SAVINGS FOR RETIREMENT AND A TAX CREDIT
CPP: Higher Deductions Coming to Your 2022 Paycheque

Puja Tayal 
MOTLEY FOOL

Are you a salaried employee earning an annual paycheque of around $65,000? Then you’ve got to read this. Service Canada is bringing big changes to the Canada Pension Plan (CPP) in 2022. You could see a higher-than-expected deduction in your paycheque for the second year in a row. This could sting, as inflation is at its 13-year high, and the government is gradually removing stimulus money. © Provided by The Motley Fool Man with no money. Businessman holding empty wallet
2022 CPP changes

As part of a multi-year enhancement plan announced in 2019, Service Canada has been increasing the CPP contribution at a pre-determined rate. It increased this rate to 5.7% in 2022 from 5.45% last year. But what is not pre-determined is the maximum pensionable earnings. The agency calculates this amount by comparing the average weekly earnings in the 12 months ending June 30 with the previous year.

As the pandemic impacted lower-income earners, fewer were added to the above formula in the last two years. Hence, the 2022 maximum pensionable income increased by $3,300 to $64,900, instead of a $2,100 increase to $63,700, according to the National Post. Even in 2021, the maximum pensionable income increased by $2,900.

 
What do 2022 CPP changes mean to your paycheque?

Your employer deducts the employee contribution along with the employer contribution and puts it towards CPP and gives it to Service Canada. If you earn $65,000 annually, your employer will deduct $3,500 in CPP contribution from your 2022 paycheque, a $333 increase from 2021, and a $600 increase from 2020. The maximum CPP contribution amount increased by 11% in 2022 and 9% in 2021 compared to 5% in 2020.

What happens with this CPP contribution? Service Canada invests that money on your behalf towards retirement and gives you a monthly pension when you turn 65. And just so you know, the CPP payout is taxable. You have no control over where the agency invests your money. But you get a guaranteed CPP amount from the government.
How to cope with rising CPP contributions

While CPP payouts might partially help you with retirement, what about the current paycheque deductions? If your salary does not grow at the same pace as your CPP contributions, it might reduce your real income. You can cope with this growth by focusing a portion of your investment portfolio on passive investing.

MOST CANADIAN WORKERS DO NOT HAVE WORK PLACE PENSIONS THEY RELY ON CPP FOR THAT,

RIGHT WING ECONOMISTS TRY TO MAKE CPP INCREASES SOUND LIKE A TAX INCREASE RATHER THAN BEING A TAX CREDIT SAVINGS PROGRAM