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CPP Premiums introduction.
Everyone who is an employee or
self-employed must make Canada pension plan CPP payments.
The payments you make are your CPP premiums.
Employers also must contribute to the CPP.
If you are self-employed, then the CPP premiums you must pay each
year are calculated as part of your annual income tax return filing.
In this blog, I discuss how the Canadian
government has already given a nasty surprise to Canadians for 2021.
The planned increase in CPP premiums.
January 1st hit some workers for their 2021 CPP contributions more than others
because of the coronavirus pandemic. The Canada Pension Plan and CPP premiums.
The Canada Pension Plan CPP is
a government run pension plan for retired Canadians.
It provides a monthly tax retirement
pension benefit that replaces part of your income.
When you retire, under the CPP,
you obtain the CPP retirement pension plan payments for the rest of your life.
To qualify, you must be at least 60 years old.
Have actually made a contribution to the CPP.
Valid contributions can be either from work you carried out in Canada or as
the outcome of getting credits from a former spouse or former common law
spouse at the end of the relationship. CPP premiums and annual maximum
pensionable earnings bump up for this 2021 year.
The earnings ceiling, called the yearly maximum pensionable
earnings (YMPE), was supposed to be $60,200,
an increase of $1,500 from the 2020 limit.
However, the actual amount is higher at $61,600.
The maximum annual employee and employer
contribution amount is $3,260.45,
up from $2,898 in 2020.
The maximum annual self-employed
contribution level is now $6,332.90, up from $5,796 in 2020.
Provincial finance ministers quietly
suggested to Finance Minister Chrystia Freeland to put a pause on planned increases
in premiums workers and businesses pay into the CPP.
So did various business groups.
They did not feel it was appropriate this year to have the contribution rate go up.
Notwithstanding the support of business
groups and each province, it was to no avail.
The originally planned increase on January 1st belongs to a multi-year plan accepted
by each province and the Canadian government.
Four years ago, they agreed to improve
retired life benefits through the CPP by boosting contributions over time.
Slowly, the very first bump was in 2019.
The province finance ministers asked
Finance Minister Freeland to put a pause on this year's automatic increase.
They cited the damage done to workers
and businesses as a result of the COVID-19 pandemic.
They said it isn't a smart financial
decision to take more off workers' paycheques and also to charge businesses
a lot more when so many continue to have a hard time.
The moratorium on a premiums increase requested by provinces and business
groups, so many provincial finance ministers
on a call with Finance Minister Freeland and various business groups independently
asked her to put a pause on this year's planned increase in CPP premiums
and the contribution rate because of the COVID-19 pandemic.
The pandemic's effect on the labour market, which has some groups noting the impact
will be felt by some workers more than others.
The plan requires contributions to go up
alongside the upper limit on earnings that are subject to those premiums.
As I have already stated,
the YMPE was supposed to be sixty thousand two hundred dollars.
This would have meant tax increases
of 1500 dollars from the 2020 limit, but the actual amount is going to be
higher at sixty one thousand six hundred dollars.
The reason is due to the pandemic's impact
on the labor market and how the YMPE is calculated.
Here are the details.
The formula to calculate the earnings
limit relies on rises in the average weekly earnings for the 12 months
finishing June 30th, contrasted to the same amount during
the preceding 12 month time period over the time of the pandemic.
Average weekly earnings have increased, but not because workers are making more.
Dan Kelly,
president of the Canadian Federation of Independent Business, said
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 an adjustment, Kelly says.
Nevertheless, the government will collect
more money than it originally planned through CPP premiums.
Any type of modifications to contribution rates or the YMPE would require
the authorization of parliament, as well as seven provinces representing
a minimum of two thirds of the nationwide population.
This is a greater bar than what is required to modify the Constitution.
The federal government response for a moratorium on the CPP premiums increase.
Ottawa's answer was not only to have them
go up again, but do so more than the scheduled increase.
Why?
The reason is specifically the calculation in the formula that the feds and provinces
signed up for well before anyone bothered to know how to spell
Wuhan!
Here are the details.
The labour market got skewed.
No, I did not make a spelling mistake. As
job losses have hit the lower income employees more since March 2020.
Therefore, if you reduce the earnings
at the lower end of the calculation range, you are left with higher wages on average.
When you do the calculation, the Canadian government claims that is why
the general increase is larger than originally scheduled.
Dan Kelly calculates that anybody around
the maximum limit will see a nine point three percent rise in CPP premiums beyond
the approximately five percent premium bump baked into the legislation.
A spokeswoman for Miss Freeland stated stopping the increases agreed to in 2016
would imply reducing future retirement benefits for Canada's current workers.
The spokeswoman went on to say
that the government's leading concern is supporting Canadians,
businesses and business owners who are experiencing economic difficulties as
the nation weathers the COVID-19 pandemic with a second wave underway.
Lots of people across Canada continue to deal with tremendous unpredictability.
I am not sure what current
unpredictability from COVID-19 has to do with freezing CPP.
Premiums for each person and business from an increase for one or two years has
to do with the issue, especially since the effect of freezing
the increases will not be affected for decades to come, if at all.
Nevertheless, that is what was said.
CPP premiums summary.
I hope you enjoyed this.
CPP premiums Brandon's Blog post.
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