CPP and QPP explained 2026: rates, ceilings and CPP2

What is CPP?

The Canada Pension Plan (CPP) is a mandatory social insurance program that provides retirement income, disability benefits, and survivor benefits to Canadians and their families. Established in 1966, the CPP is one of the three pillars of Canada's retirement income system, alongside Old Age Security (OAS) and private savings (RRSPs, workplace pensions, and TFSAs). Every employed Canadian between ages 18 and 65 contributes a portion of their earnings to CPP, and their employer matches those contributions dollar-for-dollar.

The CPP is managed by the CPP Investments Board (CPPIB), one of the largest pension fund managers in the world, with over $570 billion in assets. Unlike a pay-as-you-go system, the CPP is partially funded, meaning contributions are invested and the returns help fund future benefits. The Chief Actuary of Canada has confirmed that the CPP is financially sustainable for at least the next 75 years under current contribution rates, providing Canadians with a high degree of confidence in the program's long-term viability.

For most employees, CPP contributions are the second-largest payroll deduction after income tax. Understanding how CPP is calculated, how the new CPP2 enhancement works, and how your contributions translate into retirement benefits is essential for financial planning.

2025 CPP Contribution Rates

What is CPP2?

Starting in 2024, a second additional CPP contribution (CPP2) applies to earnings above the first ceiling ($71,300) up to a second ceiling ($79,400). The CPP2 rate is 4% for both employee and employer.

CPP2 means employees earning above $71,300 will pay additional contributions on the portion between $71,300 and $79,400. The maximum additional contribution is $324 per year.

How CPP Is Calculated

CPP contributions are calculated using this formula:

CPP = (min(gross, $71,300) - $3,500) × 5.95%
CPP2 = (min(gross, $79,400) - $71,300) × 4.00%

If your gross income is $75,000:

• CPP: ($71,300 - $3,500) × 5.95% = $4,034.10 (at maximum)
• CPP2: ($75,000 - $71,300) × 4% = $148.00
• Total: $4,182.10

Historical Context: How CPP Rates Have Changed

When the CPP was introduced in 1966, the combined employee-employer rate was just 3.6 percent (1.8 percent each). The rate increased gradually over the decades as demographics shifted and benefits expanded. A major reform in 1997 raised rates significantly to ensure long-term sustainability, bringing the combined rate to 9.9 percent by 2003. The CPP Enhancement, agreed to by the federal and provincial governments in 2016, added further increases starting in 2019, bringing the current rate to 5.95 percent for employees (11.90 percent combined).

The introduction of CPP2 in 2024 represents the latest evolution, creating a second earnings ceiling to capture more income for pension purposes. This phased approach ensures that future retirees will receive higher CPP benefits proportional to their additional contributions.

CPP vs QPP: Key Differences

Quebec opted out of the CPP when it was created in 1966, establishing the Quebec Pension Plan (QPP) as a parallel program. The two plans are coordinated so that workers who move between Quebec and other provinces receive full credit for all contributions. Key differences include:

• Higher rate: QPP charges 6.4 percent versus CPP's 5.95 percent. This means Quebec employees pay about $307 more per year in pension contributions at the maximum pensionable earnings.
• Higher maximum contribution: QPP maximum employee contribution is $4,341.80 versus CPP's $4,034.10.
• Same benefit levels: Both plans provide similar retirement pension amounts, with the maximum monthly benefit at age 65 being approximately $1,364 in 2025.
• Portability: Years contributed to either plan count toward your pension. If you work in Quebec for 10 years and then move to Ontario for 25 years, all 35 years of contributions are combined when calculating your retirement benefit.
• Administration: CPP is administered by Service Canada and the CRA. QPP is administered by Retraite Quebec.

Self-Employed CPP

Self-employed individuals must pay both the employee and employer portions of CPP, effectively double the rate: 11.90 percent for CPP or 12.80 percent for QPP. The maximum self-employed CPP contribution in 2025 is $8,068.20 ($4,034.10 multiplied by 2) plus $648.00 for CPP2 ($324.00 multiplied by 2), for a total of $8,716.20.

For a self-employed individual earning $75,000, the CPP calculation would be: ($71,300 minus $3,500) multiplied by 11.90 percent equals $8,068.20, plus CPP2 of ($75,000 minus $71,300) multiplied by 8 percent equals $296.00, for a total of $8,364.20. The employer-equivalent half of the CPP contribution is deductible as a business expense, reducing your net self-employment income for income tax purposes.

When You Stop Paying CPP

• Mandatory contributions (ages 18 to 65): All employed and self-employed Canadians must contribute if their earnings exceed the $3,500 basic exemption.
• Optional contributions (ages 65 to 70): If you continue working after age 65, you can elect to stop contributing by filing a CPT30 form with your employer. However, continuing to contribute increases your retirement benefit through the Post-Retirement Benefit (PRB), which adds up to an additional $40 per month per year of contributions after 65.
• Automatic cessation (age 70): Contributions stop automatically at age 70, regardless of employment status.
• Below the exemption: If your annual earnings are below the $3,500 basic exemption, you do not contribute and the year does not count toward your pension calculation.

