There are various pension plans in Canada including the Canada Pension Plan (CPP) and other Registered Pension Plan (RPP). The Canada Pension Plan is open to all residents of Canada except those who reside in the province of Quebec. Quebec offers its residents a special pension plan known as the Quebec Pension Plan.
Canadians refer to the Canada Pension Plan as a pillar of their retirement income. It guarantees contributors and their dependents a steady flow of income after retirement, death, or disability.
One of the plans you and I should have in place is a good pension plan. A pension plan is, basically, a retirement plan that requires you or your employer to put aside a certain percentage of your annual income in preparation for your retirement.
All Canadians, including those working outside Quebec, must contribute to CPP as long as they earn more than the basic exemption amount. Contributions are mandatory for workers below age 65 and voluntary for those past 70 years. Here is a complete guide to the Canada Pension Plan (CPP).
What Is The Canada Pension Plan (CPP)?
The Canada Pension Plan is a government-sponsored retirement income plan, which is charged with the responsibility of paying retirement or disability benefits.
This is a monthly, taxable benefit that you receive when you retire from active work. It, basically, acts as social security for lifelong income after active service or work. This pension plan doesn’t just get paid automatically, it requires you to meet some certain criteria and make some contributions towards it, the advance of the time you wish to start receiving it.
To qualify for these earnings, the requirements include:
Age: You must be at least 60 years old
Contributions: You are required to make regular contributions to the plan
You must have worked in Canada for a period of time
You must apply within 12 months of when you wish to start receiving the payment
Canada Pension Plan (CPP) Eligibility
The CPP is an earning-based social program designed to protect Canadian workers and their dependents against the loss of income. Contributors must meet all of the following criteria to qualify for the Canada Pension Plan.
You must have worked in Canada for a while and have contributed at least once to the CPP
You must be 59 years and above and be approved by a Canada Service Center near you
Your eligibility for the CPP benefits begins in the first month of your 65th birthday. Contributors can wait until their 65th birthday to receive their full benefits or opt to receive them earlier on their 60th birthday.
However, that would mean that your benefits will be slightly reduced. Contributors can also choose to delay their benefits until their 70th year, as this can grant an automatic increase in their benefits.
How Does The Canada Pension Plan Work?
The amount paid to you on retirement is usually based on three significant criteria, which are your average income throughout your period of working, your contributions to the CPP and the age you decide to start receiving the retirement pension.
You can start receiving your retirement funds from at 60, however, the standard age is 65years and to increase your monthly amount.
This means that I can apply for my pension at age 60, but my monthly amount will be small, however, if wait till I’m 65, the amount increases and the maximum amount will be reached by age 70. This increase or decrease in the amount is permanent. For 2020, the maximum amount is $1,175.83 monthly and the average monthly amount is $679.16.
Remember, it is important to apply for the pension as the payments are not automatic!
The CPP also makes provision for pension sharing among spouses or common-law partners and also parents who had to take a lesser paying job or cut back on hours, during their period of contributions, to take care of children below the age of seven years.
Pension sharing requires that you and your spouse or common-law partner live together and it is cancelled when there is a voluntary separation between you two. The portion of your pension that qualifies for sharing is based on the period of time you’ve lived together during your joint contributory period. Pension sharing has you and your partner to save on tax, as CPP retirement pension is a taxable income.
How Do I Apply For My Canada Pension Plan (CPP)?
As earlier stated, CPP income is not an automatic process. It requires you to apply for the plan, have your application approved and then start your retirement earnings.
Here are some important things to know when applying for the Canada Pension Plan
You must have your Social Insurance Number (SIN) and bank information handy
You shouldn’t apply if you’re not ready to start receiving your retirement pension
The maximum time for application is 12 months before the date you wish to start receiving the payments
Application Methods: You can either apply online through their “My Service Canada Account”, mail or at a Service Canada Centre. These methods of application take different lengths of time to process. The online application takes 7 to 14 days, applications delivered at a Service Canada Centre takes 120 days and those sent through mails also take 120 days to be processed
If your application is denied, you can make an appeal through the Canada Pension Appeals Board
CPP Application Process
Receiving CPP retirement benefits does not start automatically. Contributors must apply for it.
