Latest news: In 2024, there are rumors about significant changes to CPP. It's also said that retirement pensions will now require dual contributions. Isn't it tough for the working class? If you want to know the impact of these changes, watch this video quickly. If you are watching Novella Wealth's Canadian financial lifestyle channel for the first time, we are an insurance investment and wealth management company located in Richmond, British Columbia. We mainly share professional and practical Canadian financial planning, insurance investment, tax, and life knowledge videos. If you are interested in these topics, we hope you subscribe to the channel and hit the notification bell to support us. Welcome back to Novella Wealth's channel. Hello, I'm Kinson. I'm Edmond. It's been a while since we last met. But thank you for your continuous support. Our topic today is the significant changes to the Canadian Pension Plan (CPP) in 2024. Can you believe retirement pensions now require dual contributions? In this video, we'll revisit what CPP is, explain the changes to CPP in 2024, discuss their impact on you, and analyze whether relying solely on the Canadian government's benefits is sufficient for our retirement. We'll provide you with five secrets on how to better secure your retirement life beyond CPP. We have previously made a video explaining in detail what CPP is. Now, let's revisit what CPP is with everyone. CPP is for individuals aged 18 and above, working in Canada and earning an annual income exceeding 3,500 Canadian dollars. They are required to contribute to the CPP retirement fund. The contributions to CPP are split equally between the employer and the employee. For self-employed individuals, they have to contribute double. Both the employer and employee portions must be paid. This means contributing an extra share. Similar to the Mandatory Provident Fund (MPF) in Hong Kong. The third point is, CPP contributions are not taxes. They are meant for use during retirement. It's a form of retirement pension. When you reach the age of 60, that's the earliest you can start withdrawing. If you are 75 or older and still working, you no longer need to contribute to CPP. How is the CPP contribution amount calculated? It depends on the portion between the minimum and maximum income (eligible for pensionable earnings). The calculation of CPP contributions is based on the basic exemption amount, which is 3,500 Canadian dollars. The Year's Maximum Pensionable Earnings (YMPE) for 2024, increased from 66,600 dollars in 2023 to 68,500 dollars. The percentage of the total amount is 11.9%. If you are an employee, the employer contributes 5.95%, and you contribute 5.95%. The total is 11.9%. As of 2019, the CPP is gradually being enhanced. How does it work? Back in 2018, employers and employees each contributed only 4.95% to the CPP. However, the purpose of CPP Enhancement is to have Canadians give more contributions to CPP. So, in 2023, with incremental increases each year, the contributions from both employers and employees have increased to 5.95% for the additional CPP 'top-up'. The total increase amounts to 11.9% altogether. This is the combined contribution after the overall rise. Although CPP is a retirement benefit for Canadians, the total amount you contribute throughout your life will impact the amount of benefits you can receive in the future. In simple terms, the longer you contribute or the more you contribute, the greater the benefits you can receive in the future. For details about this, check out this video here. As we enter the year 2024, what significant changes have occurred with CPP? In 2024, CPP has become more complex, and for the middle class, it has the most impact. In addition to what we mentioned earlier, where employers and employees each contribute a 'top-up' CPP amounting 5.95% each, there is a 'CPP2' which is an additional contribution layer. As of now, CPP2 is set to be implemented in 2024 and 2025. This is the plan announced so far by the federal government. It has already been implemented since January 1, 2024. You should see the CPP2 payment on your pay slip. The CPP Enhancement introduced in 2019 can be referred to as "CPP1." As of 2024, the YMPE has increased to 68,500 Canadian dollars, which is the first level of top-up CPP (CPP1) In 2024, for the second level of additional CPP (CPP2), a second earnings ceiling is introduced. The term "additional" is added This is known as AYMPE (Additional Maximum Annual Pensionable Earnings) Which is up to 73,200 Canadian dollars. For the portion between YMPE and AYMPE, approximately 4000 Canadian dollars, an additional 4% CPP2 contribution is required from both the employer and employee. In 2024, our contributions, both employer and employee, for additional CPP2, are capped at around 188 Canadian dollars if the income does not exceed 68,500 Canadian dollars. Only CPP1 needs to be contributed. No contribution to CPP2 is required. Assuming