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Personal Wealth and Finance

Planning your CPP: Review 2018-2019

November 1, 2018

The Canada Pension Plan (CPP) provides contributors and their families with partial replacement of earnings in the case of retirement, disability or death. Almost all individuals who work in Canada outside Quebec contribute to the CPP.

Calculating your CPP while you navigate the following considerations can be a major eye opener as to just how ready or not ready that you are for retirement.

If you have contributed to both the CPP and QPP, you must apply for the QPP if you live in Quebec or for the CPP if you live elsewhere in Canada. (You do not have to apply to both plans. Your benefit will be paid by the plan according to your place of residence. The benefit amount you will be paid will take into consideration all contributions made to both plans.)

If you stopped working or received lower earnings to raise your children, you may be able to use the “child-rearing provision” to increase your CPP benefits. Here are a few of the potential benefits:

  • Retirement pension You can apply for and receive a full CPP retirement pension at age 65 or receive it as early as age 60 with a reduction, or as late as age 70 with an increase. 1 If you continue to work while receiving your CPP retirement pension and are under age 70, you can continue to participate in the CPP. Your CPP contributions will go toward post-retirement benefits, which will increase your retirement income. 2
  • Disability benefits
 If you become severely disabled to the extent that you cannot work at any job on a regular basis, you and your children may receive a monthly benefit. 3
  • Survivor’s pension
 When you die, a pension may be paid to your surviving spouse. 4
  • Death benefit
 Provides a one-time payment to (or on behalf of) the estate of a deceased CPP contributor. 5
  • Dependent children’s benefits 
 Provide monthly payments to the dependent children of disabled or deceased CPP contributors. 6 
  • Child rearing provision 
If you stopped working or received lower earnings to raise your children, you may be able to use the “child-rearing provision” to increase your CPP benefits. 7
  • Your Investment Income Your personal investments, savings, and company pension may impact your CPP integrating retirement planning with CPP planning is important.

There are other provisions of the CPP which include sharing and splitting of payments:

    • Pension sharing
 if married or common-law couples in an ongoing relationship may voluntarily share their CPP retirement pensions. 8
    • Credit splitting for divorced or separated couples
 The CPP contributions you and your spouse or common-law partner made during the time you lived together can be equally divided after a divorce or separation. 9

Who is eligible? The Canada Pension Plan (CPP) retirement pension provides a monthly benefit to eligible applicants. You can apply for and receive a full CPP retirement pension at age 65 or receive it as early as age 60 with a reduction, or as late as age 70 with an increase.

When should you take your CPP retirement pension? The standard age to begin receiving a CPP retirement pension is when you reach age 65, which is the month after your 65th birthday. However, you can take a reduced CPP retirement pension as early as the month after your 60th birthday. You can also take an increased pension if your benefit starts after reaching age 65. Before you decide when to take your CPP retirement pension, you may want to consider the following:

  • Age Your age will affect your monthly payments from CPP. 10
  • How much you contributed Your contribution history will affect your payments: how much you’ve contributed and how long. 11

The Canada Pension Plan (CPP) uses your contributions to determine whether you and/or your family are eligible for a CPP benefit and, if so, what the amount of the benefit will be.

Important factors are how long and how much you contribute. In order to receive a CPP benefit, you must have worked and contributed in Canada (outside Quebec). Usually, the more you earn and contribute to the CPP in the years before you take your retirement pension, the higher the benefit will be because you have built up more CPP pension credits.

How much could you receive? The amount of your Canada Pension Plan (CPP) retirement pension is based on how much you have contributed and how long you have been making contributions to the CPP at the time you become eligible.

  • A certain number of your months with lowest earnings may be automatically dropped from the CPP retirement pension calculation under the general drop-out provision. This may help increase the amount you will receive.
  • You can also request the child-rearing provision which may increase your retirement pension amount if you had zero or low earnings because you were the primary caregiver raising your children.
  • Credit splitting may affect the amount of the CPP retirement pension for both you and your former spouse or common-law partner.
  • If the cost of living goes up, so does the amount of your CPP benefits. Your monthly benefits are adjusted every year in January based on the Consumer Price Index. 

Business Owners

  • Business Income As well if you have any other income such as business investments, rental income, etc., this may affect CPP payments. It is important that your accountant advise you along the way just how important it is for you to pay as much as possible into your CPP as it can make a big difference to a small business owner especially if they have been earning a low income or sought to minimize the tax bite over the years which in the end may effectively have the consequence of reducing CPP benefits during retirement.
  • The Paradox of Small Business Income The paradox of small business persons who may try to limit taxation as well as maximize their Registered Retirement Savings Plan (RRSP) is this: if taxable income is reduced dramatically, it may leave little taxable income left to enable a significant CPP contribution. To help in this situation it is recommended that the small businessman use the Tax-Free Saving Account (TFSA).

The Canadian Retirement Income Calculator and your CPP Statement of Contributions within My Service Canada Account can also help you determine the best time to start your CPP retirement pension and get an estimate of how much you might receive.

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