Key Takeaways
- The Canada Pension Plan (CPP) is a mandatory public pension that provides retirement income to eligible Canadians who contribute through their working years.
- Anyone aged 18 or older who earns employment income in Canada automatically contributes to CPP through payroll deductions.
- Employers and employees each contribute 5.95% of income (up to an annual maximum); self-employed individuals pay both portions (11.9%).
- You can begin collecting CPP anytime between the ages of 60 and 70 — taking it early reduces your payments, while delaying increases them.
- The longer you wait, the higher your monthly benefit (up to 42% more at age 70 compared to 65).
- Once started, you can cancel CPP within 12 months if you change your mind — but you must repay what you’ve received.
Thinking about retirement can be scary or stressful at one time or another.
How will I pay for everything without a job? How much money will I need? Does the Canada Pension Plan (CPP) cover me? How much will the CPP pay me?
You’re not alone, but being here today trying to figure out a plan is a step above most people. Realistically, most people won’t worry about their retirement income until it’s too late. You can’t keep pushing it off because when the day comes when you’re ready to retire, you’ll need to be prepared and have a stable wealth plan.
Luckily, we’re here to explain the Canada Pension Plan and how it can help you with your retirement income when that one day comes!
Photo by Eeva Niemi
What is the Canada Pension Plan?
The Canadian Pension Plan, or CPP, is a contributory Canada-wide pension plan for all qualifying Canadians. Anyone aged 18 or older and employed in Canada automatically contributes to the CPP for their retirement future. You and your employer automatically pay into the CPP through bi-weekly contributions from your paycheques. The contributions are taken automatically for everyone, so don’t be alarmed if this is your first time hearing about it!
For Quebec Residents: Quebec residents are exempted from the Canadian Pension Plan. You will follow the Quebec Pension Plan (QPP); do not mix up the CPP and the QPP because they are different!
Who Pays into the CPP?
Short Answer: Everyone Does!
You automatically pay into the CPP through your employer during your working years. Your employer acts on your behalf and draws the correct monthly amount for your CPP contribution. Eventually, when you retire, the money you contributed over the years will determine a pension amount you can begin receiving every month! Easy right?
How Much Will I Contribute?
To explain it simply, in 2024, employees and employers will contribute 5.95% of their income to the CPP. However, if you make less than $3500, you won’t contribute at all, and lastly, there is a contribution maximum of $3,876.50.
If you’re self-employed, the contribution rate is 5.95%, but the maximum contribution has increased to $7,735.
Photo by Eeva Niemi
How Much Will I Get Paid Once I Retire?
The CPP intends to replace 25% of your income up to a maximum amount (new changes will slowly increase this amount).
Because the CPP only replaces 25% of your income, it’s essential to take the time to sit down and review the sources of income you may receive at retirement. If you currently don’t have a workplace pension, saving and investing an adequate amount during your working years is crucial. This way, when you decide to retire, you’ll have investments from which to draw an income.
Remember, the CPP is based on your average yearly income (with certain exceptions). This means the more you work and pay into it, the more the 25% replacement will be worth when you begin drawing it out during retirement!
How Does the CPP Grow?
As employees and employers across Canada contribute to the CPP, the CPP Pension Investment Board invests the funds globally across public equities, private equities, bonds, real estate, infrastructure, and many other investment areas to grow the plan to make sure they can fund Canadian’s CPP pension payments.
When Should I Start Taking the CPP?
The longer you wait, the more you get. The standard age for taking CPP is 65; however, you can begin taking payments anytime between the ages of 60 and 70.
Taking the CPP before the benchmark age of 65 has negative consequences; on the contrary, waiting until age 70 has positive benefits. For example, if you start taking the CPP at age 60, your pension will decrease by 36%, 7.2% per year, or 0.60% per month. As you can see, taking the CPP early will significantly affect your lifetime pension income and is not recommended. According to the Canada Revenue Agency, the average monthly CPP payment in October 2023 (at age 65) was $758.32. If you were to take this pension at age 60 instead, the payment would only be $458.33 a month.
That’s a $300 difference a month!
On the other hand, if you wait until after age 65 to begin collecting CPP, payments will increase by 0.7% each month (or by 8.4% per year), up to a maximum increase of 42% at age 70. For example, if the average CPP payment amount were $758.32 at age 65, this would be $1076.81 at age 70!
The lifetime loss of taking the CPP before the age of 65 can be extremely significant. Bonnie-Jeanne MacDonald, PhD and Director of Financial Security Research at the National Institute on Ageing has completed a comprehensive report illustrating the details, which you can find HERE.