While contributors can apply for their CPP retirement pension online, there are exceptions, such as if you have authorized someone else to access your account, if you reside outside Canada, or have already earned some benefits due to disability or retirement.
You can email the nearest Service Canada Center or print out a paper copy if you can’t apply for the CPP retirement pension online.
How To Contribute To The CPP?
The contribution you are required to make is a certain percentage of your earnings. If you have an employer and earn more than $3,500 per annum, you are required to contribute up to 5.25% of your income, with the maximum amount being $2,898.00.
Your employer must also contribute a matching amount annually. For the self-employed, you are required to contribute 10.2%, which is $5,796.00. These amounts are based on the yearly maximum pensionable earnings, which is adjusted each year to take into consideration the cost of living and the inflation rate.
The current maximum pensionable earnings are $58,700 and the minimum is $3,500. This means that the maximum amount you and I can be taxed on, as individuals, is $55,200.
If you are between the ages of 60-65 and you decide to continue working while receiving your CPP retirement pension, you must continue to make contributions to the pension. This means that your CPP contributions are mandatory.
If you’re a 65-70-year-old already receiving the CPP retirement pension and still employed, your CPP contributions are voluntary. You can decide whether or not you wish to continue making contributions. Your CPP contributions will be directed towards your post-retirement benefits, which will increase your retirement monthly income. However, you cease making CPP contributions once you hit the age 70 mark, whether or not you’re working or self-employed.
Canadian workers earning more than $3,500 are supposed to contribute 5.1%of their income. Their employers are also obliged to contribute a similar amount each year.
The maximum amount that an employed Canadian should contribute to the CPP should not exceed $2,748.90. Self-employed Canadians, on the other hand, should contribute $5,497.80.
The minimum income threshold for contributing to the Canada Pension Plan hasn’t changed since 1996; however, the maximum pensionable income has been increased to cater for inflation and the cost of living.
The annual maximum pensionable income in 2019 was $57,400, which means the maximum taxable income cannot exceed $53,900. Canadians aged between 60 to 70 years can continue to work and contribute to their CPP, which will be allocated for post-retirement benefits.
Whether you are employed or self-employed, your contribution to the CPP ceases typically at the age of 70.
How Much Will I Get From The Canada Pension Plan (CPP)?
The pension that a Canadian worker can expect to earn through CPP depends on factors such as the amount you contributed to the CPP and for how long.
Your CPP contributory period begins typically at age 18 and ends at the 70th birthday or when one passes away. If you start contributing to the CPP below age 65, you can expect to incur a 0.6% reduction each month until your 65th birthday.
Your reduction will be approximately 36% if you begin contributing to the CPP at age 60. However, delaying your CPP payment can attract a 0.7% reduction increase each month up to your 65th birthday. It is often difficult to estimate the amount payable, given that there are so many factors that are involved.
Your savings, company pension plan, or investment
Your disabilities and family health history
How much you have contributed to the Canada Pension Plan and for how long
Whether you plan to continue working while receiving retirement pension or not
Whether you earn any other income such as rental income or business investment
The Canadian government has provided its citizens with the average maximum pension amount to help them in planning for their retirement. Receiving CPP benefits does not start automatically. Contributors need to apply for an access code and set up an account.
What Is CPP Pension Sharing?
The law allows Canadians to apply to share their CPP pensions with either their common-law partner or married spouse. However, the sharing partners must be eligible for CPP pension.
The sharing of CPP benefits can provide some tax savings. The sharing of CPP pensions starts once the government approves it, and it can’t be backdated.
The sharing of your CPP pension depends on the number of months or years you and your partner or spouse has been contributing. The law requires married couples to submit their marriage certificate as part of the CPP sharing application.
Your CPP contribution can be divided equally after a divorce or separation.
CPP Payment Dates
Except for December, CPP payments are made in the last week of every month.
Survivor, dependent’s, disability, and retirement payments are all done in the same period. CPP contributors can request a direct deposit into their account. However, those that prefer a paper cheque may have to wait for at least a week for their payment to process.
