Today's economy

Unretirement and the Canada Pension Plan

By Kevin Press,

Comments (31)

Last week’s interview with tax expert Evelyn Jacks included good advice on the impact of key life and financial events on tax planning. Retirement qualifies as one of those, obviously. Jacks explained to me that the federal government is introducing a series of changes to the Canada Pension Plan (CPP) that reflect the move toward unretirement among the country’s baby boomers. We’ll see some of these changes in our 2012 tax form packages.

An unretired woman“Pre-retirees need to know that the way we contribute to the Canada Pension Plan changed in 2012,” Jacks told me. “If you’re thinking about working past age 60, even if you have started receiving CPP benefits, you and your employer will be required to continue to make CPP premium payments until the end of the year in which you turn 64. You can opt out of that requirement if you continue to work and are at least age 65 and up to age 70. The good news is that these additional premiums will go into your Post-Retirement Benefit account, thereby increasing your eventual pension benefits. The bad news is that there is an additional step for working seniors if they wish to stop contributing at age 65. You must proactively opt out. Employees will use Form CPT30 to do so; while the self-employed will use Schedule 8 on the personal tax return, which you will see in your 2012 tax package.”

Here’s a summary of the changes:

  • You’ll earn more than ever if you retire after your 65th birthday. Previously, Canadians working past 65 saw a 0.5% boost in their CPP retirement pension for every month they delayed retirement. It amounted to an annual increase of 6% for every year you worked past 65. That percentage has been increasing since 2011. In 2013, the reward will be a 0.7% increase for every month you work past 65. Annually, that’s 8.4%. “According to the government, from 2011 to 2013, if you start receiving your CPP pension at the age of 70, your pension amount will be 42% more than it would have been if you had taken it at 65,” said Jacks.
  • Early retirement will hurt more than ever. Similarly, the percentage decrease applied to the CPP retirement pension awarded early retirees is on the rise. Canadians who retire before 65 used to suffer a 0.5% decrease in their CPP pension multiplied by the number of months they retired early. That penalty is moving up gradually, and will reach 0.6% per month in 2016.
  • If you’re under 65 and receiving a CPP retirement pension while working, you have to continue making CPP contributions. So does your employer. This didn’t use to be the case. The contributions support a new Post-Retirement Benefit that will add to your retirement income. This change was implemented last year.
  • If you’re between 65 and 70 and receiving a CPP retirement pension while working, you can decide whether or not to make CPP contributions. That wasn’t an option previously. If you make the additional contributions, your employer has to as well. Again, this adds to your Post-Retirement Benefit. This change was also implemented last year.
  • More of your lowest-earning years will be dropped from your CPP retirement pension calculation. Service Canada’s general drop-out provision removed 15% of your lowest earnings, meaning that as many as seven of your lowest-earning years were pulled out of its calculation of your CPP retirement pension. In 2012, the percentage rose to 16% (7 ½ years). In 2014, it’ll go up to 17% (eight years).
  • The work cessation test is a thing of the past. Canadians retiring early used to have to stop working or see a significant income cut for two months before they could take their CPP retirement pension. That was waived last year. You can now take a CPP retirement pension as early as age 60 without passing the work cessation test.

“These changes are very important from the point of view of pre-retirement planning and retirement income planning because we have a new window of time around which we can think about accelerating RRSP meltdown strategies: age 60 to 70,” said Jacks. “We may also want to consider family longevity and whether postponement makes sense at all, in the cases of significant health issues. Some people may wish to take the CPP benefit and contribute it to extra health or homecare coverage; or in the case of couples, ask their financial advisor about life insurance policies or annuities that feature a ‘joint last to die’ option. The CPP benefit provides an un-indexed lump-sum death benefit of only $2,500. In addition, when your spouse dies, you may expect to receive your full CPP retirement pension and your spouse’s as a survivor benefit, too. Unfortunately this is not so. The combined survivor and retirement pension will max out at a single maximum possible retirement benefit.”

The CPP is designed to pay you the equivalent of about one-quarter of what you earned, on average, during your career. There’s a maximum pay-out, which is set each January. The maximum retirement pension set in January 2013 for retirement at 65 is $1,012.50 per month.

Jacks published her 49th and 50th books recently: Essential Tax Facts: Secrets and Strategies for Take-Charge People and Jacks on Tax, Your Do-It-Yourself Guide to Filing Taxes Online.

