What is the Canada Pension Plan (CPP)?

The Canada Pension Plan (CPP) is a pension program designed to help eligible workers accumulate funds over their working life, which is accessible upon retirement.

Upon retirement, CPP provides employees with a monthly income flow for the rest of their lives. It also extends financial support to their dependents and spouses through disability payments and survivor benefits.

To qualify for the CPP payout, you must:

• Be at least 60 years old
• Apply to start the CPP contribution
• Have made at least one contribution to CPP while working in Canada

Additionally, CPP provides inflation-adjustment payments that preserve the purchasing power of your pension over time. It ensures the value of the benefits aligns with economic trends. Therefore, as the cost of living increases, so does the value of your CPP payouts.

What types of benefits does CPP provide?

CPP provides the following benefits, which support Canadian workers and their families:

Retirement benefits

The retirement benefit is a monthly pension payment you will get after retirement for the rest of your life. To be eligible, you must be at least 60 and contributed to the CPP.

Disability benefits

Disability is a monthly payment you receive because you have severe prolonged disability. To qualify for the disability benefit, you must be under 65, have contributed to the CPP, and have a mental or physical disability preventing you from working.

Survivor’s benefits

A monthly benefit is paid to the deceased contributor's legal spouse or common-law partner. Recipients must be legally married to the deceased to claim the benefit.

Children’s benefits

A monthly payout to the dependent children of the disabled or deceased contributor. To be eligible for the children's benefits, the dependent must be under 18 or between 18 to 25 while in school full-time or part-time at a recognized school or university.

Death benefits

A lump sum payment to the eligible individuals on behalf of a deceased CPP contributor. The deceased contributor must have made a CPP contribution for a minimum of 10 years before the beneficiaries can be considered eligible.

Post-retirement benefits

A lifetime monthly benefit designed for employers under age 70 who continue to work while receiving CPP benefits. To be eligible, you must be working, contributing to the CPP, and currently receiving your pension benefits.

Who can contribute to CPP?

CPP mandates Canadian workers (except those in Quebec) earning above a minimum of the Year Basic Exemption (YBE) to contribute a percentage of their income to the CPP (known as the contribution rate). According to the government website, the YBE for 2025 is $3,500 CAD.

The Canada Pension Plan contribution rate is determined yearly by the Canadian government. In 2025, the employee contribution rate is 5.95% of an employee’s earnings.

Here’s a breakdown of how CPP contribution works:

• For employees: You are required to make the employee contribution, which will be deducted gradually from your paychecks. Your employer also pays the same amount. This means you and your employee will contribute a total of 11.9% of your earnings
• For self-employed individuals: As an entrepreneur, you are required to pay both the employee and employer contribution rates, which is 11.9% of your net business earnings

When to deduct CPP Contribution

As an employer, you are mandated to deduct CPP contributions from your employee’s pensionable earnings such as salary, wages, commission, bonuses, honorariums, gratuities, and other remuneration.

However, to deduct CPP contributions, employers must meet the following requirements:

• The employee is in pensionable employment over their working life
• The employee is not disabled under the CPP regulations
• The employee is between the ages of 18 to 69

However, employees between the ages of 65 and 69 years old can opt to stop the deduction of CPP contribution by obtaining Form CPT30.

Learn more: Employer costs for an employee in Canada

What are the factors that determine the amount of CPP benefits?

The amount of CPP benefits an employee receives is based on:

The age you start collecting CPP benefits

While the standard age to collect CPP benefits is 65, you can receive it at 60 and later at 70. However, the earlier you receive your CPP benefits, the smaller your monthly payouts.

Here’s how the age you collect CPP benefits can influence your payouts:

• At 60: Decreases CPP payout by 0.6% monthly or 7.2% per annum. In the next 5 years, this would amount to a 36% reduction in your payouts. This is an ideal option for individuals with health conditions, who need financial support, or considering early retirement
• At 65: Increases your payment by 0.7% monthly or 8.4% per annum. Not only that, the maximum monthly amount you could get is $1433.00 monthly in 2025. You are also eligible for the retroactive payments of the CPP for up to 12 months
• At 70: Increases your payment up to 42% and offers $1937 monthly payouts. An ideal option for individuals who are healthy, retiring late, or have other sources of income

Contribution duration and amount

Your CPP payouts depend on the amounts and duration of your contribution throughout your work life. Under CPP, your benefits are estimated based on your average earnings and the period you’ve contributed. Therefore, the longer and the amount you’ve contributed to the Canada Pension Plan, the higher your payouts.

The best way to increase your CPP benefits is by contributing the year’s maximum pensionable earnings (YMPE) amount for at least 39 years of your service year. The YMPE is the highest contribution rate employees and employers are required to contribute in a year. According to the Canadian government, the YMPE for 2025 is $71,300—from $68,500 in 2024.

Periods of low or no income

Gaps in employment can result in inconsistency in your CPP contribution, resulting in small payouts.

However, there are certain exemptions—CPP excludes 8 years of your lowest earnings when calculating benefits. This means you are eligible for the exemption if your period of low or no income doesn’t exceed 8 years.

The exemption applies to:

• Those temporarily without gainful employment
• Individuals taking career breaks
• Parents who left the workforce to raise children

How to apply for the CPP benefit?

Check your eligibility and decide if you want to start receiving your Canada Pension Plan (CPP) benefits at age 60, 65, or 70 before applying.

To apply for the CPP benefit:

• Register or sign into your My Service Canada Account (MSCA)
• Then click on “Apply for Canada Pension Plan retirement pension” from the CPP dashboard

The processing time for CPP applications can take up to 28 days after registration is complete.

How does CPP impact HR and payroll processes?

The role of the HR and payroll team in CPP involves:

• Staying up-to-date on yearly changes in CPP contribution rates, YBE, and YMPE, especially when managing a dispersed team
• Accurate, calculation, timely contribution, and record-keeping help reduce payroll costs in Canada, which can be time-consuming for HR and payroll team
• Timely remittance of the employee and employer portion to the Canada Revenue Agency (CRA)
• Educates employees on CPP contributions visible on their pay stubs
• Compliance with the CPP regulatory standards

Stay compliant with CPP using Deel

Staying updated with pension and employment laws in Canada is important for HR and payroll teams who want to hire and pay employees in Canada.

With Deel, you can mitigate payroll, HR, and compliance risks while focusing on growing your business with services such as:

• Expert payroll administration
• Advanced HR and benefits compliance
• Training, HR policies, and on-demand HR support
• Payroll processing under local regulations

Book a demo to explore Deel’s platform and speak with an expert.