The maximum pensionable earnings and contribution rate for 2021 have now been released and are a surprise to many; the cost of CPP is significantly increasing.
| Year | Max. Pensionable Earnings ($) | Employer/ee Contribution Rate (%) | Max. Annual Employer/ee Contribution ($) | Max. Annual Self-Employed Contribution ($) |
| 2019 | 57,400 | 5.10 | 2,749 | 5,498 |
| 2020 | 58,700 | 5.25 | 2,898 | 5,796 |
| 2021 | 61,600 | 5.45 | 3,166 | 6,333 |
For example, a self-employed person earning $61,600 or more will pay $537 more this year (as compared to last year’s increase of $298), for a total of $6,333. Or, looked at another way, an employer with ten employees earning $61,600 or more will pay a total of $31,660 of CPP premiums in 2021 (an increase of $2,680 from 2020 contributions).
So, why the increase?
The maximum pensionable earnings are based on the average weekly wages and salaries in Canada for the 12-month period as of June 30. Due to the disproportionately large job losses of lower income earners resulting from the pandemic in the first half of 2020, the average weekly wage for this period is much higher than would be typical. While the increase from 2019 to 2020 was only $1,300, it increased by $2,900 in 2021 to $61,600.
In addition, the CPP contribution rate has also increased to 5.45%, up from 5.25% in 2020, and 5.10% in 2019. While these increases were planned as part of a seven-year gradual enhancement to the plan which commenced in 2019, they nonetheless represent an increase to the cost of CPP.
ACTION ITEM: Budget for higher CPP costs in 2021.
