Canada Pension Plan (CPP) Changes

Flexibility is Key in Canada Pension Plan Changes

Working in Retirement
Working in Retirement. Thomas Barwick / Stone / Getty Images

The federal and provincial governments started to make changes to the Canada Pension Plan (CPP) in 2011 to give more options to those who want or need to receive the CPP before the age or 65 and to those who want to postpone taking their pension until after the age of 65. The changes are being phased in gradually from 2011 to 2016. Adjustments have been made to improve the flexibility of the CPP, and to adapt to the different ways that Canadians are approaching retirement these days. For many, retirement is a gradual process, rather than a single event. Personal circumstances, from employment opportunities, or lack of them, health, and other retirement income, affect the timing of retirement, and the gradual adjustments made in the CPP may make it easier for individuals, at the same time keeping the CPP sustainable.

What is the Canada Pension Plan?

The CPP is a Canadian government pension plan and is a joint federal-provincial responsibility. The CPP is based directly on workers' earnings and contributions. Nearly everyone over the age of 18 who works in Canada, outside Quebec, and earns over a basic minimum, currently $3500 a year, contributes to the CPP. Contributions stop at the age of 70, even if you are still working. Employers and employees each make half the required contribution. If you are self-employed, you make the full contribution. CPP benefits can include a retirement pension, a post-retirement pension, disability benefits, and death benefits. In general, the CPP is expected to replace about 25 percent of your pre-retirement earnings from work. The rest of your retirement income can come from the Canada Old Age Security (OAS) pension, employers pension plans, savings and investments (including RRSPs).

Changes to the Canada Pension Plan

The following changes are in the process of being implemented.

CPP monthly retirement pension started after age 65
Since 2011, the CPP retirement pension amount has increased by a larger percentage when you start taking it after the age of 65. By 2013, your monthly pension amount has increased by 8.4 percent for every year after 65 up to age 70 that you delay taking your CPP.

CPP monthly retirement pension started before age 65
From 2012 to 2016, your monthly CPP retirement pension amount will decrease by a larger percentage if you take it before age 65. The monthly reduction for taking your CPP early will be 2013 - 0.54%; 2014 - 0.56%; 2015 - 0.58%; 2016 - 0.60%.

Work Cessation Test has been dropped
Before 2012, if you wanted to take your CPP retirement pension early (before the age of 65), you had to either stop working or significantly reduce your earnings for at least two months. That requirement has been dropped.

If under 65 and working while receiving a CPP retirement pension, you and your employer must pay CPP contributions.
These contributions will go to a new Post-Retirement Benefit (PRB), which will increase your income. If you have an employer, the contributions are split evenly between you and your employer. If you are self-employed, you pay both the employer and employee contributions.

If between 65 and 70 and working while receiving a CPP retirement pension, you have a choice about whether you and your employer pay CPP contributions.
You do have to complete and submit a CPT30 Form to the Canada Revenue Agency to stop making contributions, however.

General Drop-out Provision Increases
When your average earnings over your contributory period are calculated, a percentage of your lowest earnings are automatically dropped. Beginning in 2012, the provision was increased to allow up to 7.5 years of your lowest earnings to be dropped from the calculation. In 2014, the provision allows up to 8 years of lowest earnings to be dropped.

Note: These changes do not apply to the Quebec Pension Plan (QPP). If you work or worked in Quebec, see the Régie des rentes Québec for information.

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