The Canada Pension Plan (or CPP) is a type of contributory social insurance program that was first instituted in 1995. It has played a critical role in many Canadians’ retirement plans ever since. It is one of just a few public retirement schemes that are available in Canada, with Old Age Security being another one. Old Age Security (OAS) is received by all Canadians. There is a Guaranteed Income Supplement (GIS) as well for individuals in the lowest income brackets that are geared towards income. In retirement, Canadian Pension Plan benefits can comprise a large portion of your overall income. Individuals who receive the maximum CCP payments after they reach the age of 65 can collect benefits worth almost $14,000 per year.
There are two factors that will determine how much your CPP payments are: how long you made your contribution and how much you contributed. Most people do not get the maximum benefit. The average amount that new beneficiaries receive, in fact, is just a bit over $8,000 per year.
Canada Pension Plan (CPP) contribution rates, maximums, and exemptions for the last three years :
|Year||Maximum annual pensionable earnings||Maximum annual pensionable earnings||Maximum contributory earnings||Employee and employer contribution rate (%)||Maximum annual employee and employer contribution||Maximum annual self-employed contribution|
Canada Pension Plan (CPP) Payment Dates
|Canada Pension Plan:|
Includes the Canada Pension Plan (CPP) retirement pension and disability, children's and survivor benefits.
|Old Age Security :Includes Old Age Security pension, Guaranteed Income Supplement, Allowance and Allowance for the Survivor||Veteran disability pension :||Canada child benefit (CCB) :|
|January 29, 2020||January 29, 2020||January 30, 2020||January 20, 2020|
|February 26, 2020||February 26, 2020||February 27, 2020||February 20, 2020|
|March 27, 2020||March 27, 2020||March 30, 2020||March 20, 2020|
|April 28, 2020||April 28, 2020||April 29, 2020||April 20, 2020|
|May 27, 2020||May 27, 2020||May 28, 2020||May 20, 2020|
|June 26, 2020||June 26, 2020||June 29, 2020||June 19, 2020|
|July 29, 2020||July 29, 2020||July 30, 2020||July 20, 2020|
|August 27, 2020||August 27, 2020||August 28, 2020||August 20, 2020|
|September 28, 2020||September 28, 2020||September 29, 2020||September 18, 2020|
The Canadian Pension Plan Is Indexed to the Inflation Rate
CPP rate increases get re-calculated once per year based on the Consumer Price Index (CPI). Every January, the increases go into effect and are legislated to ensure that benefits keep up with the increased cost of living expenses. The rate increases are a percentage change based on one 12-month period to the previous one.
In 2019, CPP payments increased by a total of 2.3 percent, which was based on the average CPi for the time period of November 2017 through October 2018 and then divided by the average CPI for November 2016 through October 2017.
Note: If over a 12-month period the cost of living decreases, the CPP payment amounts do not decrease. Instead, they remain the same as they were for the previous year.
Why Didn’t I Receive The Maximum CPP Payment?
Employment and Social Development Canada reports that just 6 percent of all CCP recipients get the maximum payment amount. The average recipient only gets 59% of the maximum CPP payment. Keeping that in mind, when you are calculating your projected retirement income it is best to lower your expectations when it comes to your expected CPP payment.
So why do so few people receive the maximum payments? Because to reach the maximum level you must make 39 years worth of CPP contributions to receive the large possible retirement benefit. That means you would need to have a salary that exceeds or meet the maximum yearly pensionable earnings threshold. it was $57,400 in 2019.
Many different factors affect you being able to earn the CPP maximum benefits. You might have been late in joining the workforce, dropped out for a while, or retired early. Also, low-income earners might not reach the YMPE level frequently enough in order to receive the maximum CPP retirement benefit. Often business owners choose to pay dividends to themselves and therefore do not need to make CPP contributions. However, that also means they won’t be eligible to get benefits.
When Should You Take CPP?
The most common question that people tend to have about CPP is when they should take it. Age 65 is the standard age for taking CPP. Service Canada will actually send a notice out proactively a couple of months before your 65th birthday to advise you to apply for CPP and provide you with an estimate of what your expected CPP payments will be.
However, starting as young as age 60 you can start receiving a reduced CPP payment. If you choose to start taking CPP early, you will get 0.6 percent less for each month you get it before reaching 65 years old. This means, for those people who start taking CPP at 60 years old, their CPP payments will be reduced by 36 percent. Apart from reduction, there may be good reasons for you to start taking CPP early – if you need to have the income before you reach 65 years old, or you are expecting a reduced life expectancy.
On the other hand, your CPP payments can be enhanced by deferring your pension up until you reach 70 years old. When you wait you have the advantage of receiving a 0.7 percent increase for each month that you defer your CPP payments past the age of 65. When you start taking CPP at 70 years old it enhances your pension by 42 percent. The most important reason for deferring CPP is protecting against longevity risk – which is the risk that you will outlive your money. You can consider using your personal savings to help tide you over until your enhanced CPP payments start to kick-in when you are older.
How to qualify to receive the maximum CPP
In order to qualify for the maximum Canada Pension Plan, you will need to make the maximum CPP contribution over the course of many years. Each year the Year’s Maximum Pensionable Earnings (YMPe) is set by the federal government, which forms the basis for both pension and CPP contributions. The YMPE in 2019 is $57,400. In order to max your CPP out, you would need to earn more than the YMPE for many years with no unemployment periods.
If you are able to delay taking your CPP payment for just a few years after you reach 65 years old, you will receive higher monthly payments. A number of different investment strategies are offered by Wealthsimple that can help you form a sound overall financial plan.
Old Aged Security (OAS) & CPP Eligibility
CPP must be applied for. It doesn’t kick in automatically In order to qualify for CPP payments you must:
- Have worked in Canada and made one valid CPP contribution at least.
- Intend for your CPP payments to start within the following 12 months.
- Be 1 month at least past your 59th birthday.
For references and to check out Benefits payment calendar HERE