What is CPP2? Second CPP Contribution Explained 2024

On November 1, the CRA announced the maximum CPP contribution for 2024 with an additional CPP contribution room known as the second CPP contribution (CPP2).

What is CPP2 all about? How does it work? Who’s eligible for this new contribution room? What’s the maximum CPP contribution for 2024?

Let’s find out.

What CPP2?

CPP2 stands for second additional Canada Pension Plan (CPP) contributions. It’s an enhanced contribution room that is based on higher earnings of $73,200 starting January 1, 2024.

The maximum regular CPP pensionable earnings is $68,500 in 2024. But if your pensionable earnings fall between $68,500 and $73,200 in 2024, you will have to make an additional contribution (CPP2).

CPP 2 is part of the CPP enhancement that started in 2019. With this latest enhancement, CPP now consists of:

  • Base (or original CPP) component 
  • First ceiling component that was phased in between 2019 and 2023
  • Second ceiling (CPP2) component which will be phased in between 2024 and 2025

As with other CPP enhancements, CPP2 seeks to increase your CPP benefits as regards retirement pension, post-retirement benefit, disability pension, and survivor’s pension.

How does CPP2 work?

To understand how CPP2 works, we need to first understand how the regular CPP works.

The regular CPP works based on employee and employer contributions to the national pension plan. 

Employees aged 18 years and older who earn $3,500 and above are expected to contribute to the CPP up to a year’s maximum pensionable earnings (YMPE).

YMPE refers to your maximum pensionable income that is subject to CPP contribution. The rate changes annually and the 2024 YMPE is $68,500. 

However, with the second ceiling of CPP enhancement (CPP2) coming into effect in 2024, there’s now a year’s additional maximum pensionable earnings (YAMPE) of $73,200

So instead of contributing to the CPP on the base year’s maximum pensionable earnings, you’re now required to contribute to the CPP on pensionable earnings up to $73,200

On the other hand, you’re not to contribute to the CPP in 2024 on earnings that exceed $73,200. 

How will CPP contribution increase in 2024?

The maximum pensionable contribution for the base component of CPP increases to $68,500 in 2024 from $66,600 in 2023.

The employee and employer CPP contribution rate remains at 5% in 2024 as in 2023. This translates to a $3,867.50 maximum employee and employer contribution limit in 2024. 

On the other hand, the maximum self-employed contribution in 2024 is $7,735.00, from $7,508.90 in 2023.

But with the second CPP contribution, the maximum pensionable contribution in 2024 extends to $73,200, that’s a $4,700 increase from the base contribution rate of $68,500.

How much will CPP benefits increase in 2024?

With the second CPP contribution room comes additional benefits for Canadians.

As noted earlier, CPP2 and other CPP enhancements seek to increase all the components of your CPP benefits.

But this increase does not apply to all. The base CPP contribution is limited to those who make the first ceiling contribution ($68,500 in 2024). 

To get the maximum CPP benefits increase in 2024, you must meet the maximum pensionable earnings of $73,200

But you know the logic behind CPP benefits. The earlier you start collecting the benefits, the lower benefits you receive, and vice versa.

This means that contributing the maximum CPP amount doesn’t guarantee receiving the highest CPP contribution in the future.

Overall, how long you contribute to the CPP, how much you contribute and when you start receiving the CPP benefits will determine how much you get.

Who is eligible for CPP2?

The CPP2 contribution and benefits are only available for those with pensionable earnings between $68,500 and $73,200 

So if your pensionable earnings fall below $68,500, your 2024 CPP contribution will be based on the base CPP contribution of $68,500.

In summary, not many Canadians will be eligible for the CPP2 contribution limit. 

CPP2 rates 2024

Below are the second CPP rates for 2024 and 2025 as estimated by the CRA.

Maximum CPP2$72,400$79,400
Maximum employee and employer CPP2 contribution rate4%4%
Maximum annual employee and employer CPP2 contribution$188$388
Maximum annual self-employed CPP2contribution$376$776

If you need more clarification about CPP2, let me know in the comments or visit the second CPP page on the CRA website.

Related posts: 

What does Alberta’s CPP exit mean to the rest of us?

Why Does Alberta Want to Exit CPP?

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