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Retirement Planning

Canada Pension Plan Changes

January 06, 2012

The Government of Canada (Government) is making changes to the Canada Pension Plan (CPP) over the next five years. The goal of CPP is to replace about 25% of average pre-retirement employment earnings with the other components being Old Age Security (OAS), employer pension plans and personal savings such as RRSPs and other investments. The changes to CPP reflect the Government’s desire for the plan to remain sustainable and reflects the reality that many Canadians transitioning into retirement are working part-time and working longer.

Below are the changes being made to CPP:
  • You are now able to take CPP as early as age 60 without having to stop working or reduce earnings. It may be easier for you to transition into retirement as you can reduce hours while drawing on CPP. 
  • Your monthly CPP pension will decrease by a larger percentage if you take it before age 65. The Government will gradually change the early pension reduction from 0.5% to 0.6% per month. By 2016, your pension amount will be 36% (currently 30%) less at 60 than it would have been if you had taken it at 65.
  • If you are under age 65 and you work while receiving your CPP retirement pension, you and your employer will have to make CPP contributions. This also applies to self-employed Canadians under age 65 who are receiving CPP who have to pay both the employee and employer portions.* These contributions go towards the new Post-Retirement Benefit (PRB) which is effective January 1 of the year following your PRB contribution effectively increasing your retirement income. 
  • Your monthly CPP pension will increase by a larger percentage if you take it after age 65. The Government will gradually increase CPP from 0.5% per month (6% per year) to 0.7% per month (8.4%). By 2013, at age 70, your pension will increase by 42% more than it would have been if you had taken it at age 65.
  • If you are age 65 to 70 and you work while receiving CPP, you can choose to make CPP contributions; these contributions will increase your CPP retirement benefits. If you decide to make the contribution, your employer will also have to make CPP contributions.
  • The number of years of low or zero earnings that are automatically dropped from the calculation of your CPP pension will increase. By 2014, the percentage will increase to 17%, allowing up to 8 years (currently 7 years) of your lowest earnings to be dropped from your CPP retirement benefit calculation.
You will not be affected by these changes if you started receiving a CPP retirement pension before December 31, 2010 and you remain out of the work force. Cost of living increases, CPP disability and death benefits, the ability to split your CPP with your spouse and child rearing drop-out provision have not been changed.  
For more information concerning these changes, check out Service Canada’s website or call 1-800-277-9914.

*CPP contribution levels in 2012 are 4.95% by employee and 4.95% by employer on income between $3,500 - $50,100

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