What Does CPP2 Mean for High Earners?
Are you wondering why your paycheque deductions have changed since 2024? If you are a higher-income earner in Canada, the new second ceiling for Canada Pension Plan (CPP) contributions, has directly affected your payroll.
The CPP enhancement represents a major shift in how retirement security is being built in Canada. For the first time, Canadians earning above the traditional Year’s Maximum Pensionable Earnings (YMPE) will contribute extra under a new tier, called the Year’s Additional Maximum Pensionable Earnings (YAMPE).
“The CPP enhancement was designed to increase retirement income for working Canadians and their families.”- From the Canada Revenue Agency
In this blog post, you will learn not just the rules but also the reasons behind them. We will connect policy decisions to real-world impacts, so you understand both the “what” and the “why.”
CPP2 Quick Facts for 2025 (TLDR)
Here is a snapshot of the most important details you need to know about CPP2:
- YMPE (first ceiling): $71,300 in 2025
- YAMPE (second ceiling): $81,200 in 2025
- Employee CPP2 contribution: 4% on income between YMPE and YAMPE
- Employer CPP2 contribution: 4% match on the same band
- Self-employed CPP2 contribution: 8% on income between YMPE and YAMPE
CPP2 Contribution Comparison: 2024 vs 2025
| Year | YMPE (First Ceiling) | YAMPE (Second Ceiling) | Employee Rate | Employer Rate | Self-Employed Rate | Contribution Band |
| 2024 | $68,500 | $73,200 | 4% (above YMPE up to YAMPE) | 4% | 8% | $4,700 |
| 2025 | $71,300 | $81,200 | 4% (above YMPE up to YAMPE) | 4% | 8% | $9,900 |
Source: CRA CPP Enhancement guidance
What Is the CPP Enhancement? (2025 Update)
The Canada Pension Plan has always been a foundation of retirement income for working Canadians. The CPP enhancement is a phased reform designed to build on top of that foundation by gradually increasing contributions and benefits. At its core, it is about helping Canadians replace more of their income when they retire.
CRA guidance explains that additional contributions began in 2019, increasing benefits like retirement pensions, post-retirement benefits, disability pensions, and survivor’s pensions.
Unlike the earlier phases, CPP2 introduces a second tier of contributions aimed directly at higher-income earners. This shift answers a long-standing concern: many professionals earning well above the ceiling were not getting proportional benefits later.
From Base CPP to Enhanced CPP (YMPE and YAMPE Explained)
The original CPP had a single earnings ceiling called the Year’s Maximum Pensionable Earnings (YMPE). In 2024, a second ceiling was introduced called the Year’s Additional Maximum Pensionable Earnings (YAMPE). This second ceiling created a new tier of contributions, known as CPP2.
- YMPE is the first earnings ceiling. In 2025 it is set at $71,300.
- YAMPE is the second earnings ceiling. In 2025 it is set at $81,200.
- CPP2 contributions apply only to the income that falls between YMPE and YAMPE.
The Two-Tier System in 2025 (CPP2 Contribution Bands)
Workers earning more than the first ceiling will now contribute additional amounts until they reach the second ceiling. Employers must match these CPP2 contributions, while self-employed Canadians are responsible for both shares.
Who Is Affected by CPP2? (High-Income Earners, Employers, and Self-Employed in 2025)
CPP2 does not apply to every worker. It is targeted at higher earners, and the way contributions are shared varies by situation.
- Employees Paying CPP2 in 2025: Those above YMPE pay 4% on income between YMPE and YAMPE.
- Employers Matching CPP2 in 2025: They contribute 4% for the same income band, increasing payroll costs.
- Self-Employed Canadians (8% Contributions): They pay both shares, a full 8% between YMPE and YAMPE.
Side note: This dual responsibility for self-employed professionals can mean thousands more in annual deductions, which is why proactive tax planning is critical.
Impact of CPP2 on High-Income Earners in 2025
Contributions will rise but so will benefits. This is not just a deduction increase—it is a trade-off.
- Increased CPP2 Contributions: Employees add 4% on income above YMPE, self-employed add 8%. For example, a $90,000 salary will face CPP2 contributions on roughly $18,700 in income.
- Future Benefits: Higher CPP retirement pensions, stronger disability coverage, and improved survivor benefits.
- Long-Term Retirement Security: With workplace pensions shrinking, CPP2 closes the gap between working and retirement income.
For Example: A self-employed professional earning $140,000 will see an 8% CPP2 deduction on income between $71,300 and $81,200. That adds up fast but ensures proportionally higher retirement income later.
High-income professionals should revisit financial plans. Pair CPP2 with RRSPs and TFSAs to keep a balanced retirement strategy. Get in touch with a financial advisor today.
Practical Considerations for Payroll and Budgeting (CPP2 Compliance 2025)
Understanding the policy is one thing, applying it is another. This is where payroll logistics and budgeting become front and centre.
- Payroll Adjustments for Employers: Systems must be updated to reflect YMPE, YAMPE, and contribution bands. Pay stubs should show CPP2 deductions clearly.
- Budget Impacts for Self-Employed: Covering both sides of the contribution could mean thousands more each year.
- Tax Treatment: Employer portions are deductible, and employee portions qualify for credits, softening the blow.
Employers should confirm compliance with providers. Self-employed should update tax forecasts to reflect 2025 changes. Get in touch with a payroll and budgeting expert.
Why CPP Enhancement and CPP2 Matter in 2025
CPP2 is more than mechanics. It represents a social policy response.
- Decline of Workplace Pensions: Employer-sponsored pensions are less common, shifting reliance to public plans.
- Bridging the Retirement Savings Gap: CPP2 increases replacement income for higher earners.
- National Policy Goals: Collecting more now builds sustainability for decades ahead.
How to Prepare for CPP2 Contributions in 2025
Being proactive is the best way to reduce surprises.
- Employees: Check deductions on pay stubs and flag errors early.
- Business Owners: Confirm payroll software is updated and staff trained.
- High Earners: Reassess retirement contributions across CPP2, RRSPs, and TFSAs.
Schedule a consultation with a financial planner to integrate CPP2 into your retirement plan.
Key Dates, Rates, and Contribution Limits for CPP2 in 2025
- YMPE: $71,300
- YAMPE: $81,200
- CPP2 Contribution Rates: 4% for employees and employers, 8% for self-employed
- Base and First Additional CPP Contribution Rates: 5.95% for employees and employers, 11.9% for self-employed
Enter 2026 ready for CPP2 with clarity and confidence.
The introduction of CPP2 in 2025 is not just a new deduction. It is a national strategy to future-proof retirement income. High-income earners will pay more, but they will also benefit more. Employers and the self-employed must adapt payroll and budgets now.
Act today! Review your pay stubs, update systems, and speak with an advisor.
