A couple years back, I published a post about changes announced to the Canada Pension Plan. Now that it’s been a couple years, it’s time for an update on where we stand. Some small changes are happening again this year (and will continue to in each year until 2024), and I’ll cover off what those are this today’s post.
Maximum pensionable earnings have gone up.
I know. If you read “maximum pensionable earnings” and went “huh?” I get it. But it’s just a fancy way of saying “the maximum salary you can earn that you still have to pay CPP premiums against.” If you earn more than this, you won’t pay extra into the Canadian Pension Plan.
Last year, the maximum pensionable earnings sat at $58,700. This year, that figure has gone up to $61,600, for an increase of around 5%. This means that you’ll pay CPP premiums on each dollar you make, up to a maximum of $61,600 in 2021.
This number originally wasn’t supposed to be as high as this – it was originally supposed to be $60,200. But because the formula to calculate this limit relies on average wages earned from July 1 to June 30 of the following year, the pandemic had a strange effect on this calculation.
Most of the jobs lost during the pandemic were low-wage jobs, which means they were left out of the calculation. This raised the average wage earned in Canada artificially, and resulted in a larger-than-expected bump in how much we contribute to CPP this year.
Is it fair? Probably not. But is there anything you can do about it? Nope. Besides, that money means you’ll end up getting more from the pension plan when you’re ready to retire!
Maximum annual CPP contributions have gone up, too.
If you worked for someone else last year, the cap of what you could contribute to CPP in 2020 was $2,898. In 2021, that figure goes up to $3,166. Double each of those if you’re self-employed and contributing both as an employer and as an employee.
A little more of each paycheque goes to CPP.
Last year, 5.25% of each paycheque went toward CPP premiums, until you hit your max. This year, that number goes up slightly to 5.45%. It’s a small enough bump that you won’t even feel it on a week-to-week basis.
What will 2022 look like?
Because jobs should be gained back by the end of June this year, next year’s CPP maximums shouldn’t increase by as much as they did this year. It’s estimated that the earnings ceiling will jump to $63,700, and that the percentage of each paycheque going to CPP will increase from 5.45% this year to 5.7% next year.
Wrapping it Up
Remember, these changes don’t mean you’re losing more money; it just means you’re being forced to save a little more, a little faster, each year until you retire. When you’re ready to start drawing a pension from CPP, you’ll be able to receive a little more each month because of these changes… and that’s not so bad!
You can read more about the changes on the Government of Canada website.
