CPP contributions set to rise in January, a bigger jump than expected
January 1 will be Groundhog Day for everyone who contributes to the Canada Pension Plan. Like last year, contributions are increasing again more than initially expected, and the reason again is the unique impacts of the pandemic on the labor market.
Here’s a look at what’s going on.
Why CPP contributions are increasing
The increase is part of a multi-year plan approved by the provinces and the federal government five years ago to increase pension benefits through the public plan by increasing contributions over time. The increases started in 2019.
A note from KPMG in November said maximum employer and employee contributions would reach $ 3,499 each in 2022, an increase from $ 3,166 this year. For self-employed workers’ contributions, the maximum amount will be $ 6,999, compared to $ 6,332.
The CPP is a self-funded plan, funded by the employer and employees. Contributions are used exclusively to provide benefits under the CPP program.
A spokesperson for the Department of Finance says this CPP enhancement increases the maximum CPP retirement pension for working Canadians by 50% and that young Canadians who have just entered the workforce will see the largest increase in earnings. retirement benefits.
What makes 2022 different (or the same as 2021)
The pension scheme requires that contributions increase in line with the ceiling on income subject to these contributions.
For next year, the earnings cap, known as the Maximum Annual Pensionable Earnings or YMPE, was supposed to be $ 63,700, an increase of $ 2,100 from the 2021 cap. the actual amount is going to be higher at $ 64,900, for an increase of 5.3%, which is the largest in three decades.
The reason is due to the lingering effects of the pandemic on the labor market.
The earnings limit formula looks at what people earn on average each week and compares the changes between the 12-month periods that end on June 30.
What happened during the pandemic is that average weekly earnings have jumped because there are fewer people working in lower paying jobs. Without them, the average increase looks more dramatic than it actually is.
What happens next
Federal Conservative Leader Erin O’Toole had called on the government to push back this year’s bump, saying it was not the right time for another premium hike, with inflation pushing up the cost of living for consumers and many small businesses still trying to build their income back.
Any change in contribution rates or the income ceiling where contributions are capped would require the approval of Parliament and seven provinces representing at least two-thirds of the national population – a bar higher than what is needed to amend the Constitution .
The premiums are therefore increasing.
But there is more
The changes to the Canada pension plan are not being made. Prime Minister Justin Trudeau has called on Finance Minister Chrystia Freeland to work with the provinces to increase the amount paid in CPP benefits to widows and widowers by 25%.
EI premiums also increase once a two-year federal freeze on increases relaxes next year. Premiums are then expected to drop from $ 1.58 per $ 100 of insurable earnings to $ 1.83 by 2027. Annual increases are the maximum amount allowed by law and must increase to replenish the EI fund afterwards. that it has been exhausted by the demand induced by the pandemic.
The government’s fall economic statement predicted that the EI account would return to balance by 2028.