Canada Pension Plan

Himani Ediriweera

 

The Canada Pension Plan (CPP) provides retirement, disability and survivor benefits to qualifying Canadians and their families. You can start contributing to retirement through the CPP as early as age 18. When you retire, the amount you receive is determined by the amount and years you contributed to the plan. Only individuals who have funded the plan through employment qualify for the CPP.
 

How much will I receive?

Through 2015, the average monthly amount for a new retirement pension is $639.44 and the maximum amount is $1,065. It’s important to remember not everyone will receive the maximum amount. Benefit payments are completely individual and dependent on contributions and the age you start receiving the pension.
 

When can I start collecting CPP?

The full plan is provided to pensioners 65 and over. You can take your pension with a reduction when you reach 60 or increase the amount you will receive by delaying it past age 65.
 

Delaying your pension after age 65

If you take your CPP benefits after you turn 65, your monthly payments will increase by 0.7%, or 8.4% for each year until you reach 70. This means that if you delay receiving CPP until age 70, you will receive 42% more (0.7% x 60 months) than if you had taken it at 65.

Example: If Sarah retires at 65 and starts receiving CPP payments, her annual pension will equal $6,000, or $500 each month. If she waits until 66, her CPP payments will increase annually by 8.4% (0.7% x 12) or $504 (0.7% x 12 months = 8.4% x $6,000).
 

Taking your pension before age 65

You can receive your CPP when you reach age 60, but with a penalty. Between now and 2016, the government will increase the pension reduction from 0.5% to 0.6% for each month you draw from CPP before you reach 65.

The chart below provides a breakdown of pension reductions from 2014 to 2016.
 

Year     Monthly Reduction  Total Loss Between Ages 60 and 65
2014 0.56% 33.6%
2015 0.58% 34.8%
2016 0.60% 36%
 

This means that if you start receiving benefits in 2016, at age 60, you will receive 36% less than if you had waited until 65.

Example: Sam qualifies for monthly CPP payments of $500, or $6,000 annually, but decided to retire at age 60 in 2016. His monthly payments will be reduced by $180 to a total monthly amount of $320 (500 – 60 months x 0.6%). 
 

Working while receiving CPP benefits

If you continue to work while receiving CPP benefits, you can increase your retirement income with the Post-Retirement Benefit (PRB). CPP contributions to the PRB are mandatory for working individuals aged 60 to 65. At age 65, you can choose to stop contributing.

Much like CPP, PRB payments are determined by how much you earn, your annual CPP contribution and your age.

Planning your retirement also means understanding available pensions and how much you are eligible to receive. Before you decide whether to receive your CPP benefits at age 60, 65 or 70, carefully weigh the pros and cons of each option.