my annual income in 2024 is 70,000 Canadian dollars That means my income falls within the YMPE (CPP1) and AYMPE (CPP2) The difference is approximately 1,500 Canadian dollars 4% of 1,500 Canadian dollars is CPP2, which amounts to 60 Canadian dollars On the contrary If the income is 73,200 Canadian dollars or more I need to pay CPP1 and CPP2 With CPP1 being 5.95% each for the employer and employee (and CPP2 being 4% each) The total amount is 4,055 Canadian dollars (misstatement) In comparison to only paying CPP1 in 2023 It's increased about 300 Canadian dollars. Adding a bit more information In the year 2025 The previously mentioned AYMPE Will increase again to 79,400 Canadian dollars In other words Both employers and employees will need to pay an additional 388 Canadian dollars for CPP2. Is there any way To reduce CPP contributions? In simple terms, no. Because it's not like RRSP contributions The amount contributed to RRSP Can be deducted from taxable income Providing a tax refund CPP doesn't work that way So why does the government increase CPP contributions each year? We first need to understand how CPP operates It involves those currently contributing Providing for those currently receiving retirement benefits In simple terms We are aware of the "baby boomer generation" The issue of baby boomers' births Is evident There are more retirees than current contributors So that's why we have to contribute a bit more each year to those currently retired There has also been recent discussion Regarding each province Originally agreeing to participate in the CPP program But there have been discussions Suggesting that provinces have the option to leave this CPP program If indeed one province Or more, decides to leave the CPP program CPP could lose a significant amount of funding Yes, Edmond, consider this If today a province decides to opt out And reclaim its share The total amount would significantly decrease Meaning, how much everyone gets from the collective contributions Would be reduced And this is something no one knows How many provinces might opt out And reclaim their share Will it affect our original CPP? No one knows But it's certain that there would be an impact Also, if we work in one province Earn money in that province But retire in another province Calculating CPP retirement benefits would be challenging Also, I think CPP has a small issue Usually, we say contributing to CPP Is like saving money Or maybe contributing a few thousand dollars each year Earning interest each year Compounding over time But the approach of the CPP program Is that a portion of your contributions Goes to the current beneficiaries Using a simple number to illustrate Let's say you contribute over 6,000 dollars to CPP each year Perhaps 3,000 dollars go to those currently receiving retirement benefits Meaning, this 3,000 dollars is not invested Does not grow Relatively speaking, the fund grows more slowly Wow, Kinson, relying solely on the government Firstly, one doesn't know if it's enough for retirement Secondly, the existence of the CPP program is also a question Right, Edmond, when you mentioned this It reminded me of watching your video About the four retirement benefits the Canadian government provides The first is OAS Assuming you reside for forty years You can receive 100% of the benefit Approximately around seven hundred dollars monthly (in 2024) The second is CPP As mentioned today It also depends on the amount you'll receive in retirement (Monthly) ranging from over 600 to over 1,000 dollars (in 2024) The third is the government-provided RRSP savings plan The amount you withdraw Is considered as income and subject to taxation Finally, there's the Guaranteed Income Supplement GIS But meeting the criteria Is quite challenging Because it's for individuals with very low income To qualify for the benefit In simple terms, if you have a certain income level each year Basically, your GIS Will continuously decrease Until it's zero So, even though these benefits exist I don't think They can truly be relied upon completely To sustain a retirement lifestyle Two years ago We made a video Calculating with everyone How much money is needed For retirement life in Canada From what I remember We shared the requirements for three levels of retirement lifestyles In the past two years Inflation has been quite significant That is, price inflation So, relying solely on the government today For the benefits they provide for retirement I truly believe it's not enough At the beginning of the video, we mentioned giving you 5 tips Apart from CPP How to ensure a more secure retired life For the first one, we would recommend Contributing more to your RRSP Because your contributions can be invested thereby appreciates annually The profits in your RRSP account are not subject to taxation and the amounts you contribute can also be used for tax deductions Meaning, your contributions Are not considered income for that year Eligible for