CPP: What You’re Actually Paying For

If you’ve ever looked at your pay stub and wondered what that “CPP” deduction is actually funding, you’re not alone. Most people know it has something to do with retirement, but the details? Pretty fuzzy.

And starting in 2024, some higher earners started seeing a second deduction called “CPP2.” That’s a new add-on for people who make over a certain amount. It’s meant to increase future payouts by collecting a bit more from income above a set limit.

So today, we’re breaking down what CPP actually is, what you’re building toward, and why it’s more than just another tax line.

First up: what is CPP?

The Canada Pension Plan (CPP) is a government-run retirement program. Most working Canadians pay into it through automatic payroll deductions. If you earn a paycheck, you’re probably already contributing. Your employer usually matches your contribution.

But if you're self-employed, there’s no employer to match it. You pay both parts yourself. That means higher deductions and a bigger financial load, just for working for yourself.

Where does that money go?

A lot of people assume it’s just another tax, but CPP isn’t mixed in with general government spending. It goes into a separate fund that pays out monthly income when you retire.

The CPP is like a retirement plan you’re forced to pay into, managed by the government. Sounds sketchy, but honestly it does its job. You’ll actually get something back when you retire.

When do you get paid back?

You can start collecting CPP as early as age 60, or wait until age 70. The longer you wait, the higher your monthly payment. Most people start around 65.

It’s a tradeoff. Start early and get smaller payments for more years, or start later and get a bigger monthly check.

How much can you actually get?

In 2025, the maximum monthly payout is just over $1,433. But most people get less. The average Canadian gets about $800 per month. That’s because your payout depends on how much you contributed, how long you contributed, and when you start collecting.

How do contributions work?

CPP applies to income between $3,500 and $71,300 per year. That upper limit is called the Year’s Maximum Pensionable Earnings (YMPE).

In 2024, the government added a second layer. If you earn between $71,300 and $81,200, you now pay a bit more. That’s what CPP2 is. It’s part of an “enhanced CPP” meant to boost future benefits for higher earners.

What percentage do you pay?

If you’re an employee, you pay 5.95% of your eligible earnings, and your employer matches it.

If you’re self-employed, you pay the full 11.9% on your own. The most you’ll pay in 2025 is $4,430.10. If you’re self-employed, that number doubles.

Once you hit that max for the year, the deductions stop until January. That’s one of the few paycheck wins we get.

So when you see that CPP deduction come out, remember: you’re not just losing money. You’re buying credits that turn into monthly income later.

CPP isn’t just for retirement

Retirement is the main purpose, but CPP also provides:

• Disability benefits if you become unable to work due to a serious illness or injury

• Survivor benefits for your spouse or children if you pass away

• Death benefits to help cover funeral costs

So in a way, it’s part pension and part insurance.

The takeaway

CPP isn’t just a line on your pay stub, it’s also a long-term safety net. The more consistently you contribute, the more support you’ll have when you need it.

It won’t be enough to retire on by itself. Even at the maximum, it’s only about $20,000 per year. But it’s a strong foundation that works best when you build on top of it with your own savings and investments.

More on this soon. Your paycheck makes more sense when you know what each line means.