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

Chartwell Malaspina Care Residence in Nanaimo. (News Bulletin file photo)
Two Nanaimo care-home residents have died during COVID-19 outbreak

Death reported Monday was the second related to Chartwell Malaspina outbreak, says Island Health

Eighteen-year-old Aidan Webber died in a marine accident in 2019. He was a Canadian Junior BMX champion from Nanaimo. (Submitted)
Inadequate safety training a factor in teen BMX star’s workplace death in 2019

Aidan Webber was crushed by a barge at a fish farm near Port Hardy

Members of the BC RCMP Explosive Disposal Unit (EDU) were deployed to Drummond Park opposite of Fulford Habour on Saltspring Island after the discovery of a suspicious cylindrical-shaped device on Jan. 20. (Google/Screencap)
UPDATED: Bomb disposal unit still determining nature of suspicious device found on Salt Spring Island

Police say a resident discovered the device Wednesday morning in Drummond Park opposite BC Ferries terminal

(Black Press Media files)
Transport Canada not budging on enclosed deck rules, despite calls from BC Ferries union

There have been at least 23 cases of the U.K. variant detected in Canada, four of which are in B.C.

The objectives of the Vancouver Island Down Syndrome Society include peer support for parents and caregivers, as well as developing support services, projects, educational and employment opportunities for people with Down Syndrome. Photo supplied.
Vancouver Island Down Syndrome Society offers support for families in the community

New non-profit seeking directors in cities across Vancouver Island

Maj.-Gen. Dany Fortin, vice-president of logistics and operations at the Public Health Agency of Canada, speaks at a news conference on the COVID-19 pandemic in Ottawa, on Friday, Jan. 15, 2021. THE CANADIAN PRESS/Justin Tang
B.C. records 500 new COVID-19 cases Wednesday, 14 deaths

Outbreak at Surrey Pretrial jail, two more in health care

Vancouver Canucks’ Travis Hamonic grabs Montreal Canadiens’ Josh Anderson by the face during first period NHL action in Vancouver, Wednesday, Jan. 20, 2021. THE CANADIAN PRESS/Jonathan Hayward
Horvat scores winner as Canucks dump Habs 6-5 in shootout thriller

Vancouver and Montreal clash again Thursday night

Rod Bitten of Union Bay won $500,000 in the Lotto Max draw on Jan. 15. Photo supplied
Vancouver Island electrician gets shocking surprise with $500K Extra win

Rod Bitten has been hard at work with home renovations, which is… Continue reading

The Rogers Creek Trail main trailhead is located on the Redford Extension in Port Alberni. (SUSAN QUINN/ Alberni Valley News)
Hiker rescued after cold few hours in the bush outside Port Alberni

Alberni Valley Rescue Squad said they receive frequent calls for people lost on this trail

A suspect has been arrested in connection with fires at Drinkwater Elementary (pictured) and École Mount Prevost. (Kevin Rothbauer/Citizen)
Arson suspect arrested after fires at Cowichan Valley schools

Drinkwater Elementary and Mount Prevost schools hit within a week

The Victoria Fire Department extinguished a 15 foot tent fire in the 500-block of Ellice Street Jan. 19. (Black Press Media File Photo)
Victoria police investigating after 15-foot flames engulf tent

Flames damage nearby business in 500-block of Ellice Street

A woman writes a message on a memorial mural wall by street artist James “Smokey Devil” Hardy during a memorial to remember victims of illicit drug overdose deaths on International Overdose Awareness Day, in the Downtown Eastside of Vancouver, on Monday, August 31, 2020. THE CANADIAN PRESS/Darryl Dyck
B.C. paramedics respond to record-breaking number of overdose calls in 2020

On the front lines, COVID-19 has not only led to more calls, but increased the complexity

Hecht Beach cabin in ashes. (Submitted)
Beloved secret cabin lost to fire on the North Island’s west coast

The trappers cabin was shared with locals, but kept mostly secret

Oyster River Fire Rescue members were called out to a suspicious fire in Black Creek. Two vehicles parked at a private residence were destroyed by fire. Photo courtesy Oyster River Fire Rescue
Suspicious fire destroys two vehicles at Vancouver Island residence

Oyster River Fire Rescue personnel were dispatched to a fire at a… Continue reading

Most Read