Lisa MacColl is a writer, investor and former compliance consultant in the group retirement and individual wealth management fields. Lisa has written about personal finance for 14 years and currently writes about investing and investment providers for Wealthsimple. Lisa's past work has been published in Canadian Money Saver, Advisor’s Edge, CBC, and CreditCards.ca. She was a nominee for the 2015 Oktoberfest Women of the Year, Professional Category. Lisa holds an M.A. and B.A. from the Wilfrid Laurier University.
The Canada Pension Plan (CPP) has been in existence since 1965. In 2018, employees earning more than $3500 per year, and who are over the age of 18 must pay CPP. If you live in Quebec, you pay into the Quebec Pension Plan (QPP). CPP contributions are split equally between employer and employee, based on the employee’s income to a maximum set by the Federal government. In 2018, CPP contributions are 4.95% of the employees’ gross earnings to a set maximum, and employers match it.
In 2018, the maximum CPP contribution was $2,593.30 for employee and employer. Self-employed individuals pay both employee and employer portions, so they pay a maximum of $5187.60 in 2018. This amount changes every year. In 2019, the amount will be $2748.90 for employee and employer, and $5497.80 for self-employed individuals. You can get more information on the rates here.
This money goes into a fund that pays out CPP. When you retire, the amount of CPP you will receive is based on your contributions during your working life. All Canadians also receive the Old Age Security (OAS). For people in the lowest income brackets, there is also a Guaranteed Income Supplement (GIS) that is geared to income.
CPP payments can be split with a lower income spouse, they can be split in the case of relationship breakdown, and if one spouse was out of the work force, or worked part-time, there is a provision for “child rearing” that will factor the lower earning years into account. You can get more information here.
CPP is considered income, and fully taxable at your marginal tax rate. To avoid a big tax shock at the end of the year, you can request that income tax be deducted from each payment. You can get more information here.
You must apply for CPP. It does not start automatically. To qualify for CPP you must
Be at least 1 month past your 59th birthday
Intend for your CPP to start within the next 12 months
Have worked in Canada and made at least one valid CPP contribution
You must apply for OAS. It does not start automatically. It is completely funded by the Federal government; you do not pay into it directly. To qualify for OAS you must
Be 65 or older
If you currently reside in Canada, you must have lived here at least 10 years since turning age 18.
If you reside outside of Canada, you must have resided in Canada at least 20 years since turning age 18.
Be a Canadian citizen or legal resident at the time your application is approved, or before you left Canada to reside elsewhere.
OAS is considered income and is fully taxable at your marginal tax rate. OAS is income-tested. If your income is more than $123,386 you do not qualify to receive OAS.
Average CPP payments
You can start taking CPP at age 60, but you will lose up to 35% of your pension permanently if you take it early. It is reduced by 0.6% (or 7.2% per year) for every month before your 65th birthday you start taking your CPP.
Conversely, if you delay receiving your CPP until age 70, your payments will be permanently increased by 0.7% for every month after your 65th birthday you delay, or 8.4% per year. If you wait until age 70, you will receive 42% more. There’s no further increase after age 70.
Your CPP pension amount is based on how much you contributed, and how long you paid CPP. There is a “general drop-out” provision that excludes certain months with low earnings, and if you were out of the work-force for a number of years due to child care duties to young children, or you worked part-time, you can request a “child rearing” consideration. You can get more information here.
Most people start receiving CPP the month after their 65th birthday.
Average CPP Monthly Amounts
(There are other scenarios possible, such as survivor or disability benefits. You can get more information here.)
|Type of pension or benefit||Average monthly amount for new beneficiaries (based on July 2018)||Yearly Average Amount||Maximum amount 2018||Yearly Maximum Amount|
|Retirement pension, age 65+||$673.10||$8,077.20||$1,134.17||$19,326.26|
|Retirement pension, delayed to age 70||$955.80||$11,469.62||$1,610.52||$19,326.26|
Average OAS Monthly Amounts
|Situation||Maximum monthly OAS amount||Maximum annual income to receive the OAS pension|
|Regardless of marital status||$600.85||$123, 386|
Guaranteed Income Supplement for low-income Canadians
The GIS is income-tested. The next year's payment will be calculated based in the net individual or family income reported on your income tax return.
You can get more information here.
|Situation||Maximum monthly GIS amount||Maximum annual income to receive GIS|
|If you are single, widowed or divorced pensioner||$897.42||$18,216 (individual income)|
|If your spouse receives full OAS pension||$540.23||$24, 048 (combined income)|
|If your spouse does not receive full OAS pension||$897.42||$43, 680 combined income|
How to qualify for maximum CPP
To receive the maximum CPP, you would have to be making the maximum CPP contribution for many years. The federal government sets the Year's Maximum Pensionable Earnings (YMPE) every year, which is the basis for both CPP and pension contributions. In 2018 the YMPE was $55, 900. In 2019, it will be $57,400. To max out your CPP, you would have to be making more than the YMPE for a significant number of years with no periods of unemployment.
If you can delay starting your CPP for even a couple of years after age 65, you will receive a higher monthly payment. Wealthsimple has a number of investment strategies that can form part of your overall financial plan. Find out more today.
Is CPP alone enough for retirement?
If you receive the average CPP payment, plus OAS, you will have $1273.95 per month (in 2018 figures). That's $15,287.40 per year, gross. If those are your only sources of income, you might also qualify for some GIS. If you live very simply, and your house is paid for, you might squeak by, as long as you don't need expensive medications and don't mind taking the bus. When CPP was created, most workers stayed working for the same employer, and looked forward to a company pension plan when they got the gold watch and retired. Now, many employers no longer provide pension plans, and employees rarely stay with the same employer their entire working life. It's better to have a backup plan.