The CPP earnings cap is increasing at the fastest rate in 30 years. Why and what it means
Global News
Labour market convulsions linked to COVID-19 have affected a key CPP calculation.
The Canada Pension Plan (CPP) earnings ceiling is increasing at the highest rate in 30 years, a change that will provide a boost to benefits for new retirees and a hit for workers and businesses contributing to the plan.
The earnings cap, called yearly maximum pensionable earnings or YMPE, is set to rise to $64,900 for 2022 from $61,600 for 2021, the Canada Revenue Agency (CRA) announced on Nov. 1. That’s a 5.3 per cent increase, the largest percentage change since 1992.
The change will boost benefits for retirees who start claiming CPP benefits in 2022 or later but also result in significantly larger contributions for workers and employers paying into the pension plan.
The unexpected jump reflects, in part, the impact of the COVID-19 pandemic, which caused disproportionate job losses for low-earning workers, according to the Office of the Chief Actuary.
The YMPE is calculated annually and is based on an average of weekly earnings recorded over the 12 months ending June 30. A smaller-than-usual number of low-wage workers employed between the second half of 2020 and the first half of 2021 effectively skewed the weekly earnings average for 2022 higher, says Alexandra Macqueen, a certified financial planner and author of several books on retirement planning.
“If the YMPE goes up, then you need to pay more into (CPP), though you’ll get more out on the other end,” she says.
The increase scheduled for 2022 comes after pandemic job losses among lower-earning workers caused a similar spike in the CPP earnings ceiling for 2021, which reflected the impact of the COVID-19 emergency on the labour market in the first half of 2020.
It also comes as the federal government is gradually increasing CPP contribution rates as part of a multi-year plan to enhance benefits from the government pension fund.