Photo by Eeva Niemi
While the CPP is super important in your learning, make sure you don’t forget about the other aspects of finance. I briefly cover the most important parts of your finances and provide actionable practices in my Eight Pillars of Financial Success post, so make sure to check it out!
Recent Enhancements to the CPP
Recently, enhancements to the CPP increased the amount of CPP to equal the average income from 25% to 33%. Taxpayers’ annual CPP contributions have increased modestly to fund these enhanced benefits and will continue to grow until 2025.
A Note for Those Retiring Soon
The new CPP enhancements will mainly benefit those who enter the workforce after 2019. If you are retiring soon, the enhancements won’t significantly impact your retirement income.
Can I Share my CPP Pension with my Spouse to Save Tax?
Before we answer this question, it’s essential to understand the difference between CPP Pension-Sharing, CPP Credit-Splitting, and Income Splitting of Eligible Pension Income.
CPP Pension-Sharing
CPP Pension sharing is sharing your CPP retirement pension benefits between spouses in an ongoing relationship. Sharing your pension between spouses may result in tax savings through CPP Pension-Sharing. To share your CPP pension, you can apply through your CRA service account or by completing and filing a paper application. You can find more information about CPP Pension-Sharing HERE.
CPP Credit-Splitting
CPP Credit-Splitting is common after a relationship has ended through separation or divorce. It’s important to note that credits can split even if one partner did not contribute to the CPP. The contributions you and your spouse or common-law partner made when you were together may be divided equally between both of you; this is called CPP Credit-Splitting. You can find more information about CPP Credit-Splitting HERE.
Income Splitting of Eligible Pension Income
Income Splitting of Eligible Pension Income splits eligible income between spouses, but the CPP does not qualify. Eligible pension income splitting can done by completing a Joint Election to Split Pension Income on your tax return. Ensure you understand the difference between CPP-eligible and non-eligible income splitting if you intend to share with a spouse for tax purposes. You can find more information about Income Splitting of Eligible Pensions HERE.
To answer our original question, yes, you can share your CPP pension with a spouse to save tax. However, conduct your research and understand the different types of pension sharing and splitting and when CPP pensions are eligible for splitting.
Can I Cancel my CPP Pension After I’ve Started Taking it?
If you have already started collecting your CPP pension, you can change your mind and cancel up to 12 months after receiving it. You need to cancel CPP pensions in writing by contacting Service Canada and would have to pay back all that you have received before cancelling. For more information about cancelling CPP pensions, click HERE. On the contrary, if you are collecting CPP but have returned to work, you can still contribute to the CPP to increase your pension payments.
Photo by Eeva Niemi
CPP Benefits In Unfortunate Circumstances
In the unfortunate event of a CPP contributor’s death, you must adequately allocate the deceased person’s pension. Namely, the Death Benefit, the Survivor’s Pension, and the Benefits for Dependent Children are essential to understand after the death of a CPP contributor.
The Death Benefit
The Death Benefit is a one-time payment after the death of a CPP Contributor. After meeting the qualifications, the CRA will provide the qualifying recipient with a Death Benefit of $2500.00. To find out if you’re eligible to receive the Death Benefit, learn how to apply, or for more information, click HERE.
The Survivors Pension
The survivor’s pension is a death benefit for a deceased CPP contributor’s spouse or common-law partner. It varies by amount and may combine with pre-existing or other CPP benefits. It is essential to apply for the survivor’s pension no later than 12 months past the date of death. For more information about applications, the amount of benefits, when to apply, and more information about the Survivor’s Pension, click the link HERE.
Benefits for Dependent Children
In the unfortunate event of a deceased CPP contributor who has dependent children, benefits may be entitled to the dependent children. The monthly rate for the dependent children who qualify is $294.12. For information regarding qualifications, when to apply, how to apply, and any other information about the Benefits for Dependent Children that you’re seeking, click HERE.
Boost Your CPP by Working in Retirement
Did you know you can collect your Canada Pension Plan retirement pension and still work? Even better, continuing to work while receiving your CPP can actually increase your retirement income. Each year you work and contribute to CPP while collecting your pension generates a new Post-Retirement Benefit, which gets added to your total CPP income.
If you’re considering working during retirement while collecting CPP or already doing so, it’s worth exploring how much you could receive. You can find detailed information about Post-Retirement Benefit amounts and use the Canadian Retirement Income Calculator at, How much could you receive or canada.ca
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For any questions or interests about the information in this article, make sure to consult the Government of Canada Website HERE, or for more information about how the CPP is invested for your future, you can consult the CPP Investments website HERE. Eeva Niemi is a Wealth Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact Eeva at eniemi@assante.com or visit https://advisor.assante.com/Eeva-Niemi to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
