TaxTips.ca
Canadian Tax and
Financial Information
CPP Rules

TaxTips.ca does not research or endorse any product   or service appearing in ads on this site.  Before making a major financial decision you  should consult a qualified professional.

Looking for US tax information?
See
USTaxTips.net

Need an accounting, tax or financial advisor? Look in our Business Directory.     Stay Connected with TaxTips.ca!  Internet Explorer - Use compatibility view for calculators to work properly!

Home
What's New
Calculators
Personal Tax
Business
Sales Taxes
Free in 30!
Financial Planning
RRSP RRIF TFSA
Real Estate
Stocks Bonds etc.
Seniors
Disabilities
Canada
Alberta
British Columbia
Manitoba
Ontario
Quebec
Saskatchewan
Atlantic Provinces
Territories
Federal Budget
Provincial Budgets
Statistics etc.
Glossary
Site Map
Business Directory
Advertise With Us
Contact Us/About Us
Links & Resources


Seniors
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 was collecting the CPP retirement benefits prior to 2012, unless they did not reach the age of 65 before 2012, and were still earning pensionable earnings after 2011.  Those collecting their pension prior to 2012 had to start contributing again in 2012 if they were earning pensionable earnings, and had 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, so cannot be backdated.  The first day that the form can be completed is the day that the employee turns 65, so CPP contributions are still made for the birthday month.

Employers:  See T4 slip information for correct completion of the T4 slip when a CPT 30 has been submitted.

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.

Individuals who have both employment and self-employment earnings would file the CPT30 with their employer and CRA, which is effective for both employment and self-employment earnings.  If they want to opt out of CPP contributions on an earlier date than the date on their CPT30 (only if not a Quebec resident), they would also complete Schedule 8 or Form RC381 Inter-provincial calculation for CPP and QPP contributions and overpayments, whichever applies, when they file their tax return for that year.  To be valid, an election that applies to 2013 must be filed on or before June 15, 2015.

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 is removed.  No reduction in earnings has 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 was a general drop-out of 15% of the contributory years which were low or nil for other reasons.  For individuals who started their CPP at age 65, this removed almost 7 years of low or zero earnings from the calculation.  This increased the average earnings and CPP retirement pension for every person.

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

bullet 16% in 2012, allowing a maximum drop-out of almost 7.5 years
bullet 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

Previously, CPP contributions were no longer paid once a person was receiving a CPP retirement pension, or once the person was 70, whichever was earlier.

Effective January 1, 2012 - CPP retirement benefit recipients are required to continue to make CPP contributions until age 65.  Those age 65 to 70 are able to elect not to continue contributing to the CPP.

Post-Retirement Benefit (PRB)

bullet These contributions will result in a post-retirement benefit (PRB), even for persons already receiving the maximum pension amounts.
bulletAdditional benefits would be earned at a maximum rate of 1/40th of the maximum pension amount ($12,150 in 2013) per year of additional contributions.  The exact amount would depend on the earnings level of the contributor.  The PRB will also be adjusted based on the age of the contributor, using the early and late CPP take-up factors (see below).
bulletSee the Service Canada PRB Calculator to get an estimate of how much you will receive in post-retirement benefits

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

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

Year Monthly
Reduction
2012 0.52%
2013 0.54%
2014 0.56%
2015 0.58%
2016 0.60%

This would result in the pension being reduced by 36% (60 months x 0.60%) for a person who begins collecting it at age 60 after 2015.

Late Take-Up of CPP Retirement Pension

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

Starting in 2011 the percentage amounts used to increase the late taken pensions are being gradually increased.  The new factors are:

Year Monthly
Increase
2011 0.57%
2012 0.64%
2013 0.70%

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

bullet The changes in the benefit calculations make delaying the start of your pension more attractive than it used to be.
bullet The CPP legislation could be changed again in the future, perhaps to increase the minimum age at which the pension can be taken.
bullet Guaranteed Income Supplements (GIS) - If your income is low enough that you will be able to receive GIS, check to see if receiving higher CPP benefits by taking them later will affect your ability to collect GIS.
bullet Old Age Security (OAS) clawback - Your OAS benefits are clawed back once you reach a certain income level, so check to see if delaying your CPP benefits will put you into the clawback income level.

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:

bulletCanada Revenue Agency - Changes to the CPP Rules - Employers - now includes a video presentation of the December 2011 webinar presented by CRA.
bulletCanada Revenue Agency - Changes to the CPP - Individuals 60 to 70
bulletHuman Resources and Skills Development Canada CPP Amendments 2011 to 2016
bullet 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: June 09, 2014

 

 

Copyright © 2002 - 2014 Boat Harbour Investments Ltd. All Rights Reserved  See Reproduction of information from TaxTips.ca

Facebook | Twitter | Google + | Monthly Newsletter Sign-up | What’s New E-mail Notification | RSS News Feed
The information on this site is not intended to be a substitute for professional advice.  Each person's situation differs, and a professional advisor can assist you in using the information on this web site to your best advantage.  See our Business Directory for tax, accounting and finance-related firms in your area.
Please see our legal disclaimer regarding the use of information on our site, and our Privacy Policy regarding information that may be collected from visitors to our site.