Michael Callahan, CFP®, CIM®
Retirement is an important life event with many considerations. One of the most common sources of retirement income for Canadians is the Canada Pension Plan (CPP). The CPP retirement pension is a taxable monthly benefit that is intended to replace a portion of your income when you retire. If you qualify, you’ll receive the CPP retirement pension for the rest of your life. That’s why we've put together a list of the top 10 questions we receive about CPP.
1. How do I qualify for Canada Pension Plan (CPP) retirement benefits?
To qualify you must be at least 60 years old and must have made at least one valid contribution to the CPP. To begin receiving a CPP retirement pension, you must apply through your My Service Canada account as CPP retirement benefits are not automatic.
2. How much Canada Pension Plan (CPP) retirement benefit will I receive?
CPP retirement benefits vary from one person to the next. The amount of your CPP retirement pension depends on several factors, including your earnings during your working years, the amount you contributed to CPP, how many years you contributed, and the age at which you start receiving your CPP retirement pension.
For 2023, the maximum monthly amount you could receive if you start your pension at age 65 is $1,364.60. However, very few people receive the maximum, and the average monthly CPP retirement pension (at age 65) in October 2023 was $758.32.1
3. Are Canada Pension Plan (CPP) benefits taxable?
Yes, CPP disability, retirement, post-retirement, children's, and survivor's benefits are fully taxable as income with no preferential tax treatment. The CPP death benefit is also taxable in most cases.
4. When can I start to receive Canada Pension Plan (CPP) retirement benefits?
The normal start date for receiving CPP retirement benefits is age 65. However, you can begin receiving CPP as early as age 60, or as late as age 70, or anywhere in between. If you start receiving your CPP retirement pension before age 65, your payments will be reduced by 0.6% each month (7.2% per year), up to a maximum reduction of 36% at age 60. On the other hand, if you postpone receiving CPP until after age 65, your payments will increase by 0.7% each month (8.4% per year), up to a maximum increase of 42% at age 70. The maximum monthly amount you can receive is reached when you turn 70. There is generally no advantage to wait until after age 70 to start receiving your pension. Further, there is no requirement to stop working to receive a CPP retirement pension. Individuals can begin receiving CPP at any point from age 60 onwards, regardless of employment status.
5. When should I start to receive Canada Pension Plan (CPP) retirement benefits?
There are many factors to consider when deciding when to start receiving CPP retirement benefits. Although much academic literature supports deferring to a late start date, this is a highly personalized decision. Some items to consider include:
- Your tax rate – CPP is fully taxable, so if you’re already in a high tax bracket (for example, if you are still working or if you have received a severance or other retirement type package), it may be beneficial to defer.
- Your need for income – If you need CPP at age 60 in order to achieve your desired level of retirement income, you can begin to receive it right away.
- Your health – If you’re healthy and expect to live a long life, it may make sense to start receiving your CPP retirement pension later. On the other hand, if you believe you have a shortened life expectancy, it may be more beneficial to start earlier.
- Your lifestyle – Remember, it's not just about the numbers. While the math may dictate one course of action, your lifestyle may dictate another as there's real value in having the money while you're still able to make good use of it.
- Your family – The CPP has a survivor benefit, but if you have no spouse or partner it may be more advantageous to start sooner rather than later.
You can work with your Edward Jones advisor to help determine the optimal date for you.
6. How much do I pay into Canada Pension Plan (CPP)?
Both employers and employees contribute to the CPP at a rate of 5.95% of the employee's pensionable earnings. The maximum pensionable earnings is $68,500 in 2024. Note that CPP contributions are not levied on the first $3,500 of income, which is known as the basic exemption amount. This translates to a maximum CPP contribution of $3,867.50 in 2024. Those who are self-employed must contribute both the employer and employee portion, or 11.9% of pensionable earnings. For self-employed individuals, this results in a maximum contribution of $7,735 in 2024.
Starting in 2024, additional CPP contributions are required on earnings above the maximum pensionable earnings, up to a second earnings ceiling of $73,200 (2024). The second-tier contribution rate is 4% for both employer and employee, up to a maximum contribution of $188 per person. Again, the self-employed contribution rate will be double at 8%, to a maximum contribution of $376 (2024). No CPP contributions are levied on the portion of an individual's income above $73,200 (2024).
7. When can I stop paying into Canada Pension Plan (CPP)?
CPP contributions are mandatory for all employed and self-employed individuals aged 18 to 64 inclusive. At age 65, those who are working may choose to continue contributing to the CPP to receive a higher pension when they begin receiving, but contributions are no longer required.
If you elect to receive CPP retirement benefits and continue working, contributions to CPP are still mandatory between ages 60 to 64 inclusive via the CPP Post Retirement Benefit (PRB). Between ages 65 to 69 inclusive, contributions become optional. At age 70, contributions are no longer permitted.
8. What happens to my CPP retirement benefits when I die?
There are three types of CPP benefits that are relevant at death:
- CPP Death Benefit – CPP death benefit is a one-time payment made to your estate (or other eligible individual) upon death. To qualify, you must have made CPP contributions for at least three years or one-third of the calendar years in your contributory period for the base CPP. The CPP death benefit is a single lump-sum payment of $2,500.
- CPP Survivor's Pension – CPP survivor's pension is a monthly payment paid to the legal spouse or common-law partner of a deceased CPP contributor. To qualify, the survivor must have been a legally married spouse or common law partner of a deceased CPP contributor. The rate amount payable to a surviving spouse or common law partner depends on the age of the survivor and how much the deceased contributor has paid in CPP contributions.
- CPP Children's Benefit – CPP children's benefits provide a regular monthly payment to the dependent child or children of a deceased CPP contributor. The deceased contributor must have made sufficient contributions to the CPP, and the child must be under age 18, or under age 25 and attending (full-time) a recognized school or university. The children's benefit is a monthly flat rate amount of $294.12 for 2024, adjusted annually.
9. How do I apply for Canada Pension Plan (CPP)?
You can apply through your My Service Canada account to begin receiving CPP retirement benefits with either a paper or online application. Service Canada indicates you should receive a notice of their decision by mail within 120 days. A best practice is therefore to apply in advance to ensure that you start to receive your pension by your preferred and chosen date.
10. Can I split my CPP retirement pension with my spouse or partner?
The CPP retirement pension is not eligible for pension income splitting but is eligible for pension sharing with a common law partner or spouse. You must be receiving (or at least eligible to receive) your pension and be living with your spouse or partner to share CPP retirement benefits. The portion of your CPP retirement pension that can be shared is based on the amount of time you and your spouse or partner lived together during your CPP contributory period. You can apply for CPP sharing with an online application through your My Service Canada Account or a paper application.
1 Source: Government of Canadda, CPP Retirement pension: How much you could receive