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.

RELATED TERMS
  1. Canada Pension Plan (CPP)

    The Canada Pension Plan is one of three levels of Canada's retirement ...
  2. Unfunded Pension Plan

    An unfunded pension plan is an employer-managed retirement plan ...
  3. Statement Of Changes In Net Assets ...

    A Statement Of Changes In Net Assets Available For Pension Benefits ...
  4. Integrated Pension Plan

    An integrated pension plan uses a participant's Social Security ...
  5. Pension Shortfall

    A pension shortfall occurs when a company with a defined benefit ...
  6. Purchased Service

    Purchased service is additional service years that Canadian and ...
Related Articles
  1. Retirement

    Pension Plans: Pain Or Pleasure?

    Employees have a love/hate relationship with this retirement option.
  2. Retirement

    7 Signs Your Pension Fund Is In Trouble

    Even if you're lucky enough to have a pension plan, you can't assume it'll pay out.
  3. Retirement

    New 401(k) Pension Rollover Rule: Pros and Cons

    Is the new rule allowing participants to roll their 401(k) balances into pensions a good idea?
  4. Retirement

    How Safe Is Your Pension?

    A 2014 law permits some private pension plans to reduce benefits. How to figure out if your retirement income is endangered.
  5. Retirement

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  6. Financial Advisor

    How Do Pension Funds Work?

    Traditional private pension funds are well regulated by the government through ERISA and the PBGC. Alternative investments are aiding portfolio returns.
  7. Retirement

    Can Your Pension’s Cost-of-Living Clause Be Frozen?

    Recent events in New Jersey prove that relying on a pension alone to fund your retirement is risky. Make sure you have multiple retirement income sources.
  8. Retirement

    5 Big Companies That Have Cut Out Pension Plans

    Companies are putting the responsibility of saving for retirement on the employee.
  9. Retirement

    Can You Count On Your Pension?

    We look at how to determine the health of your company's pension plan, and what to do if things are looking grim.
  10. Retirement

    Lifetime Income or Lump Sum Payment: Which Is Best?

    If your pension is being eliminated, should you take the lump sum or lifetime income option?
RELATED FAQS
  1. Who is eligible for Canada Pension Plan benefits?

    Learn more about the Canada Pension Plan, who contributes to the plan and who can receive standard, disability, early retirement ... Read Answer >>
  2. What are the steps to applying for a Canada Pension Plan (CPP)?

    Learn how to apply for Canada Pension Plan, part of Canada's retirement income system. Also find out about available benefits ... Read Answer >>
Trading Center