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Understanding Maximum Pensionable Earnings (MPE)

14 May 2019 by National Bank of Canada
 Maximum Pensionable Earnings (MPE)

All workers contribute 10.8% of their salary to the Quebec Pension Plan (QPP), which is why the contribution amount varies depending on income. However, the contribution reaches a limit at a certain amount. This is what is known as the maximum pensionable earnings (MPE). 

The MPE is equivalent to the maximum employment income that can be considered for the calculation of a worker’s annual retirement contribution. The MPE amount changes every year. “In 2018, it is $55,900, and it’s the same for all 4.1 million contributors in Quebec,” explains Jean-François Therrien, Chief Actuary of QPP. Any portion of income higher than this amount is not taken into account for either the contribution or pension calculation.

How is the maximum eligible amount established?

The MPE amount is established every year according to the average weekly earnings growth in Canada. More specifically, the MPE for the year is calculated based on the previous year. This amount is multiplied by the ratio of the average weekly earnings for the previous two 12-month periods, ending on June 30.

Here are the amounts for previous years:

Year

Amount

2018

$55,900

2017

$55,300

2016

$54,900

2015

$53,600

 

Calculate your contribution to the QPP

A person who earns $55,900 in 2018 will pay the same QPP contribution as someone with an annual income of $100,000. The two will also have the same pension upon retirement. It is important to know the MPE so that you can provide supplementary amounts to your pension if necessary (RRSP, TFSA, etc.). It’s a good starting point to estimate if your retirement savings are sufficient.

To find your annual QPP contribution amount, deduct the basic exemption of $3,500, to which every worker is entitled. By subtracting this from the MPE basic exemption, you obtain the maximum contributory earnings. This is how you determine the contribution.

Pension in numbers for 2018

Maximum eligible amount of employment income, also known as maximum pensionable earnings (MPE)

$55,900

Basic exemption

$3,500

Contribution rate

10.80 % (shared equally between employer and employee)

Maximum contribution for worker (5.4%) and employer (5.4%)

$2,829.60

 

Maximum contribution for self-employed worker (10.80%)

$5,659.20

Source: Quebec Pension Plan

How much will you receive at retirement?

The average amount of all the salaries you have earned during your career is used to calculate your pension amount. However, not all years are counted the same way. Years during which you were employed for only part of the year are reduced in proportion to the time you were not working.

If your average is equal or higher to the limit, you have reached the maximum pension. In 2018, this was raised to $1,134.17 per month for someone who plans to retire at age 65.

Retirement terminology can seem complicated. Financial planning experts are there to guide you. They can elaborate on effective savings and investment strategies for you. Do not hesitate to consult with an advisor—after all, a well-calculated retirement is a well-prepared retirement!
 

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