CPP Retirement Benefits

The maximum CPP retirement pension at age 65 in 2025 is approximately $1,364 per month, or $16,368 per year. However, the average CPP retirement pension is significantly lower, at about $816 per month, because most Canadians have not contributed at the maximum level for the required 39 contributory years. Your actual benefit depends on how much you contributed and for how many years.

Early and Deferred CPP

You can start receiving CPP as early as age 60 or as late as age 70. Taking it early or late permanently adjusts your monthly payment:

• Early (age 60): Your pension is reduced by 0.6 percent for each month before your 65th birthday, for a maximum reduction of 36 percent at age 60. On a $1,000 monthly pension at 65, that means $640 per month at 60.
• Deferred (age 70): Your pension is increased by 0.7 percent for each month after your 65th birthday, for a maximum increase of 42 percent at age 70. The same $1,000 monthly pension becomes $1,420 per month at 70.

The breakeven point between taking CPP at 60 versus 65 is approximately age 74. If you expect to live beyond 74, deferring to 65 typically provides a higher total lifetime benefit. The breakeven between 65 and 70 is approximately age 82. These calculations do not account for the time value of money or investment returns on early payments, which can shift the breakeven point.

CPP Enhancement and Future Benefits

The CPP Enhancement (2019-2025) and CPP2 (2024 onward) are designed to increase the replacement rate of CPP from 25 percent to 33.33 percent of pensionable earnings. This means future retirees who contribute under the enhanced rates for a full career will receive about one-third of their average career earnings (up to the ceiling) in CPP retirement benefits, compared to one-quarter under the old system. The full impact of the enhancement will be felt by workers who contribute for 40 years under the new rates, meaning the maximum enhanced benefit will not be fully realized until approximately 2065.

CPP2: The Second Additional CPP Contribution

CPP2 represents a significant evolution of Canada's pension system, introduced on January 1, 2024. While the original CPP Enhancement (2019-2023) increased the base contribution rate from 4.95 percent to 5.95 percent, CPP2 goes further by creating a second earnings ceiling above the Year's Maximum Pensionable Earnings (YMPE). For 2025, this second ceiling, called the Year's Additional Maximum Pensionable Earnings (YAMPE), is set at $79,400, compared to the first ceiling (YMPE) of $71,300. Employees earning between $71,300 and $79,400 pay an additional 4 percent on that income (matched by their employer), resulting in a maximum CPP2 contribution of $324 per year. This is separate from and in addition to the base CPP contribution of up to $4,034.10.

The introduction of CPP2 means that higher-earning workers will see a slightly larger payroll deduction than in previous years. For someone earning $79,400 or more, the total maximum CPP contribution (base plus CPP2) is $4,358.10 per year. For an employee earning exactly $75,000, the base CPP contribution is maxed at $4,034.10 and the CPP2 contribution is ($75,000 minus $71,300) multiplied by 4 percent, which equals $148, for a combined total of $4,182.10. This additional contribution is modest on a per-paycheque basis -- roughly $12.50 per biweekly pay period for someone at the CPP2 maximum -- but it accumulates over a full career to provide meaningfully higher retirement benefits.

The purpose of CPP2 is to extend enhanced pension coverage to a broader portion of earnings. Before CPP2, income above the YMPE was not covered by CPP at all, meaning higher earners had to rely entirely on private savings (RRSPs, TFSAs, and workplace pensions) for retirement income replacement above the first earnings ceiling. CPP2 partially addresses this gap by capturing an additional $8,100 of earnings for pension purposes. Workers who contribute to CPP2 for a full career will receive a higher CPP retirement benefit that replaces a greater portion of their pre-retirement income. The CPP2 contribution also qualifies for a non-refundable tax credit at 15 percent (similar to base CPP contributions), reducing your federal tax by approximately $48.60 per year at the maximum CPP2 contribution level. Self-employed individuals pay both the employee and employer shares of CPP2, meaning their maximum CPP2 contribution is $648 per year.

Common Misconceptions

• "CPP is going bankrupt." The Chief Actuary's most recent report confirms that the CPP is sustainable for at least 75 years. The fund is partially funded and professionally managed, unlike pay-as-you-go systems in some other countries.
• "I should take CPP at 60 because the government might reduce benefits." CPP benefits are protected by federal-provincial agreement and require consent from two-thirds of provinces to change. Benefit reductions are extremely unlikely given the fund's strong financial position.
• "CPP contributions are a tax." While CPP contributions are deducted from your pay like a tax, they are fundamentally different: you receive a direct, calculable benefit in retirement based on your contribution history. CPP is social insurance, not a tax.

Sources

• CRA: CPP Contribution Rates
• Service Canada: CPP Benefits
• Revenu Québec: QPP