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Cliff Gainsford on

cj2273 Feb 27 2014 It is amazing to read all these comments where a lot of which are very political . The Canada pension was never intended to be the sole means of support for retirement rather a boost to ones retirement income . I see that most would like mooore and mooooore and praise Paul Martin . Well If Martin did not take his shipping business out of the country and pay his taxes to Canada which is the country where he lives it would be easier for the Gov. to up the old age security payments to every one .Plus all the money that the Liberal Gov. STOLE from the taxpayers both in the Provincial and Federal GOV. we could probably pay half of the tax we are now paying How soon we forget

    Cool Canadian on

    Not to mention – the maximum amount of additional pension earned by working after age 65 is a whole whopping $25 a month! They never say that out front – unless you dig it up!

Malcolm on

I read and understand most of what has being printed , keeping an open mind on all comments , the truth of the matter is , for the most part if the CPP program was not available , most people would have spent the contribution funds and not have anything at all for a pension , look at the stats sometime to see how many people contribute to RRSP’s ,. I am self employed and I pay both sides of cpp , not here to complain , many other government regs that annoy me , my biggest is paying high taxes and then the government divides it up amongst the various departments and then gives the remaining amount to people who contributed the least . I like to think of myself as a humanitarian but find so many people bleeding the system and still complaining . 1012 a month is not what the average is however what ever each person receives , is more than nothing , If people saved towards a retirement perhaps there would be no need for cpp but for the most part people won’t do this , rather borrow money and live high and above their means , then complain !

Janice on

When my husband died in 1999 I did not get any of the $2,500 death benefit nor did I get any survivor’s benefit, the reason being that we had gone bankrupt in the early 1990s, losing our RRSPs and the CPP we had paid into and by the time my husband retired he had only made seven years’ contributions. One must have made eight years’ contributions. Life has been hard for me these past 13 years, still having a mortgage to pay and receiving GIS.

    George Fleury on

    Some of you people have your head in the sand, yes, Paul Martin corrected the plan, however if you think Harper is thinking of Retirees you are WRONG, he only thinks of power and control. The plan is totally unfair and discriminatory, everyone should pay the same amount and receive the same benefits, the rich get to contribute more, so hence receive more, it is a totally discriminatory plan , now try collecting disability benefits, one must be nearly dead. Now, they have to work until 67 and the cost to the government is merely 0.3% more, like ALL conservative governments, the govt,. screws the people and you keep voting for him. Better not to vote. Maybe Harper should have kept the GST at 7% and he would now have 14 million more to spend annually, simply read the news. Had it not been for Martin the plan would be broke now, simply ask how much money is in the fund since they started investing in the market, it is in the BILLIONS. $1012.00/month is an embarrassment to all Canadians, want a decent plan-go to Australia. George

David E. on

Then they have what they call a Death Benefit. My understanding is that survivors receive $2500 to assist with burial costs. Now they ask to see an invoice stamped paid, from the funeral home. Then they juggle numbers so that they only pay a portion of the 25 hundred, maybe only half and stick a family member with the rest. Of course you can appeal, but appeals seem to be a waste of time when the government is involved.

bb on

sounds great, but where in this frozen wasteland of a country do you live in a trailer in winter? BC? I would think the land to put it on out there would cost $700,000 , LOL. What a country!!!

fernand gallant on

when I applied for my Canada pension plan the condition were that if I went back to work I would not have to contribute again. I have a letter from Canada pension stating that .I do not think it is right that t the government can change the rules in their favour after an agreement been agreed to

Percival Kalinksky on

I am 72 and receive $512 CPP a month.
It is my ONLY income as I have not applied for the old age pension.
I live very frugally in an old trailer and without charity from anyone nor do I use the medical system… the only drug I use is pot which I grow for myself and never use with other people.
I have never taken welfare/unemployment Insurance or any other form of government aid – I do not have any private income whatsoever. I have not been in a restaurant for 20 years or so… even for a coffee and turn down all forms of charity.
My only extravagance is my computer (no tv) and I’m as happy as a pig in mud
I have no worries and have had a very enjoyable life.

My point? Well by not gorging off of the government, it leaves more for everyone else who seem to never have enough. I don’t envy those with expensive tastes as it’s THEIR way of life…. but I can say that I’m glad that I was never caught up in that lifestyle.
For those of you who think you need more look at it this way, when you are at the very bottom of the money scale, just having a full tummy and a warm bed is as luxurious as it comes…. who could ask for more?

