What Is Year's Maximum Pensionable Earnings (YMPE)?
The Canadian government sets the year's maximum pensionable earnings (YMPE) figure. The YMPE determines 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.
- The CPP determines the maximum earnings amount for contributions to the CPP.
- The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2020 are $58,700.
- The size of those payments depends on an individual's earnings during their working years, the age an individual starts receiving their pension, and how much and for how long an individual contributes to the CPP.
Understanding Year's Maximum Pensionable Earnings (YMPE)
The Canada Pension Plan (CPP) determines the maximum earnings amount for which contributions to the Canada Pension Plan can be made. According to the Government of Canada, the maximum pensionable earnings under the Canada Pension Plan (CPP) for 2020 are $58,700—up from $57,400 in 2019. Contributors who earn more than $58,700 in 2020 cannot make additional contributions to the CPP.
Beginning in 2024, a separate contribution rate will be implemented for earnings above the YMPE (expected to be 4% each for employers and employees).
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 an individual's earnings during their working years.
On June 20, 2016, Canada's ministers of finance agreed to augment the CPP. The deal increased how much working Canadians would receive from the CPP—from one-quarter of the employees' eligible earnings to one-third, with a boost to the earnings limit. Changes will be phased in gradually over seven years—from 2019 to 2025—so that the impact is measured and piecemeal.
The enhancement has the following features:
- The income replacement level will be raised to one-third of employees' income.
- The upper earnings limit is set at $82,700 for 2025.
- There will be a gradual seven-year phase-in, starting on January 1, 2019; this will consist of a five-year contribution rate phase-in below the yearly maximum pensionable earnings followed by a two-year phase-in of the upper earnings limit.
- The Working Income Tax Benefit will increase to help low-income earners.
- The enhanced part of employee CPP contributions will be tax-deductible.
The maximum pensionable earnings under the Canada Pension Plan (CPP) for 2020.
The higher contribution rate on earnings below the YMPE ($58,700 in 2020) will be phased-in over the first five years. In 2023, the CPP contribution rate, as estimated by the Department of Finance Canada, will be one percentage point higher for both employers and employees on earnings up to the YMPE.
In 2024, a separate contribution rate (expected to be 4% each for employers and employees) will be implemented for earnings above the YMPE at that time.