Canada Pension Plan Benefits
If you are over the age of 18 and working in Canada you must contribute to the Canada Pension Plan (CPP).
Your contribution will be based on your earnings per year, your pensionable earnings.
If you are employed, you will pay half the CPP required contribution and your employer will pay the other half. If you have your own self-employed income then you will pay the full contribution yourself.
It does not matter how many jobs you have in Canada over your lifetime, your contributions are yours for the future.
CPP is not only available for retirement but is available as:
- Retirement plan
- Post-retirement plan
- Survivors pension
- Death benefit
- Childrens benefit
CPP Contribution Amounts
The amount you contribute to CPP is based on your employment income, the contributions you make are made based on the minimum and maximum amount of pensionable earnings that are set out by the government each year. The minimum amount is $3500.00 that amount has been frozen for a while. The maximum amount in 2016 was $54,900.00 These are Pensionable earnings that your contributions are calculated by.
So a person who made the maximum 54,900 pensionable earnings would have $2544.30 deducted from their earnings for the year.
How long do I contribute to CPP
You would start contributing to CPP at the age of 18 and would stop contributing when you stop working or reach the age of 70.
Canada Pension Plan Eligibility
In order to receive CPP benefits you must apply for them. The criteria for applying for CPP Benefits are:
- you must have worked in Canada and made at least one contribution to CPP
- want your payments to begin within 12 months
- be at least one month past your 59th birthday
You can start receiving your CPP benefits as early as the year you turn 60 and as late as 70 years of age.
When should I start collecting my CPP?
65 is the standard retirement age at which most people begin collecting their retirement benefits, although some people start collecting at 60. With CPP you have to consider a few things if you are planning on taking it early. If you decide to delay collecting till after 60 your benefits will increase, but taking it before 65 will decrease the amount you will receive.
The amount of pension your receive will depend on how much you have contributed throughout the years of employment, and when you want to start collecting your pension.
Taking your CPP between 60 and 65
If you take your pension at 65 it will not be reduced, it will be determined by your contributions. You can look at your contribution on the Service Canada Site as well as get an estimate of what your CPP payments could be at age 65 or 60. Keep in mind that these are estimates before any provisions have been taken into consideration.
If you decide to take your CPP before the age of 65 the monthly payment amount will be reduced by 0.6% for each month your receive payment before the age of 65 this works out to be about 7.2% per year. This basically calculates to a person receiving 36% less at age 60 than 65. Depending on your situation it may be to your benefit to start collecting early. Things to consider would be:
- How do you invest
- Do you plan to continue working
- Do you need the money
- How long do you expect to live
The maximum CPP payment for 2017 at age 65 will be $1092.50 per month or a total of $13,110 per year. If you are eligible to collect the maximum CPP and start taking it at 60 you would receive $8390 per year.
Here is a CPP break even calculator to determine your break even point. This calculator can help you determine when you want to start collecting your CPP benefits.
Remember if you are still working after 60, you are still contributing to CPP so payments will increase by inflation as well as the amounts being contributed.
CPP is taxable so when a person is collecting CPP and still making say $100,000 a year, the CPP payments will be taxed at a higher rate, it you still have RRSP room it would be a good idea to contribute the CPP received back into an RRSP to reduce taxable income.
Taking your CPP after the age of 65
If you decide to leave your CPP and start collecting it after the age of 65, the payments will then increase by .7% per month for every month after the age of 65 or 8.4% per year. That calculates into an increase of about 42% more CPP if taken at age 70 compared to 65.
Other things that come into factor when your CPP payments are determined are the Drop Out Provision and the Child Rearing Provision
Drop out Provision
The Drop out Provision is when there are periods of time that you had no wages or very low wages, these periods are automatically dropped when determining your payments CPP, which help to increase your monthly payments.
Child Rearing Provision
The child rearing provision is also another way to increase your benefit payments. If you stayed home to raise your children or had low earnings due to part-time work while raising your children, then you may be able to use the child rearing provision to increase your CPP payments. To be eligible for this provision you must:
- have children born after 1958
- your earning were low because your stopped working or worked fewer hours to be the primary caregiver
- you received Family Allowance or were eligible for the Child Tax Benefit
Each spouse can request this provision, but both parents can not use it for the same time period.
If you are going to request this provision your will need to apply for it when applying for your CPP benefits. If you are already receiving benefits you can still apply by completing the Child Rearing Provision Form and sending it to Service Canada.
When applying for this provision you will need to provide a copy of your childs birth certificate or the childs name, date of birth and social insurance number.
How do I apply for CPP
You can apply for CPP by signing in or registering with My Service Canada Account
Other CPP Benefits
Benefits for Children
CPP provides monthly payment benefits to dependant children of disable or deceased CPP contributors.
In order to qualify for these benefits the child must be under the age of 18 or between the ages of 18 and 25 and in school full time at a recognized university or school.
For a child to be eligible for these benefits the must be:
- natural child of the contributor
- legal child (by custody) while under the age of 21
- adopted child while under the age of 21
The child is can be eligible for these benefits if the parent is receiving CPP disability benefits or is deceased.
The amount of benefit a child will receive for the year 2017 would be $241.02. This amount can change each year.
To apply for this benefit for a child you must apply – Application for Canada Pension Plans Childs Benefit
A Survivors Pension is paid to the legal spouse or common law partner of the deceased at the time of death.
The amount a surviving spouse will receive will depend on whether you are receiving any CPP benefits, how old you are and how much and how long the deceased has been contributing to CPP.
Once the appplication has been received the first payment should come within 12 weeks. The start date would be the month after death of spouse.
If a person is widowed more than once, they will only receive one survivor pension – it will be the larger of the two.
If a person has made CPP contributions and becomes disabled and is unable to work any longer, benefits are available to that person and their children.