What is Year's Maximum Pensionable Earnings (YMPE)
The year's maximum pensionable earnings (YMPE) figure set each year by the Canadian government determining the maximum amount on which to base contributions to the Canada or Quebec Pension Plan (C/QPP). The YMPE specifies the earnings amount that can be used in calculating pension contributions for each year.
BREAKING DOWN Year's Maximum Pensionable Earnings (YMPE)
The year's maximum pensionable earnings is defined each year by the Canada Pension Plan (CPP). The amount determines the maximum earnings amount in which contributions to the Canada Pension Plan can be made. For example, in 2008 the year's maximum pensionable earnings was $44,900. Workers earning more than that amount would only contribute to CPP on the first $44,900 of earnings.
Year's Maximum Pensionable Earnings and CPP Contributions
The Canada Pension Plan is similar to the Social Security program in the United States. It provides workers with a series of monthly payments in retirement. The size of those payments depends on the worker's earnings during his or her earning years. In the Canada Pension Plan, there is an annual limit on how much of a worker's earnings will become pensionable. The number changes frequently.
On June 20, 2016, Canada’s ministers of finance reached an agreement in principle to enhance the CPP. The deal increased how much working Canadians would get from the CPP—from one-quarter of their eligible earnings to one-third, with an increase to the earnings limit. Changes will be phased in slowly over 7 years—from 2019 to 2025—so that the impact is small and gradual.
The enhancement will have the following design features:
- The income replacement level will be increased to one-third of income.
- The upper earnings limit will be targeted at $82,700 upon full implementation in 2025.
- There will be a gradual seven-year phase-in beginning on January 1, 2019 consisting of:
- A 5-year contribution rate phase-in below the yearly maximum pensionable earnings, followed by
- A 2-year phase-in of the upper earnings limit.
- An increase to the Working Income Tax Benefit to help low-income earners.
- Tax deductibility for the enhanced portion of employee CPP contributions.
The higher contribution rate on earnings below the YMPE ($54,900 in 2016) will be phased-in over the first 5 years. In 2023, the CPP contribution rate is estimated by the Department of Finance Canada to be 1 percentage point higher for both employers and employees on earnings up to the YMPE. Beginning in 2024, a separate contribution rate (expected to be 4 percent each for employers and employees) will be implemented for earnings above the prevailing YMPE at that time.