Summary
The video explains key Canada Pension Plan (CPP) changes coming in 2026, covering inflation adjustments, full CPP enhancement implementation, contribution rates, earnings limits, and maximum annual contribution amounts.
Action Items
- Review personal or payroll planning for 2026 to account for higher CPP contribution rates and earnings limits.
- Assess retirement planning assumptions to reflect higher potential CPP replacement rates for those contributing under the enhanced rules.
- For self-employed individuals, update cash flow projections to include doubled CPP contribution obligations at 2026 levels.
CPP Overview and Purpose
- CPP is a mandatory government pension funded by employee and employer contributions; self-employed pay both portions.
- CPP is designed to replace a portion of pre-retirement employment income, not the full income amount.
- CPP enhancement, started in 2019, gradually increases the income portion CPP replaces and the related contributions.
2026 Inflation Adjustment for Current CPP Recipients
- CPP benefits are adjusted each January based on changes in the Consumer Price Index.
- Recent annual CPP increases: 6.5% (2023), 4.4% (2024), 2.7% (2025).
- Inflation is now considered lower, so the CPP benefit increase for 2026 is set at 2%.
- This 2% increase applies to people already collecting CPP in 2026.
CPP Enhancement Completion in 2026
- Before 2019, CPP targeted replacement of about 25% of average covered working income up to a limit.
- Under the enhanced CPP, the replacement rate rises to 33% of covered income.
- Enhanced benefits depend on how much and how long a person contributes after 2019.
- Younger workers who contribute at enhanced levels for roughly 40 years could see maximum CPP benefits over 50% higher than under the old rules.
- Higher future benefits are funded by higher contributions from workers and employers.
CPP Contribution Structure and Rates in 2026
- CPP contributions now have two parts: base CPP and additional CPP (CPP2).
- Base CPP applies to earnings up to the Year’s Maximum Pensionable Earnings (YMPE).
- Additional CPP applies to earnings between the YMPE and the Year’s Additional Maximum Pensionable Earnings (YAMPE).
2026 CPP Earnings Limits
- YMPE (base limit) increases from $71,300 in 2025 to $74,600 in 2026.
- YAMPE (upper limit) increases from $81,200 in 2025 to $85,000 in 2026.
- First $3,500 of annual earnings is exempt from CPP contributions.
2026 CPP Rates and Coverage
- On earnings from $3,500 up to $74,600: 5.95% employee contribution and 5.95% employer contribution to base CPP.
- On earnings between $74,600 and $85,000: 4% employee contribution and 4% employer contribution to additional CPP.
- Total combined rate on the “upper chunk” is 8% (employee plus employer).
- If income is below $74,600, there is no additional CPP2 contribution; only base CPP applies.
Structured Summary of 2025–2026 CPP Limits and Rates
| Item | 2025 | 2026 | Notes |
|---|
| YMPE (base limit) | $71,300 | $74,600 | Annual earnings covered by base CPP (above $3,500 exemption). |
| YAMPE (upper limit) | $81,200 | $85,000 | Annual earnings ceiling for additional CPP coverage. |
| Base CPP rate (employee) | 5.95% | 5.95% | Applies up to YMPE above $3,500. |
| Base CPP rate (employer) | 5.95% | 5.95% | Matching employer contribution. |
| Additional CPP rate (employee) | 4% | 4% | Applies on earnings between YMPE and YAMPE. |
| Additional CPP rate (employer) | 4% | 4% | Matching employer contribution on upper earnings band. |
| CPP exemption | First $3,500 of earnings | First $3,500 of earnings | No CPP contributions required on this portion. |
| CPP replacement rate | 25% (pre-enhancement design) | 33% (enhanced design target) | Applies fully after long-term contributions under enhanced CPP rules. |
Maximum Annual CPP Contributions
- Contribution calculations differ for base CPP only versus base plus additional CPP.
- Self-employed individuals pay both the employee and employer shares.
Structured Summary of Maximum Contributions (Employee or Employer, Separately)
| Component | 2025 Maximum | 2026 Maximum | Description |
|---|
| Base CPP only | $4,341.00 | $4,230.45 | Maximum annual contribution on earnings up to YMPE (per employee/employer). |
| Additional CPP only | $396.00 | $416.00 | Maximum annual CPP2 contribution on earnings between YMPE and YAMPE. |
| Total (base+add) | $4,737.00 | $4,646.45 | Combined maximum per side (employee or employer). |
- For self-employed individuals, these maximums are effectively doubled, because they pay both sides.
Impact on Different Groups
- Current CPP retirees: will see a 2% benefit increase in 2026, smaller than recent years due to lower measured inflation.
- Employees earning under $74,600: continue paying 5.95% on covered income (above $3,500); no additional CPP2 contributions.
- Employees earning above $74,600: pay 5.95% on income up to $74,600 plus 4% on income from $74,600 to $85,000.
- Employers: must match both base and additional contributions for employees.
- Self-employed: pay both employee and employer portions, at increased 2026 amounts.
- Younger workers with long careers under enhanced CPP: potentially significantly higher CPP benefits at retirement.
Decisions
- CPP enhancement phase-in completes in 2026, locking in higher replacement rates and contribution structure.
- Government-set inflation adjustment for CPP benefits in 2026 is fixed at 2%.
Open Questions
- How individual CPP benefit amounts will specifically change for a given earnings history under the enhanced rules is not detailed.
- How future inflation and policy changes after 2026 might affect CPP benefit indexation and contribution limits is not addressed.