    Mervyn on

    Great job Percival – an inspiration for us all. BUT take a buck or so and have a coffee at Tim Horton…Its very good! ( I have no affiliation with Tim Horton apart from being a patron!)

Ron on

The people managing the CPP fund have been doing a great job with investments (Google it to see results)

I started working at 17 and drew CPP at 60. I am now 67, drawing OAS and working part-time. My monthly income with pensions is approx. $1800.00 after taxes.
I also have some income from investments made over the years.
Life is good and I am grateful for the pensions and the ability to work a bit.
If you are younger you need to start putting something away on your own!

    Brian Poncelet, CFP on


    I don’t what you are looking at but CPP contributions have gone from 1.8% to 9.9% over the last number of years.

    This means (good for you) you contributed on the cheap and are getting the rewards.
    The top money managers are getting 7 times what Stephen Harper gets paid (his salary is $335,000 per year).

    In 2009 the CPP was down almost 20%. The returns are no better than other pension funds run.
    Expect more changes to CPP in future years for younger workers.

    Michael on

    I just wonder what the prisoners we are supporting with r&b are going to do when they retire? Will they have “worked” and paid into CPP or have any savings when they are too old to mug or assault any more?

      RockyRacoon on

      In jail for what? Not buying into a corrupt system smoking marijuana what? In Harper’s world if you steal a loaf of bread you go to jail, if you steal the means to make that bread-your a millionaire and he gives you the order of Canada.

Raifon on

There are only two times in life that you bet against yourself, one is life insurance and the other is the Canada Pension Plan. They are different but have the same masterplan. With life insurance your betting that you are going to die and the plan owners are betting you’ll live until you are 100. The averages prove that they will make way more than they’ll payout so you do the math. With CCP they know the longer they can defer the collection date the less they’ll have to payout. Its all about collecting not paying out !

Audrey Longley-Fitzpatrick on

Lets not forget if you get permanently injured at work there is no benefits after you turn 65 thanks to McGuinty exempted WSIB payments when he abolished the retirement age of 65 .The government wants you to work, but if you been injured and unable to work, they are not including WSIB changes of legislation , so the injured people stop receiving benefits on their 65 th birthday Is this Fair ? NO, and everyone should be signing a petition to have this made rectroactive to when McGuinty made the retirement changes in 2006 or early 2007 . WSIB should be paid for duration of injuries , PERMANENT INJURY = PERMANENT BENEFITS This present exemption benefits the Employers/companies but not the WORKERS. Also check sick and accident benefits {S & A } may no tbe payable . It is time people stand together– all for one ,one for all I strongley advise Contact your unions, write letters to the government , put stories in the newspapers across CANADA, , DEMAND CHANGE !
Remember this may not affect you today —BUT you could be a injured worker someday in the future, protect your future income—- has to be done now!!

Sean on

Harper promised to leave pensions, health care alone …. promise broken. These are fundamental change in getting people to work longer before collecting CPP. Most of us will live to about 80, and if they can get you to work till you are 70, they are only on the hook for 10 years instead of 15 …. even at .7% extra, most of us never catch up …. Thats why they are doing this.

Forget about tax breaks, wasting money on misguided military and crime spending, these changes, and the limits on health care spending are the biggest wealth transfers from the working people to the wealthy (via corporate and CG tax breaks) since the 1950s …. and since the bankers, media and other corporations got their 50% tax break, the unions are mainly marginalized and muzzeled, whos to complain. Get ready to work till you are too sick or unfit to do anything, then they will put you in a home – Harpers Canada

Friday Links on

[…] Brighter Life discussed the current topics of Unretirement and the Canadian Pension Plan. […]

    Wise up people on

    What a scam. You pay into this plan for 50 years, and gwt screwed at the end. The hardest people hit are the poorest. Females who went through struggles to get equality in the work place and hope to finally get the same treatment in retirement, are now being told to work longer or get less. Shame on this Government or millionaires’ club, $1,012.00 a month after 50 years of payments. Doesn’t cover the rent or heat or food or basic needs of life. Thanks for duping us once again, Big Brother!! Reduce my taxes you squander on luxury hotels and exotic meals for the elite. Get rid of the white elephant called the Senate. And let me manage my own money before you spend it on wining and dining with the old boys’ club of Canada!!

      david on

      it will also punish those that work hard labour and cannot work beyond 55 or 60 due to natural wear and tear on the body

      al on

      Sure if your expectations exceed the bare life necessities, most social assistance non workers get way less than the cpp, don’t forget the gis will bring up the low cpp receipients, Rent in many provinces do have provisions for Seniors, such as B.C.’s SAFER program, yes it is interferring in market rates, the market adjusts higher rents. But hey the landlords pay the tax to the municipality so you could be good to go. Don’t forget to employ as many as what 200,000 public service employees requires massive taxes and debt/credit schemes. Oh I’d bet you like a smooth paved road, riiight.

