The Canada Pension Plan provides retirement income to all Canadians 65 years and older. Introduced in 1966 by the Canadian government, the CPP retirement pension is an essential part of Canada's social safety net. Namely, the CPP aims to replace approximately 25 percent of earnings from employment up to a maximum amount upon retirement. For 2011, the maximum CPP benefit is $960. it is not possible to cash out a CPP.
You qualify for the CPP, if you have worked in Canada and made at least one valid contribution to the CPP. In most cases, you cannot receive payment under the CPP before turning 65 years of age. However, if you meet the requirements of the work cessation test, you can begin receiving CPP benefits between the ages of 60 and 65. To meet the work cessation test, you have to have either stopped working and received no income or earned less than the current maximum CPP payment.
Early Payments and Indexation
If you meet the work cessation test, you can request to have your CPP pension payments start the month following your 60th birthday. However, you will receive an indexed CPP payment. For every month you are below age 65, the CPP reduces you benefit by .5 percent. Even with this reduction, you may find it beneficial to begin receiving your pension early. For example, in cases of financial hardship or disability, you may want to take the reduced benefit prior to your 65th birthday. The CPP benefit payment also adjusts annually based on the Consumer Price Index at the start of each year.
Delay and Lifetime
If you are 65 years of age and still working, you can choose to delay the start of your CPP pension benefits. In this case, the monthly benefit increases by .5 percent for each month you delay receiving benefits above age 65. The maximum increase, however, is 30 percent. This is equivalent to delaying the start of your pension until age 70 years of age. The CPP is also a type of lifetime benefit. This means that once you start receiving the CPP, your benefits continue until you die.
As the spouse or common-law partner of a CPP pensioner, you will continue to receive a survivor's pension if your partner dies. This applies even in cases where you receive your own CPP pension. In this case, the CPP combines your pension with your partner’s pension. However, the total combined CPP benefit that you receive cannot exceed the maximum allowable CPP pension for one person.
- "Tax Tips and Tax Shelters for Canadians"; Vlad Trkulja; 2009
- Service Canada: Deciding When to Apply for Your CPP Retirement Pension
- National Institute on Retirement Security. "New Case Studies Find Increased Taxpayer Costs When States Move Employees Out of Pension Plans." Accessed Sept. 11, 2020.
Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.