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.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Following a cease work order from the District of Highlands in October, the BC Supreme Court ruled Jan. 20. that bylaws won’t apply to O.K. Industries’ work until its quarrying activity is complete. (Courtesy of District of Highlands)
BC Supreme Court rules Highlands quarry work can continue

District bylaws won’t apply until quarrying activities are complete

A worker covers up racist graffiti along the West Shore Parkway. (Courtesy of Anna Young)
RCMP investigating racist graffiti spotted off West Shore Parkway

Hateful vandalism is rare, says Langford bylaw enforcement

BC Coroners Service is currently investigating a death at Canoe Cove Marina and Boatyard in North Saanich. (Black Press Media File)
Drowning death in North Saanich likely first in B.C. for 2021

Investigation into suspected drowning Monday night continues

Located at 9750 West Saanich Rd., this North Saanich mansion is on the market for $10.25 million. (Realtor.ca photo)
Located at 9750 West Saanich Rd., this North Saanich mansion is on the market for $8.65 million. (Realtor.ca photo)
The five most expensive homes for sale in Greater Victoria

A roundup of luxury estates currently on the market

Sidney's Beacon Wharf
Pontoon company piqued at prospect of public-private partnership around Sidney wharf

Seagate approached to submit proposeal for public-private partnership

Toronto Public Health nurse Lalaine Agarin sets up for mass vaccination clinic in Toronto, Jan. 17, 2021. B.C. is set to to begin its large-scale immunization program for the general public starting in April. THE CANADIAN PRESS/Frank Gunn
B.C.’s COVID-19 mass vaccinations expected to start in April

Clinics to immunize four million people by September

Terry Keogh, an RDN Transit driver, used his paramedic skills the morning of Jan. 22 after coming across an unconscious woman along his route in downtown Nanaimo. (RDN Transit photo)
Nanaimo transit driver stops his bus and helps get overdosing woman breathing again

Former EMT from Ireland performed CPR on a woman in downtown Nanaimo on Friday

Chief Public Health Officer Theresa Tam speaks during a daily briefing in Ottawa. (THE CANADIAN PRESS/Adrian Wyld)
31 cases of COVID-19 variants detected in Canada: Health officials

Dr. Theresa Tam made announces 13 more variant COVID-19 cases in Canada

An Atlantic salmon is seen during a Department of Fisheries and Oceans fish health audit at the Okisollo fish farm near Campbell River, B.C. in 2018. The First Nations Leadership Council says an attempt by industry to overturn the phasing out of salmon farms in the Discovery Islands in contrary to their inherent Title and Rights. (THE CANADIAN PRESS /Jonathan Hayward photo)
First Nations Leadership Council denounces attempt to overturn salmon farm ban

B.C.’s producers filed for a judicial review of the Discovery Islands decision Jan. 18

Daily COVID-19 cases reported to each B.C. health region, to Jan. 20, 2021. Island Health in blue, Northern Health green, Interior Health orange, Vancouver Coastal in red and Fraser Health in purple. (B.C. Centre for Disease Control)
B.C.’s COVID-19 infection rate stays stable with 508 cases Friday

Vaccine delivered to more than 110,000 high-risk people

More than 100 B.C. fishermen, fleet leaders, First Nations leaders and other salmon stakeholders are holding a virtual conference Jan. 21-22 to discuss a broad-range of issues threatening the commercial salmon fishery. (Black Press file photo)
B.C. commercial salmon fishermen discuss cures for an industry on the brink

Two-day virtual conference will produce key reccomendations for DFO

Black Press file photo
Investigation at remote burned-out Vancouver Island cabin reveals human remains

Identity of victim not released, believed to be the owner of an SUV vehicle found parked nearby

Angela Waldick is the new team photographer for the Nanaimo NightOwls. (Nanaimo NightOwls photo)
Half-blind photographer will help new Island baseball team look picture-perfect

Nanaimo NightOwls say legally blind team photographer is making history

School District 57 headquarters in Prince George. (Mark Nielsen, Local Journalism Initiative Reporter)
Prince George school district settles with sexual abuse victim

Terms were part of an out-of-court settlement reached with Michael Bruneau, nearly four years after he filed a lawsuit

Most Read