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

Canada Pension Plan (CPP) Rules

There have been several revisions to the CPP retirement pension.  The changes do not affect the benefits of anyone who is currently collecting the CPP retirement benefits, unless they will not reach the age of 65 before 2012, and are still earning pensionable earnings.  Those collecting their pension prior to 2012 will have to start contributing again in 2012 if they are earning pensionable earnings, and have not yet reached 65 years of age.

Election:  From age 65 to 70, an employee can elect to stop making further contributions to the CPP, by completing form CPT30 from CRA.  Once the form is completed, a copy must be given to the employer, and the original sent to CRA.  The election would take effect on the first day of the month following the month that the form is filed with the employer.

Revocation:  The election can be revoked by completing form CPT30 again, but not until the following calendar year.

Individuals who are age 65 to 70, are not employees, and only have self-employed earnings, can elect to not make contributions to the CPP by completing Schedule 8 and filing it with their tax return after the year is complete.  This election would take effect on the first day of the month indicated on Schedule 8.

These 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.  This is still true after 2011, although the contributions made subsequent to starting the pension will result in the receipt of post-retirement benefits (PRB).

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.

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:

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

Post-Retirement Benefit (PRB)

This will affect those people collecting CPP retirement pension prior to 2012, if they continue to earn pensionable earnings after 2011.

Pension Adjustments for Early and Late CPP Take-Up

Early Take-Up of CPP Retirement Pension

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 begins collecting it at age 60.

Starting in 2012 the percentage amounts used to reduce the early taken pensions will be gradually increased.  The new factors are:

Late Take-Up of CPP Retirement Pension

Before 2012, the late pension is increased by 0.5% per month for each month after the 65th birthday that the person waits to begin the pension, up to age 70.  The pension is increased by 30% (5 years x 12 months x 0.5%) for a person who waits until age 70 to start collecting it.

Starting in 2012 the percentage amounts used to increase the late taken pensions will be gradually increased.  The new factors are:

This would result in the pension being increased by 42% (60 months x 0.70%) for a person who begins collecting it at age 70 after 2012.

This change will affect those currently collecting CPP retirement benefits or those taking their benefit before these changes begin to take effect, if they have not yet reached the age of 65 by 2012, and are earning pensionable earnings.

Points to consider when deciding when to start your CPP retirement benefits

See our CPP Retirement Pension Calculator, which provides a comparison of the CPP pension you will receive, based on different starting dates.  If your earnings are changing significantly before you start collecting your CPP pension, use the Service Canada Canadian Retirement Income Calculator.

For more information, see:

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