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CPP Changes

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Seniors
Canada Pension Plan (CPP), Québec Pension Plan (QPP) and Employment Insurance (EI) -> CPP changes

Canada Pension Plan (CPP) Changes

There are several changes coming for the CPP retirement pension. The changes will not affect anyone who is currently collecting the CPP retirement, disability or survivor benefits. It will also not affect anyone who starts to collect their pension prior to 2012.

The changes were included in Bill C-51, which received Royal Assent on December 15, 2009.

A person's CPP retirement pension is calculated as 25% of his average pensionable earnings during his contributory period. The contributory period starts when he turns 18, or 1966, whichever is later. The contributory period ends when he starts collecting the pension.

Removal of the Work Cessation Test

Before 2012, in order to qualify to collect the CPP retirement pension before age 65, a person must have reduced earnings for the month prior to collecting the pension, and the following month.

Starting in 2012 - the Work Cessation Test will be removed. No reduction in earnings will have to take place in order to collect the benefits prior to age 65.

Increase in the General Low Earnings Drop-Out

If a person starts collecting CPP at age 60, the contributory period is 42 years, and at age 65 would be 47 years. However, adjustments are made to the contributory period and average pensionable earnings by "dropping out" certain periods of low income. This applies to periods where the person is on a CPP disability pension, or when income is low or zero during child raising years (the child-rearing dropout).

Before 2012, there is a general drop-out of 15% of the contributory years which are low or nil for other reasons. For individuals who start their CPP at age 65, this removes almost 7 years of low or zero earnings from the calculation. This increases the average earnings and CPP retirement pension for every person.

Starting in 2012 - increase the general drop-out rate to:

	16% in 2012, allowing a maximum drop-out of almost 7.5 years
	17% in 2014, allowing a maximum drop-out of 8 years.

This change will also increase the average CPP disability and survivor pensions, which are based on the retirement benefit calculation.

CPP Contributions When Receiving Retirement Pension

Currently, CPP contributions are no longer paid once a person is receiving a CPP retirement pension, or once the person is 70, whichever is earlier.

Future - CPP retirement benefit recipients will be required to continue to make CPP contributions until age 65. Those age 65 to 70 will be able to elect not to continue contributing to the CPP. CRA states that

	These contributions will result in increased retirement benefits, even for persons already receiving the maximum pension amounts.
	The additional benefits would be earned at a rate of 1/40th of the maximum pension amount ($10,905 in 2009) per year of additional contributions. The exact amount would depend on the earnings level of the contributor, and the resulting pension could be above the maximum.

Pension Adjustments for Early and Late CPP Take-Up

Before 2012, when the CPP retirement pension is taken early, it is reduced by 0.5% per month for each month that the pension is taken before the 65th birthday. The pension is reduced by 30% (5 years x 12 months x 0.5%) for a person who starts collecting it at age 60.

The late pension is increased by 0.5% per month up to the age of 70. The pension is increased by 30% for a person who waits until age 70 to start collecting it.

Starting in 2012 the percentage amounts used to reduce or increase the early or late taken pensions will be gradually increased. To do this:

	The early pension reduction would be gradually increased to 0.6% per month for each month that the pension is taken before age 65. This would be done over a period of 5 years, starting in 2012. This would result in the pension being reduced by 36% for a person who begins collecting it at age 60 after 2017.
	The late pension augmentation would be gradually be increased to 0.7% per month for each month that the pension is taken after the 65th birthday, up to age 70. This would be done over a period of 3 years, starting in 2011. This would result in the pension being increased by 42% for a person who begins collecting it at age 70 after 2014.

This change would not affect those currently collecting CPP retirement benefits or those taking their benefit before these changes begin to take effect.

For more information, see the Department of Finance Information Paper on Proposed Changes to the Canada Pension Plan.

Tax Tip: You don't know how long you will live, so we still recommend taking your CPP retirement pension at age 60.

Revised: July 19, 2010