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

Interior Health update. File photo.
86 new COVID-19 cases, two more deaths in Interior Health

The new deaths are from Heritage Square, a long-term care facility in Vernon

Phase 4 of the Kicking Horse Canyon Project is on track, despite COVID-19 and the recent provincial election. (Government of BC photo)
Kicking Horse Canyon Phase 4 closures announced

The first major closures are expected to occur starting on April 12 until May 14

A woman wearing a protective face mask to curb the spread of COVID-19 walks past a mural in Victoria, B.C., on Monday, Dec. 7, 2020. THE CANADIAN PRESS/Marissa Tiel
115 new COVID-19 cases, no new deaths in Interior Health

There are now a total of 4,970 cases in the region

One of the renovated VWs that has served as the inspiration for Wood's idea for a VW village to redefine camping. (Jeremiah Woods photo)
Golden entrpreneau walks away with a deal from Dragon’s Den

Camping in the Woods combines a love of the outdoors and for classic VW vehicles

Trees destroyed a Shoreacres home during a wind storm Jan. 13, 2021. Photo: Submitted
Shoreacres resident flees just before tree crushes house

Pamala DeRosa is thankful to be alive

President Donald Trump speaks to the media before boarding Marine One on the South Lawn of the White House, Tuesday, Jan. 12, 2021 in Washington. The President is traveling to Texas. (AP Photo/Gerald Herbert)
Black Press Weekly Roundup: Top headlines this week

In case you missed it, here’s what made waves throughout the week

Seasonal influenza vaccine is administered starting each fall in B.C. and around the world. (Langley Advance Times)
After 30,000 tests, influenza virually nowhere to be found in B.C.

COVID-19 precautions have eliminated seasonal infection

Prime Minister Justin Trudeau listens to a question during a news conference outside Rideau cottage in Ottawa, Friday, January 8, 2021. THE CANADIAN PRESS/Adrian Wyld
Trudeau says Canada’s COVID vaccine plan on track despite Pfizer cutting back deliveries

Canadian officials say country will still likely receive four million doses by the end of March

Jobs Minister Ravi Kahlon shared a handwritten note his son received on Jan. 13, 2021. (Ravi Kahlon/Twitter)
Proud dad moment: B.C. minister’s son, 10, receives handwritten note for act of kindness

North Delta MLA took to Twitter to share a letter his son received from a new kid at school

Lilly and Poppy, two cats owned by Kalmar Cat Hotel ownder Donna Goodenough, both have cerebellAr hypoplasia, a genetic neurological condition that affects their ability to control their muscles and bones. Photo by Alistair Taylor – Campbell River Mirror
VIDEO: Wobbly Cats a riot of flailing legs and paws but bundles of love and joy to their owner

Woman urges others to not fear adopting cats with disabilities

A COVID-19 outbreak at Vernon's Heritage Square long-term care home has claimed seven people. (Jennifer Smith - Morning Star)
Two more COVID-19 deaths at Vernon care home

Heritage Square has now lost seven people due to the outbreak

Chief public health officer Dr. Theresa Tam provides an update on the COVID-19 pandemic in Ottawa on Friday, Jan. 8, 2021. THE CANADIAN PRESS/Sean Kilpatrick
Canada’s top doctor says to avoid non-essential travel as B.C. explores legal options

Premier John Horgan says he is seeking legal advice on whether it can limit interprovincial travel

(Big White Ski Resort photo)
13 more cases of COVID-19 tied to Big White Mountain cluster

This brings the total case count to 175, of which 32 cases are active

RCMP on scene at a home on Sylvania Cres. (Phil McLachlan /Capital News/FILE)
Two Kelowna men arrested after Rutland home invasion

Two Kelowna men, including a prolific offender, facing slew of potential charges

Most Read