The following text is taken from Sherri Torjman, The Canada Pension Plan Disability Benefit, Caledon Institute of Social Policy, Ottawa, 2002, p. 10.
Contributions to the CPP are based on 'contributory earnings’ — i.e., the difference between the Year’s Basic Exemption or YBE (the earnings level below which no contributions are required) and a designated upper limit known as the Year’s Maximum Pensionable Earnings (YMPE).
In 2002, employees paid 4.3 percent of their contributory earnings to a maximum of $1,496.40 for those earning the YMPE ($39,100) or above. Employers match each employee’s contribution. Self-employed Canadians pay both the employee’s and employer’s share (up to a maximum $2,992.80 for the year).
The YMPE originally was set at an amount related to average annual earnings. It remains indexed to wages according to changes in a scale called the “Earnings Index.” CPP benefits, by contrast, are pegged to the Consumer Price Index. (Benefits initially had been tied to a special Pension Index constructed at the outset of the Plan. It could not increase by more than two percentage points a year. The Pension Index was dropped in 1974 and all benefits subsequently were tied to the annual change in the Consumer Price Index.)
The Year’s Basic Exemption used to be set at 10% of the YMPE. As a result of legislative changes that took effect in 1998, the YBE was deindexed and remains at its 1996 level of $3,500, which means that it is falling in value by the rate of inflation each year. (It should be noted, however, that this deindexation of the YBE does not apply to the disability benefit.) No changes were made to the Year’s Maximum Pensionable Earnings — which was $39,100 in 2002 and remains wage indexed.