Information regarding the Canada Pension Plan is displayed of the service Canada website in Ottawa on Tuesday, January 31, 2012. THE CANADIAN PRESS/Sean Kilpatrick

Information regarding the Canada Pension Plan is displayed of the service Canada website in Ottawa on Tuesday, January 31, 2012. THE CANADIAN PRESS/Sean Kilpatrick

Planned increase in CPP premiums on Jan. 1 to hit some workers more due to pandemic

Planned increase on Jan. 1 is part of a multi-year plan approved by provinces and the federal government

Come Jan. 1, Canada Pension Plan contributions are going up again, although higher than originally planned. The reason is largely because of the pandemic’s effect on the labour market, which has some groups noting the impact will be felt by some workers more than others.

Here’s a rundown of what’s happening, and how long the effect might last.

Why premiums are going up

The planned increase on Jan. 1 is part of a multi-year plan approved by provinces and the federal government four years ago to boost retirement benefits through the public plan by increasing contributions over time.

The first premium bump was in 2019, another was earlier this year and the next is due at the beginning of 2021.

A KPMG note in November said the maximum employer and employee contributions will hit $3,166 each in 2021, an increase from the $2,898 this year. For self-employed contributions, the maximum amount will be $6,332, up from $5,796.

Why next year is different

The plan requires contributions to go up alongside the upper limit on earnings that are subject to those premiums.

For next year, the earnings ceiling, known as the yearly maximum pensionable earnings or YMPE, was supposed to be $60,200, an increase of $1,500 from the 2020 limit. But the actual amount is going to be higher at $61,600.

The reason is due to the pandemic’s effects on the labour market and how the YMPE is calculated.

The formula to calculate the earnings limit relies on increases in the average weekly earnings recorded over the year ending June 30, compared to the same figure during the preceding 12-month period.

Over the course of the pandemic, average weekly earnings have increased, but not because people are earning more.

More lower-income workers lost their jobs between March and June than higher-wage workers meaning there were fewer low-wage workers as part of the calculation. The federal chief actuary’s office says that’s why the overall increase is larger than originally projected

The reaction

Dan Kelly, president of the Canadian Federation of Independent Business, estimates that anyone around the maximum earnings limit will effectively see a 9.3 per cent increase in premiums, beyond the just over five-per-cent bump baked into law.

“That’s going to be hundreds of dollars of new CPP premiums out of paycheques of middle-income Canadians not because they got a raise, but because the formula has not had a COVID adjustment,” Kelly says.

“We think this is deeply unfair.”

Provincial finance ministers had asked the government to put a pause on increases for next year, pointing to the economic fallout from COVID-19, but that was easier said than done.

Any changes to contribution rates or the earnings ceiling at which point contributions top-out would need the approval of Parliament and seven provinces representing at least two-thirds of the national population — a higher bar than what’s required to amend the Constitution.

Bottom line

Contributions are going up next year. So too will the maximum earnings limit, beyond what was planned.

But federal officials expect the effect from the higher earnings limit to dissipate over time as jobs continue to come back after steep losses earlier in 2020.

Jordan Press, The Canadian Press

Like us on Facebook and follow us on Twitter.

Want to support local journalism? Make a donation here.

Just Posted

The City of Red Deer sits at 249 active cases of the virus, after hitting a peak of 565 active cases on Feb. 22. (Black Press file image)
Red Deer down to 119 active COVID-19 cases

Province identifies 179 new cases Saturday

Member Terry Parsons’ custom built track vehicle.
Forestburg’s Area 53 Racetrack gears up for action-packed season

Site will also host a portion of the ‘Miles of Mayhem’ event in July

Sabrina Wilde in front of a recently purchased monster truck. Submitted.
Thorsby business women a finalist for 2021 Alberta Women’s Entrepreneurship Award

Sabrina Wilde with Lone Wolf Mechanical is a finalist for the entrepreneurial award.

Grade 12 students at Wetaskiwin Composite High School took place in the annual water fight off school property on June 11, 2021. Shaela Dansereau/ Pipestone Flyer.
Graduating students in Wetaskiwin throw water fight after being told it could result in suspension

Students were told their participation could result in them being barred from graduation ceremonies.

At an outdoor drive-in convocation ceremony, Mount Royal University bestows an honorary Doctor of Laws on Blackfoot Elder and residential school survivor Clarence Wolfleg in Calgary on Tuesday, June 8, 2021. THE CANADIAN PRESS/Jeff McIntosh
‘You didn’t get the best of me’: Residential school survivor gets honorary doctorate

Clarence Wolfleg receives honorary doctorate from Mount Royal University, the highest honour the school gives out

Flowers and cards are left at a makeshift memorial at a monument outside the former Kamloops Indian Residential School to honour the 215 children whose remains are believed to have been discovered buried near the city in Kamloops, B.C., on Monday, May 31, 2021. THE CANADIAN PRESS/Darryl Dyck
‘Pick a Sunday:’ Indigenous leaders ask Catholics to stay home, push for apology

Indigenous leaders are calling on Catholics to stand in solidarity with residential school survivors by not attending church services

“They will never be forgotten, every child matters,” says Sioux Valley Chief Jennifer Bone in a video statement June 1. (Screen grab)
104 ‘potential graves’ detected at site of former residential school in Manitoba

Sioux Valley Dakota Nation working to identify, repatriate students buried near former Brandon residential school

Denmark’s Christian Eriksen receives medical attention after collapsing during the Euro 2020 soccer championship group B match between Denmark and Finland at Parken stadium in Copenhagen, Saturday, June 12, 2021. (AP Photo/Martin Meissner, Pool)
Christian Eriksen in stable condition, Euro 2020 match resumes

Eriksen was given chest compressions after collapsing on the field during a European Championship

As stories of the horrors of residential schools circulate after the Tk’emlups te Secwepemc First Nation announced it had located what are believed to be the remains of 215 children, Grand Chief Stewart Phillip of the Union of B.C. Indian Chiefs said he feels a connection with the former students. THE CANADIAN PRESS/Darryl Dyck
2 sides of the same coin: Ex-foster kids identify with residential school survivors

Grand Chief Stewart Phillip says the child welfare system takes Indigenous children from their families

Airport ground crew offload a plane carrying just under 300,000 doses of the single-shot Johnson & Johnson COVID-19 vaccine which is developed by the Janssen Pharmaceutical Companies at Pearson International Airport during the COVID-19 pandemic in Toronto on Wednesday, April 28, 2021. THE CANADIAN PRESS/Nathan Denette
1st batch of Johnson & Johnson vaccines won’t be released in Canada over quality concerns

The vaccines were quarantined in April before they were distributed to provinces

The arrest south of Winnipeg occurred before Bernier was to arrive at a protest in the city. (Twitter/Maxime Bernier)
Maxime Bernier arrested following anti-rules rallies in Manitoba: RCMP

He’s been charged with exceeding public gathering limits and violating Manitoba’s requirement to self-isolate

Prime Minister Justin Trudeau arrives for the G7 Summit, at the airport in Newquay, United Kingdom, Thursday, June 10, 2021. THE CANADIAN PRESS/Adrian Wyld
Details on Canada’s vaccine sharing plan coming Sunday, up to 100 million doses

Canada’s high commissioner to the UK says details will come after the G7 summit

Most Read