The Canada Pension Plan was established in 1966 to provide all working Canadians with a source of retirement income. CPP is financed through contributions from employees, employers and self-employed individuals, as well as through revenue earned on CPP investments.
Every Canadian is entitled to earn a certain amount in a calendar year before beginning to contribute to CPP. This amount is referred to as the Year’s Basic Exemption (YBE).
Contributions to CPP are made on the portion of a person’s annual earnings that exceed the YBE, up to a ceiling known as the Year’s Maximum Pensionable Earnings (YMPE). Annual increases to the YMPE are linked to the average Canadian wage. The CPP contribution rate is set by the Canada Revenue Agency.
In 2005, the YMPE was $41,100, while the CPP contribution rate was 4.95%. As a result the maximum CPP contribution in 2005 – payable on the amount between the YBE and the YMPE – was $1,861.20.