CPP Payment Dates 2020
The Canada Pension Plan retirement pension is paid on a monthly basis and the dates to take note of for 2020 are:
January 29, 2020
February 26, 2020
March 27, 2020
April 28, 2020
May 27, 2020
June 26, 2020
July 29, 2020
August 27, 2020
September 28, 2020
October 28, 2020
November 26, 2020
December 29, 2020
These dates also apply to CPP retirement pension, CPP disability, Children’s benefit and survivor’s benefits.
Canada Pension Plan Benefits Guide
The Canada Pension Plan includes other benefits such as:
CPP Survivor’s Pension
CPP Disability Pension
CPP Death Benefit
CPP Children’s Benefit
1. Post-Retirement Pension: These are the benefits paid to you if you continue to work and make CPP contributions, while collecting CPP retirement pension, before age 70. This benefit increases your overall pension. This benefit is not eligible for pension sharing.
2. CPP Survivor’s Pension: This benefit is paid to the legal spouse or common-law partner of a deceased CPP contributor. It doesn’t exceed the maximum CPP retirement pension of $1,175.83.
3. CPP Disability Pension: This benefit is paid to CPP contributors who suffer from a prolonged or permanent disability. They may also qualify for a post-retirement disability benefit.
4. CPP Death Benefit: This is the benefit paid out to the estate of a deceased CPP contributor. The benefit amounts to $2,500.
5. CPP Children’s Benefit: This benefit is paid to dependent children of a deceased or disabled CPP pensioner. This benefit requires the recipient to be under the age of 18 or under 25 if in school fulltime. This benefit is paid monthly and the maximum amount is $255.03.
Frequently Asked Questions on Canada Pension Plan
1. What is the maximum CPP pension for 2020?
Ans: the maximum monthly CPP pension for 2020 is $1,175.83, which translates to an annual pension of $14,109.96.
2. At what age can I start receiving my CPP pension?
Ans: CPP pension can be applied for in advance of your 60th birthday, but your monthly pension will be decreased by 0.60%, monthly. However if you wait till you’re 70years old, your monthly pension will be increased by 0.70%, monthly. The standard recommended age to start receiving CPP pension is 65years.
3. What happens to my CPP pension after I die?
Ans: After death, your CPP pension will be paid to your legal spouse or partner, children or into your estate as survivor’s benefit, children’s benefit or death benefit.
4. Will I still receive my CPP pension if I relocate to another country?
Ans: Yes! You will still receive your monthly pension regardless of where you relocate to. However, if the country you now live doesn’t have a tax treaty with Canada, your pension is liable to a 25% tax rate. On the other, tax rates are reduced or waived, if the country has a tax treaty with Canada.
5. How many years do I need to work to get CPP?
Ans: You’re entitled to CPP regardless of how long you’ve worked. the most important variables in your Canada Pension Plan are your earnings and how much contributions you make to the CPP.
Canada Pension Plan Survivor’s Pension
So what exactly is the Canadian Survivor Pension? Who is eligible for this?
In the event of death, the Service Canada Center will take a portion of your pension and transfer it to your common-law partner or married spouse.
The survivors that are above 65 years will only receive a portion of the deceased’s CPP benefits. However, the survivor will receive a small percentage plus a flat rate of the pension if he or she was below 65 years.
The surviving partner or spouse must apply for the deceased’s premium, and that should be done as soon as death has been reported. Delays can result in loss of some benefits, given that back payments can take up to 12 months to complete.
Unfortunately, survivors cannot apply for the deceased’s pension online. You have to print out the survivor’s benefit form and email it to the Service Canada Center near you.
Canada Pension Plan comes as a helping hand for Canadians who find retirement planning as overwhelming to them. With a CPP, planning for your retirement is fast, simple, and easy.
How To Calculate Your Canadian Retirement Income?
To be frank, it is pretty easy to calculate your retirement income and CPP payments. There’s nothing wrong in knowing this amount in advance and planning ahead of time.
All you have to do is head over to this link. Fill in the basic details which hardly takes 5 – 10 minutes and boom you are done with the report.
This is what you can expect at the end of filling in the details:
Like I said, you just have to key in the basic details like Year of Birth, RRSP contributions, Annual Retirement Goals etc. and the system will estimate your retirement income, CPP Payments and OAS Benefits you’ll receive.
There you go, that was all about the Canada Pension Plan.
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