CPP Enhancement

Why your CPP deductions grew

If your paycheque deductions for the CPP have crept up year after year, the enhancement is why. Before 2019, the plan aimed to replace about 25% of your covered average earnings in retirement. Governments agreed that was too thin a base for workers without employer pensions, so between 2019 and 2025 they phased in an expansion that raises the target to 33.33%, one third of covered earnings.

A bigger pension has to be paid for, and CPP is a contributory plan: the extra benefits are funded by extra contributions from you and your employer, not from general tax revenue. The expansion arrived in two phases, and both are now fully in place (as of July 2026).

Phase 1 (2019 to 2023): a higher rate on the same earnings

The first phase raised the employee contribution rate from 4.95% to 5.95% of earnings between the $3,500 basic exemption and the year's maximum pensionable earnings, the YMPE. Employers match that, and the self-employed pay both halves. The increase was spread over five years, one small step at a time, which is why it felt like CPP quietly took a little more every January.

Phase 2 (2024 to 2025): CPP2 and the new earnings ceiling

The second phase added something new: a second contribution, called CPP2, on a band of earnings above the traditional ceiling. In 2026 the YMPE is $74,600, and a higher ceiling called the YAMPE sits at $85,000 (as of July 2026). The YAMPE settled at about 114% of the YMPE. Earnings between the two ceilings now carry a CPP2 contribution of 4% for employees (matched by the employer) and 8% for the self-employed.

Here is what that means for someone earning $85,000 or more in 2026. Base CPP is 5.95% of ($74,600 minus $3,500), which is 5.95% of $71,100, or $4,230.45. CPP2 adds 4% of ($85,000 minus $74,600), which is 4% of $10,400, or $416. Total employee contributions: about $4,646 for the year, with the employer paying the same again. A self-employed worker at that income pays both halves, roughly $9,293.

Below the YMPE, nothing changes: someone earning $60,000 pays no CPP2 at all. The second ceiling only touches earnings in the band between $74,600 and $85,000. Your T4 slip now reports base CPP and CPP2 contributions in separate boxes, so you can see both amounts at tax time.

Who actually benefits (an honest answer)

The enhanced pension is earned the same way the base pension is: by contributing. Reaching the full 33.33% replacement rate requires roughly 40 years of contributing to the enhanced plan, which only became fully phased in recently. That produces a clear generational split:

• Young workers gain the most. Someone starting their career now will contribute at enhanced rates for essentially their whole working life and can earn the full one-third replacement target.
• Mid-career workers get a partial boost. If you are in your forties or fifties, only part of your career is covered at the enhanced rates, so your pension rises somewhat, not fully.
• Current retirees get essentially nothing. The enhancement does not increase pensions already being paid, since those retirees never contributed to the expanded plan.