tax refunds Many people calculate their income for the year, how much tax to pay What tax bracket they are in And try to reduce their tax bracket Rather than contributing more than that We do not recommend this Because the RRSP itself is A tax-free savings account A tax-free appreciation account If permitted, you should contribute more The second tip is Contribute to a TFSA account Certainly, the government announces an annual contribution limit We recommend If you have extra money To contribute the maximum allowed Because you work hard to earn money The money you earn in the TFSA Is tax-free It's best because when you make withdrawals You don't need to pay taxes This also has a tax-free effect The third tip We would recommend our clients To create something called an Insured Retirement Plan What is that? I mentioned RRSP and TFSA earlier These two accounts actually have contribution limits RRSP is based on a calculation of 18% of your annual income To determine the maximum contribution amount The government sets an annual limit for TFSA But this Insured Retirement Plan Simply put It involves placing funds within an insurance plan And the insurance plan Actually serves as a Tax Shelter The money earned annually, the appreciation, is tax-free And when you withdraw it, we have a legitimate way To help you avoid paying taxes This will significantly increase Your retirement income The fourth tip is Borrowing for investment Why do we say that? It sounds like a high-risk strategy I want to remind you that leveraging strategy Is not suitable for everyone I've been in the financial industry for many years Some clients like the strategy While others are completely averse to it So it really varies from person to person It may not be suitable for everyone But what are the benefits of this approach? When you do leverage investment The biggest advantage is that you can access a large amount of borrowed capital from the start And when calculating with the same rate of return It can generate a more powerful compounding effect Of course, borrowing comes with interest payments But what are the benefits of paying interest? The benefit is that because this type of investment has the potential to generate interest income, therefore, this interest can be used to deduct your taxable income each year In fact, if we pay attention today We will find that in many cases We are already engaged in this leveraged investment Simply put, most Canadians Own their residential property Their own home In fact, only a few people Pay the full purchase price in one go Most people make a down payment And gradually repay the rest through mortgage payments This is actually a form of leveraged borrowing investment As for the fifth tip Go ahead, Edmond. In addition to the four tips we mentioned before, I believe that starting a business, running a business, is an excellent way of saving. This doesn't necessarily mean opening a physical store to sell things. In fact, it's not necessarily the case. Kinson, you've witnessed me entering this industry from the beginning Initially, I had a 9-5 job. And I started trying out this field as a side businesses. And began working in this industry. Soon, I transitioned to working full-time in this area. In fact, this can also be considered a form of entrepreneurship. When I run my own business, our income is incorporated into our own company, that is, a business entity. At the end of the year, I can decide how much salary to pay myself. This gives me control over the company's expenses. Having complete control. This way, we have flexibility in controlling CPP1 and CPP2. We can also decide how much we are willing to contribute, choosing whether or not to contribute more. We don't have to spend all the money we earn. Any funds that we don't need to spend can also be retained within the company. In fact, some accountants might say this A corporation is actually an excellent vehicle for accounting. You can accumulate funds within it. From the company's perspective, if the company temporarily doesn't pay salaries, it can actually be considered a tax shelter method. It's like a tax haven. Your dream retirement life requires careful planning. Start planning early. Because time is your friend. What's the first step you should take? Scan this QR code to get in touch with us. You can also reach us on WhatsApp. As a heads up, in our next video, we'll be sharing with you "15 Secrets to Maximize Your Savings in This Tax Season!" Until next time, Bye! If you want to enhance your wealth, investment, tax, retirement and legacy planning now we have a special offer for you: Scan this QR code immediately to claim the offer. Our licensed advisors will help you with a Complete Financial Wellness Analysis providing you with personalized one-on-one tailored financial strategies that align with your goals. Absolutely free of consultation fees. Why wait? Take action now! 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