In a year of plenty, we would ignore the upcoming increase in the amount of our paychecks that goes towards Canada Pension Plan contributions.

But this is the year of awful abundance. Employees and their employers have good reason to complain about the extra amount they will contribute to the CPP in 2021 and good reason to accept it as what’s best for the country.

One in two increases in CPP contributions are coming. First, the contribution rate for employees and employers increases to 5.45 percent next year, from 5.25 percent in 2020. Second, the amount of income to which this increase applies will increase from $ 58,700 at $ 61,600. That means you’ll pay the highest premium rate on additional income of $ 2,900 next year, an unusually large increase.

To ease the financial burden of the pandemic, some provincial finance ministers have asked their federal counterpart to postpone the increase in premium rates to next year. Citing pressure on employers and workers, the Canadian Federation of Independent Business also called for next year’s premium rate hike to be suspended.

Hope this does not happen. The reason we have the CPP is to provide a reliable retirement income base for people who, due to reasons like the pandemic, may not be able to save enough for their retirement on their own. If we start giving breaks on CPP contribution increases, there will be a negative impact on benefits down the road.

The contribution rate hike has been on the books since Ottawa and the provinces agreed to a plan a few years ago to improve CPP benefits for future retirees. The surprise in this pandemic year is that the amount of your annual income to which the increase applies has risen sharply.

Next year, the increase in the maximum annual pensionable earnings – called YMPE in the pension industry – amounts to 4.9%. A typical increase in YMPE is between 1% and 3%, a gap that recently caught the attention of financial planner David Field of Papyrus Planning. “How did YMPE jump so high?” he said by e-mail. “This is the question to be answered.”

The YMPE is based on the year-over-year increase in the average level of earnings for the 12-month period through June 30, said Andrew Zur, director of human resources consulting firm Morneau Shepell, in an interview.

Wait what? In a pandemic that shut down parts of the economy at least temporarily, people were earning 4.9% more than they were 12 months earlier? Mr Zur said the increase resulted from the fact that workers who lost their jobs during the pandemic were disproportionately in the low and middle wage bracket. Take them out of the calculation and you end up with a higher average salary.

Mr. Zur pointed out that the average salary for the month of June alone was actually 9% higher than the same month of 2019. “So the full impact of COVID was not reflected in this year’s YMPE. “, did he declare. “This could also be reflected in next year’s YMPE. “

However, a large increase in YMPE is not just a take-out. “They get more money, but they will also pay more because of the higher YMPE,” said financial planner and retirement expert Alexandra Macqueen.

She explained that while you are in the workforce, the CPP retirement benefits you earn are increased each year by the YMPE. A bigger than usual jump in YMPE in 2021 and possibly 2022 will push your final CPP payments a little higher than you might have received otherwise. Note: After you retire and start CPP benefits, your payments increase each year with the rate of inflation.

Low-income people will be less affected than high-income people by the planned CPP contribution hikes next year. If you earn $ 30,000 or $ 40,000, the higher YMPE is irrelevant and only the premium rate increase applies. In addition, there is a basic exemption amount of $ 3,500 on winnings. The higher rate applies only to earnings between this amount and the YMPE.

Call it a bad time to increase CPP contributions in a pandemic, but it’s not bad policy. Those financially affected by COVID-19 will need CPP more than ever when they retire.

Join the conversation: Globe Retirement Forum: When did you start receiving Canada Pension Plan retirement benefits?