The Canada Pension Plan (CPP) and the U.S. Social Security system are publicly provided pension systems. They both provide retirement, disability, and survivor benefits. However, the amount individuals pay and the benefits they receive differ.
Key Takeaways
- The Canada Pension Plan (CPP) and Social Security are government-sponsored retirement income programs.
- CPP tax rates and income thresholds are generally lower than Social Security.
- Taxed Canadian wages go into a trust fund managed by the CPP Investment Board, which invests the funds in stocks, bonds, and other assets.
- Taxed U.S. Social Security wages go into the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. The funds are invested in U.S. Treasury securities.
Canada Pension Plan
The Canada Pension Plan (CPP) , established in 1966, is one of three Canadian retirement income systems that provides retirement, survivor, and disability benefits. Most Canadians contribute to the CPP. A Quebec Pension Plan (QPP) provides similar benefits to its residents.
Individuals contribute to the CPP if they are over 18 and earn more than CA$3,500. Based on earnings , the employee and employer contribution rate is 5.95% each, and the self-employed contribution rate is 11.9%. In 2024, Canada introduced an additional maximum pensionable earnings amount, adding CPP contributions of 4% for both employers and employees or 8% for the self-employed on earnings between CA$68,500 and CA$73,200.
The CPP Investment Board invests the assets "to maximize returns without undue risk of loss." For 2024, the maximum monthly retirement benefit is CA$1,364.60. CPP benefits are based on how much and how long individuals have contributed.
The Quebec Pension Plan is the equivalent of the CPP in the region. In 2024, its contribution rate is 10.8%, split equally between the employer and the employee.