How does the Canada Pension Plan impact retirement planning?

How does the Canada Pension Plan impact retirement planning?

The CPP retirement pension is designed to replace approximately 25% of your average earnings up to a maximum amount. The CPP retirement pension can be paid out as early as age 60 or as late as age 70, if you’ve contributed to the plan.

The changes to the CPP that will be implemented from 2011 – 2016 will affect your retirement planning, including when you decide to apply for your CPP retirement pension. How the changes to the CPP affect you will depend on your age, work history and when you plan to retire.

What are the changes being made to the CPP?

  • Your monthly CPP retirement pension amount will increase by a larger percentage if you take it after age 65.
  • Your monthly CPP retirement pension amount will decrease by a larger percentage if you take it before age 65.
  • If you are under 65 and you work while receiving your CPP retirement pension, you and your employer will have to make CPP contributions. These contributions will increase your CPP retirement benefits.
  • If you are age 65 to 70 and you work while receiving your CPP retirement pension, you can choose to make CPP contributions. These contributions will increase your CPP retirement benefits.
  • The number of years of low or zero earnings that are automatically dropped from the calculation of your CPP pension will increase.
  • You will be able to begin receiving your CPP retirement pension without any work interruption.

Your monthly CPP retirement pension amount will increase by a larger percentage if you take it after age 65.

  • Before the changes: Your CPP retirement pension increased by 0.5% for each month after age 65 (and up to age 70) that you delayed receiving it. This meant that, if you started receiving your CPP pension at 70, your pension amount was 30% more than it would have been if you had taken it at 65.
  • From 2011 to 2013, the Government of Canada gradually increased this percentage from 0.5% per month (6% per year) to 0.7% per month (8.4% per year). This means that 2013 was the final year for the increase. Therefore, this year, if you start receiving your CPP pension at the age of 70, your pension amount will be 42% more than it would have been if you had taken it at 65.

Are you affected by the changes?

These changes will affect you if you are:

  • An employee who contributes to the CPP, whether you are just starting your career or you are planning to retire soon.
  • A self-employed person who contributes to the CPP.
  • Between the ages of 60 and 70 and you work while receiving your CPP retirement pension.

You will not be affected by these changes if you started receiving a CPP retirement pension before December 31, 2010, and you remain out of the work force.

Source: http://www.servicecanada.gc.ca/eng/video/cpp.shtml

« back