Rights & Money

Your CPP/QPP Premium Just Went Up

Effects of the COVID-19 pandemic have pushed the increase in pension contributions higher than expected

By Caitlin Finlay


Canadians began paying higher Canadian Pension Plan (CPP) premiums as of January 1, 2021. The Yearly Maximum Pensionable Earnings (YMPE) limit for both the CPP and the Quebec Pension Plan (QPP) has gone from $58,700 in 2020 to $61,600 in 2021, which means a higher paycheque deduction.

The maximum annual CPP contribution both employees and their employers must pay is now $3,166.45, up from $2,898. For those who are self-employed, who must pay their own share as well as the employer’s share, the maximum contribution has gone from $5,796 to $6,332.90. The QPP maximum has gone from $3,146.40 to $3,427.90, or from $6,292.80 to $6,855.80 for the self-employed. The basic exemption—the salary below which you don’t need to contribute to the CPP—remains unchanged at $3,500.

While the increase was expected—as part of a multi-year government plan to fund increased retirement benefits through gradual increases in the CPP contribution rates—the amount was higher than anticipated because of the effects of the coronavirus pandemic on the labour market. The value for the YMPE is calculated using a formula that considers the average increase in Canadian salary and weekly wages from the previous year: many lower-income workers were laid off as a result of the pandemic, and they weren’t included in the earnings calculation. That exclusion, and not higher wages, pushed the average weekly earnings higher.

“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,” Dan Kelly, the president of the Canadian Federation of Independent Business, said in statement. “We think this is deeply unfair.”

While the increase is higher than expected and based on a formula thrown off by the COVID-19 pandemic, the process to adjust that formula would be arduous. Any adjustments to the legislated formula, the YMPE, or the contribution rates would require approval from seven provinces and Parliament. Federal officials say they believe the effects of the increase will be lessened through the return of jobs over time.

Photo: iStock.