Canada Pension Plan (CPP)

One of the cornerstones of retirement in Canada is the Canada Pension Plan. It is a public pension plan for all workers that provides eligible contributors with a limited replacement income when they retire or become disabled. It also provides a survivor’s pension for the spouse of a contributor and a death benefit payable to his or her estate. It is estimated that up to 90% of Canadians are relying on CPP to help fund their retirement. Pension payments are not automatic when you reach a certain age, and must be applied for up to 12 months before you wish to start collecting them. CPP is funded through the contributions of employees and their employers (the self-employed must pay both employee and employer amounts).

CPP Benefits & Eligibility Requirements

Retirement Pension

The benefit is based on how long you have worked and how much you have contributed to CPP. Provisions are available that allow you to eliminate some low income years from the calculations, which will increase benefits. These provisions are: The general dropout provision which automatically excludes up to 17% o the lowest earning months (maximum 8 years). The child rearing provision allows you to exclude a certain amount of low or no-earning years that you spent raising children. Pension sharing allows married or common law couples to share their pension credits if they wish to. Credit splitting allows couples who are divorced or separated to share evenly all CPP credits earned during the marriage or period of cohabitation. Credit splitting can be applied for by either person in the previous relationship, and does not need the approval of the other. The eligibility requirements to collect the retirement pension are:

 

  • Minimum age of 59 years + 1 month before you apply
  • Minimum age of 60 years to receive a reduced pension
  • Minimum age of 65 to receive a full retirement pension
  • Worked in Canada and contributed at least once to CPP
  • Applying 12 months before you wish your retirement benefits to start

Children’s Benefits

The children of deceased or disabled CPP contributor’s could be eligible for benefits if the following criteria are met:

  • The child is under the age of 18
  • The child is 18 to 25 years old and in full time attendance at school (high school or post-secondary)
  • The child must be the natural child of the CPP contributor, legally adopted by the contributor before age 21, or in the custody and control of the contributor before age 21
  • The contributor must have met all contribution requirements, and be either disabled or deceased

Post Retirement Benefit (PRB)

If you are receiving CPP retirement pension and have continued to work, retirement income can be increased with the PRB if you meet the following eligibility requirements:

 

  • Must be between 60 and 70 years old
  • Must be working and making CPP contributions

Survivor’s Pension

  • Must be the legal spouse or common law partner of a deceased CPP contributor at the time of their death
  • Amount will depend on your age, any CPP benefits you are receiving, and the deceased’s CPP contribution history

Disability Benefits

The Canada Pension Plan’s definition of a disability for the purpose of collecting benefits:

To qualify for a disability benefit under the Canada Pension Plan (CPP), a disability must be both “severe” and “prolonged”, and it must prevent you from being able to work at any job on a regular basis.

  • Severe means that you have a mental or physical disability that regularly stops you from doing any type of substantially gainful work.
  • Prolonged means your disability is long-term and of indefinite duration or is likely to result in death.

 

Eligibility:

  • Meet the definition of severe and prolonged disability stated above
  • Under the age of 65
  • Meet the requirements for CPP contributions

Death Benefit

The CPP death benefit is a one time payment made to the deceased contributor’s estate if they meet the following eligibility requirement:

  • CPP contributions were made in one third of their contributory years (with a minimum of 3 years) or they were made for 10 calendar years

Canada Pension Plan Monthly & Maximum Benefit Payments – 2017

Canada Pension Plan benefits can vary widely depending on your age, level of contributions, and other circumstances. For more information or to apply for CPP, check Overview on the Government of Canada website. The chart below displays what the average new CPP recipient is receiving every month, and what the maximum monthly payment is:

 

 

Old Age Security – The Universal Government Benefit

Canada’s Old Age Security program provides universal government benefits for seniors. While the government likes to call the OAS retirement benefit a ‘pension’, it would be more accurate to call it a form of social assistance. It’s intention is to act as a safety net for the elderly, although many people argue it is being used as a vote grabber. It is paid to seniors over the age of 65 with very little in the way of eligibility requirements. Everyone is entitled to it as long as they have lived in Canada for 10 years after the age of 18. It makes no difference if they are still working, retired, or never worked a day in their life. Every eligible senior will receive an automatic enrolment notification from Service Canada the month after the turn 64. This post covers general eligibility requirements only – check the Overview on their website or contact them to see if you qualify under special circumstances.

Old Age Security is the most expensive component of Canada’s Public Pension System, costing Canadian taxpayers $45 billion in 2015. It is paid for out of the long list of taxes Canadians pay, including income tax collected from current workers (many of whom incorrectly assume they are ‘contributing’ in some way to their own OAS). According to Canada’s chief actuary, by the year 2030, OAS benefits to seniors will rise to $109 billion. The long term sustainability of this program is questionable, but for those who are fortunate to still have this safety net in place, this is what it has to offer:

OAS Benefits & Eligibility Requirements

Guaranteed Income Supplement (GIS)

The Guaranteed Income Supplement is an additional benefit available to low income OAS pension recipients. Unlike OAS, it is non-taxable. You must apply in writing, but once you qualify your benefit will automatically renew every year as long as you file an income tax return and still meet the eligibility requirements. General eligibility requirements are:

  • Must be living in Canada
  • Currently receiving an Old Age Security Pension
  • Annual income (of you and your spouse combined if applicable) cannot exceed the threshold

Allowance for People Age 60 – 64

If your spouse or common law partner is receiving the Guaranteed Income Supplement (GIS), and your combined annual income is below the threshold, you qualify for this allowance. You must apply in writing and it is recommended you do so 6 to 11 months before your 60th birthday. Your benefit will automatically renew every year as long as you file an income tax return and still meet the eligibility requirements. General eligibility requirements are:

  • Age 60 to 64 (including the month you turn 65)
  • You are the spouse (or common law partner) of a person receiving OAS pension that also qualifies for the GIS
  • Must be a Canadian citizen of legal resident
  • Must reside in Canada
  • Lived in Canada for at least 10 years since the age of 18
  • Annual income (of you and your spouse combined if applicable) cannot exceed the threshold

Old Age Security Pension

You can defer your OAS pension (up to 5 years) to increase future benefits, but it will come at the expense of  you (and your spouse or common law partner if applicable) being able to collect certain benefits, so it is important to examine your particular circumstances carefully. Canada also has Social Security agreements with other countries that you may qualify for if you don’t meet the eligibility requirements below.

  • No work history is required to receive benefits
  • Minimum 65 years old
  • Canadian citizen or legal resident during application approval process
  • 10 years of residing in Canada after age 18
  • If living outside of Canada and applying for OAS, minimum 20 year residence in Canada
  • If living outside of Canada and applying for OAS, must be Canadian citizen or legal resident the day prior to leaving Canada.

Allowance for the Survivor

Available to low income individuals between the ages of 60 and 64, whose spouse or common law partner has died. Your benefit will automatically renew every year as long as you file an income tax return and still meet the eligibility requirements.  The general eligibility requirements are:

  • Age 60 to 64 (including the month you turn 65)
  • Spouse or common law partner has died
  • Unmarried
  • Not in a common law relationship
  • Must be a Canadian citizen or legal resident
  • Must reside in Canada
  • Lived in Canada for at least 10 years since the age of 18
  • Annual income cannot exceed the threshold