If you work or have worked in Canada, then chances are you are aware of the Canada Pension Plan (CPP). CPP is something you contribute to during your working years to enable you to receive a monthly, taxable benefit that replaces part of your income starting when you are at least 60 years of age.

Up until 2019, the CPP retirement pension replaced one quarter of your average work earnings. CPP is gradually being enhanced and will eventually replace one-third of the average employment earnings you receive after 2019. This enhancement means you will receive higher benefits in exchange for making higher contributions. If you are currently receiving CPP and you are no longer contributing, you will not be impacted by these changes.

Eligibility for CPP Retirement Pension

You are eligible to receive CPP retirement benefits if you have worked in Canada, made at least one valid CPP contribution and you are at least 60 years of age. In general, to be entitled to the maximum monthly CPP payment amount at age 65, you must have contributed to CPP for at least 39 years and have made the maximum contribution towards CPP in each of those years.

CPP and QPP (Quebec Pension Plan) have sharing agreements and offer similar benefits. If you have contributed to both CPP and QPP, you are not required to apply to both. You should apply to receive QPP if you are currently residing in Quebec and you should apply to receive CPP if you are currently living elsewhere in Canada.

When do I start receiving CPP?

The standard age to begin receiving a CPP retirement pension is the month after your 65^th birthday however, you have the ability to decide when you would like to apply to receive it once you reach the age of 60. You may receive a reduced pension as early as the month after your 60^th birthday or an increased CPP retirement pension if it starts after your 65^th birthday. It is important to consider the implications and benefits before deciding when to start receiving CPP retirement benefits.

Taking CPP before age 65

If you start taking CPP before age 65, your CPP is permanently reduced by 0.6% for each month you receive it before and including the month you turn 65 (a reduction of 7.2% per year). If you start receiving CPP the month after your 60^th birthday, for example, you will receive 35% less than if you start your pension at age 65.

You may decide to take CPP before age 65 for a few reasons. This may make sense if you require the income to support yourself and your family. Taking CPP early may also enable you to reduce your working hours and supplement your income with the CPP benefits. It is also important to consider your current health and your family health history. If you have a shortened life expectancy or greater potential for health issues, it may make sense to take it early. Lastly, you could invest your CPP payments taken early and receive the benefits of the rate of return and income generated on the invested funds.

Taking CPP after age 65

If you start receiving CPP after age 65, your CPP will permanently increase by 0.7% for each month you delay receiving it, starting the month after your 65^th birthday. This means if you begin receiving CPP in the month after your 70^th birthday, your monthly CPP retirement benefit will be 42% higher than it would have been if you began CPP at age 65. It is important to note that 42% is the maximum possible increase and there is no benefit to delaying receipt of CPP retirement benefit after age 70.

There are a few reasons why you might choose to delay taking CPP. You may decide to delay receiving your pension if you have insufficient income or resources for a comfortable retirement and you require a higher pension benefit. The longer you wait, the higher your benefit payments will be. If you plan to continue working past the age 60, have sufficient income for your desired lifestyle, and are in a higher tax bracket, it may make sense to delay taking CPP. If you take CPP while in a higher tax bracket, you will keep less of your CPP income because you’ll pay more of it in tax. By delaying CPP, your payment will be higher when you do start to receive it and you may be in a lower marginal tax bracket by then.

Applying for CPP

You must apply in order to start receiving CPP retirement benefits. You can apply up to 12 months before the date you would like your pension to start. When applying, you may request retroactive payments for up to 12 months (11 months, plus the month you apply), or back to the month after your 65^th birthday, whichever period is shorter. The latest you should apply to obtain your full pension entitlement is the month you turn 71. If you apply after the month you turn 71, you will lose benefits.

Canceling CPP

If you have recently started receiving CPP and you have decided that you would prefer to delay it, it is possible to cancel it. You can cancel your CPP pension up to six months after you begin receiving it. You must request the cancellation in writing and repay all of the CPP benefits you received.

More Information

You can get an estimate of your CPP retirement benefit from your CPP Statement of Contributions. The statement provides a record of your pensionable earnings and your contributions to the plan. It also provides an estimate of what your CPP pension benefit would be if you were eligible to receive it today. You can obtain your Statement of Contributions online by registering for the My Service Canada Account online service or by mail with Service Canada.

There are additional factors to consider beyond what I have shared in this blog post including CPP survivor benefits. For more detailed information, please take a look at The Navigator Report: Canada Pension Plan that is also listed on our Educational Articles page. If you would like to further discuss CPP, please do not hesitate to contact us!

“How will you replace your current income in retirement?”™ - Jim Seyers