Canada Pension Plan Financing

Canada Pension Plan Financing

The CPP is financed by employer and employee contributions, as well as by investment income earned by the contributed funds. Every working Canadian who is over 18 and earns more than a defined minimum yearly income must contribute to the plan. Employee contributions are automatically deducted from wages and are matched by employers. Self-employed workers must pay both the employee and employer contributions. If a person does not earn above the minimum level, he or she is not subject to pension deductions. Earnings are only subject to pension deductions up to a yearly maximum limit, which is based on the average Canadian income. Any income a Canadian earns above that limit is not subject to the deductions. The income between the minimum and maximum is known as pensionable income. In 2000 the required contribution was 7.8 percent of a worker's pensionable income, of which the employee and the employer each paid half. (1)

The number of retired people in Canada, in relation to the number of people of working age, was expected to rise dramatically in the early 21st century. To ensure that the CPP would be able to cover these future retirees, the Canadian Parliament enacted a bill in 1998 that raised contribution rates to the pension plan. Under the new plan, rates will rise yearly until they reach a new stable rate of 9.9 percent of pensionable income in 2003.

Canada Pension Plan in this Section: Canada Pension Plan, Pension System, Canada Pension Plan Financing and Canada Pension Plan Benefits.

Resources

Notes and References

1. Encarta Online Encyclopedia

See Also

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This entry was last updated: March 23, 2014