Pension Indexing Rate for 2024
Federal Pension Indexing Rate for 2024
The indexation rate for the federal public service pension plan, effective January 1, 2024, is 4.8%.
5-Year Index Rate History
2023 - 6.3%
2022 - 2.4%
2021 - 1.0%
2020 - 2.0%
2019 - 2.2%
Canada Pension Plan (CPP) Indexing Rate for 2024
The indexation rate for the Canada Pension Plan benefits, effective January 1, 2024, is 4.4%.
5-Year Index Rate History
2023 - 6.5%
2022 - 2.7%
2021 - 1.0%
2020 - 1.9%
2019 - 2.3%
What is Pension Indexing?
Pension indexing is a way to adjust pensions for changes in the cost of living. This is important because, over time, the cost of things people need, like food and housing, goes up. This is called inflation. When pensions are indexed, it means the amount of money people get from their pension goes up a bit each year to help cover these higher costs.
How is the Index Rate Calculated?
Both the federal pension and CPP use data from the Consumer Price Index (CPI) to determine their annual increase. The CPI looks at the change in the cost of a wide range of items, like food, housing, clothes, and transportation. Each month, Statistics Canada publishes new data on the change in the CPI during the previous month. The two pensions use different time periods in their calculations, which is why their index rates differ slightly.
Impact on Retirement Income
With indexation, the increase in your pension helps you maintain your buying power, even as things get more expensive. Pensions without indexing can lose a lot amount of buying power during a long retirement.
Example
Let's assume you have a pension without indexing of $10,000 per year. If inflation is 2.5% annually, this means that the cost of living increases by 2.5% each year. However, since the pension is not indexed, it remains at $10,000 every year. Over time, the purchasing power of this pension decreases as it buys less and less due to the rising costs of goods and services. By the 30th year of retirement, the real value of your $10,000 pension would be cut in half due to inflation.
Choosing Your Level of CPP Income
When planning for retirement, one critical decision is when to start your CPP benefits. The value of full indexing makes this an especially important decision to get right.
You can start receiving CPP as early as age 60 or delay it until age 70. The amount you receive varies depending on when you start. If you take it early, the amount is reduced; if you delay, it increases. Avoid the misleading CPP breakeven calculation when you're making this important choice.
