The Thursday Sheet
SHEET 001 / PENSIONS
AR FIRST EDITORIAL / / 6 MIN READ
What twenty years of indexation does to a CPP pension
Two per cent a year sounds like nothing. Compounded every January, it is the difference between a pension that holds its value and one that quietly shrinks.
Every January the Canada Pension Plan raises the benefits it is already paying. For 2026 the figure was 2.0%. On its own, one year of that looks like a rounding error: a few dollars a month. The interesting part is what happens when those Januarys are stacked on top of each other for ten or twenty years, which is exactly how long many people will be drawing the pension.
This sheet works through that arithmetic with the rates the Government of Canada has actually published, then projects it forward on plainly stated assumptions. It is also the hub for this site’s pension section: where a related rule changes the starting amount that indexation is applied to, we link to the sheet that works it through.
How the January figure is set
CPP benefits are adjusted once a year, in January, using the Consumer Price Index. The calculation compares the average CPI over two consecutive twelve-month periods ending in October. For 2026, the government compared November 2024 to October 2025 (an average index of 163.6) with November 2023 to October 2024 (160.4). The difference rounds to 2.0%, and that became the increase for CPP benefits that were being paid in 2025.
Two details matter for everything that follows. First, the increase is applied to the benefit itself, so it compounds: the 2027 adjustment will be calculated on the 2026 amount, which already includes this year’s 2.0%. Second, the CPP does this once a year. Old Age Security works on a different timetable, reviewed every January, April, July and October, which is one reason a CPP percentage should never simply be applied to an OAS or GIS payment.
The published record since 2014
The government publishes the January indexation rate each year alongside the CPP maximums. These are the figures from those tables for the last thirteen Januarys:
| Year | Rate | Year | Rate | Year | Rate |
|---|---|---|---|---|---|
| 2014 | 0.9% | 2019 | 2.3% | 2024 | 4.4% |
| 2015 | 1.8% | 2020 | 1.9% | 2025 | 2.6% |
| 2016 | 1.2% | 2021 | 1.0% | 2026 | 2.0% |
| 2017 | 1.4% | 2022 | 2.7% | ||
| 2018 | 1.5% | 2023 | 6.5% |
The shape is worth a second look. For most of the decade before 2022 the adjustment sat between 1% and 2.3%. Then came 6.5% in 2023 and 4.4% in 2024, the CPP catching up with the price increases of 2022 and 2023. Because the adjustment looks backwards at the previous year’s prices, it always arrives after the cost increases it is compensating for, never before.
The working: ten Januarys
Take an illustrative pension of $900 a month in 2016 and apply each published January rate in turn. This is arithmetic on a made-up starting figure, not anybody’s actual benefit:
Ten adjustments that each looked modest added up to almost thirty per cent. That works out to about 2.6% a year on average.
Five, ten and twenty years
Nobody knows future inflation, so any projection is an assumption. Here is the same $900 carried forward under the actual recent record and under two steady rates, one at 2.0% (the midpoint of the Bank of Canada’s inflation-control target) and one a little higher at 2.5%:
| Assumption | 5 years | 10 years | 20 years |
|---|---|---|---|
| Published rates (2022–26 / 2017–26) | $1,075.50 | $1,165.43 | n/a |
| Steady 2.0% a year | $993.67 | $1,097.09 | $1,337.35 |
| Steady 2.5% a year | $1,018.27 | $1,152.08 | $1,474.75 |
Someone who starts the pension at 65 and lives into their mid-eighties will see about twenty of these adjustments. At a steady 2%, the cheque at the end is nearly half as large again as at the start.
Against a pension that stays fixed
The point of indexation is not that the number goes up. It is that what the number buys stays roughly where it was. Run the comparison the other way round: if a pension of $900 had been frozen in 2016 while prices moved in line with the CPP adjustments, by 2026 it would buy what about $695 bought in 2016, a loss of about 22.8% in purchasing power.
That is the gap an indexed pension closes and a fixed one does not. Many workplace and private pensions pay a level amount for life or index only partly; we work through that case, at 2% and 3% inflation, in what inflation does to a workplace pension that isn’t indexed.
What indexation does not do
- It does not change the starting amount. Indexation multiplies whatever the pension was. The size of that base depends on years of contributions, earnings against the yearly maximum and the dropout rules; see why almost nobody receives the CPP maximum and how years spent raising children can lift a CPP pension.
- It is not the same as the new-pension maximum. The published maximum for a pension starting in 2026 is calculated separately and also reflects the CPP enhancement, so it does not rise by exactly the indexation rate.
- It interacts with other income. A higher CPP amount is taxable income and counts toward the income tests for the Guaranteed Income Supplement; see why one extra dollar of income can matter when you receive GIS.
Who this matters for, and what to check
The compounding matters most to people with a long expected payout period, people for whom CPP is a large share of total income, and couples comparing an indexed source of income with a fixed one. It also matters to anyone still working after starting the pension, because each post-retirement benefit earned is added to the total that is adjusted in future Januarys.
- Compare the gross CPP amount for December and January in the payment history in My Service Canada Account, rather than a bank deposit.
- Separate the CPP line from OAS or GIS, which follow their own quarterly adjustments.
- Check whether a voluntary tax deduction changed at the same time, which can mask the increase in the deposit.
- For income planning, model future years at a stated inflation assumption rather than at a single year’s figure.
The short version
One January is small. Ten Januarys turned an illustrative $900 into $1,165.43, and twenty years at a steady 2% would take it past $1,300. The more useful way to see it is the reverse: without that adjustment, the same pension would have lost close to a quarter of its buying power over the last decade. Indexation is what keeps a CPP pension doing the same job in year twenty that it did in year one.
This is private sponsored information published by OÜ ET Consult. AR First is not a Government of Canada, Service Canada or Canada Revenue Agency website and has no affiliation with them. Every calculation on this page is an illustrative example with stated assumptions, not a quotation, forecast or entitlement for any reader; benefit amounts and tax rules depend on personal circumstances and change over time. Figures were checked against the official sources listed on . There is no application, registration or fee on this website for any government benefit. Never give your Social Insurance Number, banking details or My Service Canada Account or CRA sign-in credentials to a website in response to an article. For your own payments, use My Service Canada Account or contact Service Canada directly.
