees’ salaries and remit it under the employer share, as specified by the CRA. Employers are required to make the minimum contribution for the benefit of their employees. In contrast, self-employed individuals are responsible for paying both employer and employee contributions.

For the year 2023, the pensionable earnings were set at $66,600. However, for the current year, this amount has been increased to $68,000. The revised limits came into effect on January 1, 2024.

What is the Maximum Pensionable Income?

Several modifications have been implemented in the CPP structure, including the addition of a second tier to the pension plan. The deposit amount will now be made in two installments. With the introduction of this second segment, the maximum limit has been extended. Each tier has its pensionable limit, with the limit for the first tier set at $68,000 and for the second tier at $74,500.

The limits for the new segment were determined by considering the growth of wages and workers’ annual incomes. Individuals with minimum earnings exceeding $75,000 are ineligible to receive the savings benefits. The basic exception amount has also been increased with the addition of the new segment, and the updated basic exception amount is now $3,500.

Maximum Pensionable Income Overview

What is the Contribution Limit for Maximum Pensionable Income?

The contribution of each individual is determined by factors such as the nature of their employment and the minimum salary. In a corporate setting, the contribution is typically divided into two segments. Employers are obligated to make a minimum contribution towards the CPP account as part of the employee benefits, with 40 percent of the contribution linked to the employers.

The remaining portion of the pension amount is the responsibility of the employees, and these amounts may vary depending on the individual’s rank and position within the company. For those who are self-employed, they are required to cover the tax credit for both contributions.

In the initial installment, both employees and employers maintain a contribution rate of 5.43 percent, whereas self-employed individuals contribute at a rate of 11.04 percent. The maximum monthly contribution stands at $3,864 for corporate workers and $7,735 for self-employed individuals.

In the second installment, both employees and employers contribute at a rate of 4 percent, with a minimum savings limit of $188. For self-employed individuals, the contribution limit is 8 percent, with a maximum monthly savings rate of $376.50.

It’s important to highlight that the exception limit for self-employed workers is significantly higher compared to other employees, given that they don’t have an employer covering their contribution amount. Self-employed individuals bear the responsibility for both contributions. Nonetheless, this setup proves advantageous for self-workers, as it enhances the deposit paycheck for their post-retirement plan.

CPP Contribution Rate 2024

Given the economic changes in the country, there have been enhancements in the benefits structure. As part of these modifications, the contribution rate for corporate employees has been increased by 1 percent, while self-employed individuals will experience a 2 percent increment. The table below illustrates the consistent growth in the CPP margin over the past few years.

Applicants are required to add $377 under the second segment of the CPP. The contribution limit for both installments should not surpass the threshold of $76,500. This enhancement aims to provide increased pension benefits and additional advantages.