    Andy c. on

    After paying into the CPP FOR 50 years, when you retire and collect your entitled CPP, YOU WOULD HAVE COLLECTED EVERYTHING YOU PUT INTO IT WITHIN 10 YEARS ! What are you complaining about ? Start complaining when you have no CPP TO COLLECT after contributing to it. What you get out of it is based on what you put into it. We put in peanuts, we get peanuts plus.

      Scott Hardisty on

      Andy I am not sure you understand how CPP deductions really work. If you make 42,000 per year your yearly CPP contribution is 4200. You pay 1/2 through your salary and your employer garnishees the other half from your salary on the government’s behalf. If you are self-employed you get to garnishee yourself. After 50 years you have paid the government $210,000. It would take 17 years to pay this amount back assuming absolutely no return on investment. If you assume an average of 3% per year return on investment the amount grows to $473,000 and the monthly interest generated is $1184 per month. When you pass away at say age 85 the government has a net $1,000,000+ in your CPP account that you earned but have seen no benefit from.

      Ps Even if you are a knowledge worker – went to university got your degree – entered the workforce at 22. Worked till 65 your CPP contributions yearly interest earned at 65 will be greater than the 1012 (1077) monthly payment.

      Also if you do the calculations at a more reasonable historical rate of return of 5% your monthly interest after 50 years would be $6100 or $4200 after 43 years.


      Wayne on

      folks … NO BODY works for 50 years – what are you talking about here? if people decide to work longer that is his/her problem – say you start work at 22 (average age after graduation from college) 22 + 50 = 72 ==> you won’t last that long …

      Sean on

      Not exactly peanuts. Used to be, thats why we pay close to 5000 per year All in, so all the current seniors still get benefits without having paid in. Remember it was Martin who fixed the CPP by raising rates significantly – if you make more than 50k you pay in 2400, and you employer matches it.

      Dave marven on

      Scott….do you know how cpp works?
      The first 3500 per year is exempt from contribution. On 42000 per year and a contribution rate of 4.95 % by you and your employer each, that’s 3812….not 4200..
      Plus everyone is forgetting cpp also is a disability plan . And if disabled, the contributions are paid for you., just as if you were working.. It also has a small insurance benefit. Unions and the NDP feel it is such a good deal they want to increase it.

    Adolf on

    Better to take your Money and put in a shoe box and bury it in the back yard , you will not get taxed on it again, Tax on Pay check, Tax on interest, Tax on Capital Gains, Tax while on Pension.. My shoe box sounds better.

      Michael on

      Wayne, not everyone is lucky enough to get a college degree!! If you check out the stats, most kids leave after high school at 18 yrs old. Working till 67 gets me to 49 years in the work force. Now if you compare, the govt pension plan ie MP’s or the Senate — what a pork barrel! I personally believe when I buy something I should get the best bang for my buck!! The other part of this plan that is disgusting: If you croak😦 your spouse only gets topped up to $1012 a month. If she worked all her life paying into the plan, she will never see any of your money, if she is collecting the $1012 a month. Let the champagne flow, call it what it is: a tax grab for the elite of Canada!!

    Darlene Taylor on

    The interesting thing about the Canadian Pension Plan is it punishes people who have paid into it and then have to take early retirement through job loss or ill health. They take 5% off of these people’s pensions when the Canadian pensions are low compared to the cost of living in most cities. I do not see the fairness in this when a lot of the Baby Boomers have contributed since their twenties to these plans to penalize them for often circumstances they are not responsible for. I think the present Conservative government is promoting the slide to the left in politics. I am hoping the Liberal party wakes up and readjusts the pension scheme to be not just fair but actually help those seniors live a comfortable life after retirement that reflects the actual cost of living. They have worked for it.

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