Lower CPP Contributions Mean More Take-Home Pay for Canadian Workers
Canadian workers and employers will pay a lower base Canada Pension Plan contribution rate beginning in 2027. For an employee earning $70,000, the federal government estimates the change will save about $133 a year — with the employer saving the same amount.
The combined base CPP contribution rate is dropping from 9.9% to 9.5% beginning in 2027. Employees and employers split CPP contributions equally, so the base rate paid by each side falls from 4.95% to 4.75%. The change means slightly more take-home pay for workers and lower payroll costs for employers.
What Is Changing With CPP?
The federal government has reduced the base Canada Pension Plan contribution rate beginning in 2027.
The combined base CPP rate will fall from 9.9% to 9.5% of pensionable earnings.
Employees and employers share CPP contributions equally. That means the base contribution rate for each side falls from 4.95% to 4.75%.
| Base CPP Rate | Before | 2027 |
|---|---|---|
| Employee | 4.95% | 4.75% |
| Employer | 4.95% | 4.75% |
| Combined | 9.9% | 9.5% |
How Much Could You Save?
The amount depends on your pensionable earnings.
The federal government provides an example of an employee earning $70,000 a year. Under the lower rate, that worker is expected to save approximately $133 annually.
Annual employment income: $70,000
Estimated employee saving: $133 per year
Estimated employer saving: $133 per year
For an employee, the saving should appear gradually through lower CPP deductions from pay rather than as a separate payment from the government.
What Does This Mean for Your Paycheque?
If you are an employee earning enough to make CPP contributions, slightly less money will be deducted for the base CPP contribution after the new rate takes effect.
For someone matching the government’s $70,000 example, $133 a year works out to roughly $11 a month when averaged over the year.
The exact difference on individual paycheques will depend on earnings, pay frequency and when the worker reaches the annual CPP contribution maximum.
There’s Something Important to Understand About CPP2
CPP contributions have become more complicated since the introduction of the CPP enhancement.
The reduction applies to the base CPP contribution rate. It does not eliminate the additional CPP contributions created under the CPP enhancement.
Higher-earning workers may also make second additional CPP contributions, commonly called CPP2, on earnings above the first annual earnings ceiling and up to the second ceiling.
As a result, your total CPP deduction cannot be calculated simply by multiplying all of your income by 4.75%.
Small Businesses Save Too
This change is particularly relevant to employers because businesses generally match their employees’ CPP contributions.
Using the government’s example, an employer would save approximately $133 a year for an employee earning $70,000.
That may sound modest for one employee, but the savings increase across a larger payroll.
If five employees each produced an employer saving similar to the government’s $133 example, the business would save approximately $665 a year in base CPP contributions.
Actual employer savings will depend on each employee’s pensionable earnings.
What About Self-Employed Canadians?
Self-employed workers generally pay both the employee and employer portions of CPP contributions.
That means a reduction in the contribution rate can also reduce CPP costs for self-employed Canadians with pensionable earnings.
The exact saving will depend on net self-employment income and the applicable annual CPP earnings limits.
Will Lower Contributions Reduce Your CPP Retirement Pension?
According to the federal government, the rate reduction was made possible following actuarial analysis showing that the base CPP could remain financially sustainable with a lower contribution rate.
The change does not represent the cancellation of CPP or the CPP enhancement. Workers will continue making CPP contributions and earning pension benefits under the plan.
Do Employees Need to Do Anything?
For employees: No.
Employers calculate and deduct CPP contributions through payroll. Workers should not need to apply for the lower contribution rate.
What Should Employers Do?
Employers should ensure their payroll software, payroll provider or CRA payroll calculations are using the correct contribution rates when the change takes effect.
Businesses do not need to manually give employees the CPP saving. It will result from the lower contribution calculated through payroll.
The Bottom Line
Beginning in 2027, the base CPP contribution rate will fall from 9.9% to 9.5%, split equally between workers and employers.
For an employee earning $70,000, the federal government’s example puts the annual saving at approximately $133. The employer saves approximately another $133.
It isn’t a dramatic increase in anyone’s paycheque, but it is money that workers will no longer have deducted and money employers will no longer have to contribute.
VIPNews explains Canadian government changes in plain English. This article provides general information and is not personal financial, tax or payroll advice.