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In 2025, there are three big changes coming to the Canada Pension Plan (CPP) and Old Age Security (OAS) that all Canadians need to know about. These changes impact how much those still paying into CPP will eventually get when they draw it, as well as the amounts that current beneficiaries receive. So, all Canadian adults — retirees and those still in the workforce — ought to keep up with the changes coming to the benefit programs. In this article, I explore the three big changes coming to CPP and OAS in 2025.
Phase two of CPP enhancement
The first thing that is changing with CPP this year is that enhancement is entering its second phase.
CPP Enhancement is an ongoing program that seeks to eventually increase CPP benefits from 25% of a recipient’s working-age salary to 33%. It seeks to achieve this increase by gradually upping the amount that Canadians pay into the program.
The first phase, which ran from 2019 to 2024, consisted of gradually upping the CPP paycheque deduction.
The second phase, which starts this year, consists of increasing the earnings ceiling, after which CPP is no longer taken out of one’s paycheque. This phase increases the upper limit of the income on which CPP is deducted by 14% over two years. The first increase happens this year; it is followed by one more in 2026. After that, the CPP Enhancement is complete.
OAS for Canadians over 75
A recent change to the OAS program was the 10% top-up for Canadians over 75 years old. Such Canadians, if they otherwise got (for example ) $600 per month, get $660 per month. This change was brought in in 2022, so it’s not exactly totally new, but Canadians turning 75 this year will be getting their 10% hike for the first time.
Inflation adjustment
A final change that is impacting CPP and OAS (both in this case) is the annual inflation adjustment. This is not a new policy but an existing one whose numerical impact differs a little each year. CPP’s annual increase is based on the inflation rate in the November-October period ending the prior year. This was 2.7% last year, so CPP payments are going up that much. The OAS inflation adjustment is a little different, going by quarterly inflation rates. OAS is very likely to increase this year as well, but the exact percentage increase is unknown.
What to do if your CPP and OAS still won’t be enough
If your CPP and OAS still won’t be enough to cover your expenses even after enhancement and inflation adjustments, you could consider investing in index funds. Such funds are among the lowest-risk investments out there, and they pay a bit of dividend income. They’re also tax-free if held in a Tax-Free Savings Account.
Take iShares S&P/TSX Capped Composite Index Fund (TSX:XIC). It’s a Canadian index fund built on the TSX Composite — the 240 largest publicly traded Canadian companies. It has a 2.5% dividend yield, so if you have a few hundred thousand to invest, you could get a decent amount of dividend income.
Why do I mention XIC instead of just mentioning index funds as a class? Because this particular exchange-traded fund has a lot going for it. Its 2.5% dividend yield is more than you’d get on a U.S. fund. Its 0.05% fee is among the lowest of Canadian funds. The stocks in this fund don’t subject you to the U.S. dividend withholding tax. And finally, it’s a very popular and liquid fund. Overall, it’s a good bet for many Canadians. But as always, speak with your advisor: everybody’s risk tolerance and financial needs are unique.
