What are cpp contributions?

The Canada Pension Plan (CPP) retirement pension is a monthly paid benefit that replaces part of your income when you retire. Employees and employers contribute to CPP. Contributions to CPP are compulsory for all working Canadians aged 18-70.

Discussions about retirement savings often bring up more questions than answers. How much money do I need to cover bills each month? How much should I save? Will I have enough to live comfortably?

If you’re employed and over the age of 18, you’ve already taken the first step in saving for your retirement by being part of the Canada Pension Plan (CPP) (Quebec Pension Plan for employees in Quebec).So, it’s important to understand how the system works, what you can expect to receive from CPP/QPP, and how you may optimize your payments in retirement.

Here’s everything you need to know about the Canada Pension Plan with some commentary on the Quebec Pension Plan.

The Canada Pension Plan/Quebec Pension Plan is one of the major pillars of retirement income for Canadians. The plan provides contributors and their families with partial replacement of earnings in the case of retirement, disability or death.

Each Canadian worker (outside Québec, which has its own pension system) who earns more than the basic exemption amount must contribute to CPP, which is managed by the CPP Investment Board (CPPIB). Contributions are mandatory if you work up until age 65, then voluntary until age 70 if you continue to work. Contributions for QPP are collected by Revenu Québec and managed by the Caisse de dépôt et placement du Québec.

The Canada Pension Plan (CPP) (Quebec Pension Plan (QPP) is a contributory, earnings-based social program. It is designed to protect the contributor and their family against the loss of income associated with death, disability and retirement. To be eligible to receive payments from the Canada Pension Plan/ Quebec Pension Plan, you must meet all of the following criteria:

You are eligible to receive full CPP/QPP benefits beginning the first month after your 65th birthday. If you wait until your 65th birthday, you’ll receive your full benefits – but you can choose to receive them earlier, at age 60. If you do so, however, you’ll receive permanently reduced benefits. You can also choose to delay your benefits until age 70, which grants you a permanent increase in benefits.

Allowances are made for individuals receiving benefits under QPP. If you are age 60+, you do not need to have ceased working in order to receive your retirement pension under the Québec Pension Plan (QPP). You must have contributed to the Québec Pension Plan for at least 1 year. If you worked elsewhere in Canada, QPP also takes into account contributions made to the Canada Pension Plan (CPP) when calculating the amount of your retirement pension. However, if you’ve ever worked in Québec, these earnings will not be included in your CPP account.

Canadian workers who earn more than $3,500 annually are required to contribute 5.25% of their earned income up to the designated maximum annual pensionable earnings to the Canada Pension Plan. Their employer must contribute a matching amount each year. Quebec employees and employers each contribute to the QPP at a slightly higher rate of 6.15% in 2022.

The maximum amount an individual who is not self-employed will contribute to the CPP in 2022 is ~ $3,500 ($3,400.80) ($3,766.10 to QPP). Self-employed Canadians are required to contribute the full amount of ~$7,000 ($6,999.60) to CPP or 11.4%; or ($7,552,20) to QPP or 12.3%. This includes the base contribution rate and the additional contribution rate for the enhanced plan. The additional plan increases the income replacement rate gradually from 25% to 33.33% and increases the pensionable salary until it reaches 114% of the maximum pensionable earnings.

While the minimum income threshold for contributing to CPP hasn’t changed in quite some time (it’s been the same since 1996), the maximum annual pensionable earnings increases each year to account for the cost of living and inflation.  For 2022, the yearly maximum pensionable earnings is $64,900. At 5.3%, that is the largest increase since 1992 or 30 years. With the $3,500 minimum, the maximum individual income that can be taxed is $64,900. The increase in contribution rate is due to the continued implementation of the CPP enhancement.

You may continue to work while receiving your CPP retirement pension. If you are between ages 60-70, you can continue to contribute to the CPP. Your CPP contributions will go toward post-retirement benefits, which will increase your CPP retirement income.

At age 70, your contributions to CPP cease, even if you’re still working (regardless of whether you’re employed by a company or self-employed).

The province of Quebec has the Quebec Pension Plan (QPP) to which employers and employees contribute instead of contributing to CPP. The plan mirrors the CPP in many ways. The QPP also was enhanced with rates increasing to 5.55% beginning Jan. 1, 2019. The enhancements include an additional plan. QPP now has a base plan to which employers and employees each contribute 5.4% for earnings between the basic exemption of $3,500 and the maximum pensionable earnings ($64,900 for 2022). The additional plan is funded by extra matching employer and employee contributions on an increasing rate scale from 2019-2023. In 2022, the contribution rate or the additional plan (enhancement) for the Québec Pension Plan is 0.75%. New contributions will be added to the portion of earnings between the maximum pensionable earnings (MPE) and a new pensionable earnings ceiling. That ceiling will be 107% of the MPE in 2024 and 114% of the MPE effective 2025. For more information, go to Changes to the Quebec Pension Plan.

How much you can expect to receive through CPP/QPP payments depends on multiple factors. First and foremost, the amount of your payments will depend on how much you contributed to the Canada Pension Plan/Quebec Pension Plan and for how long.

Note that the contributory period begins on your 18th birthday and ends when you begin receiving retirement benefits, turn age 70, or pass away. It is not based on the months or years you actually contributed to the CPP/QPP.

Historically speaking, CPP/QPP retirement pensions have been approximately one-quarter of a person’s average working income up to the maximum annual pensionable earnings set by the CPP/QPP. However, beginning January 1, 2019, the Canada Pension Plan and Quebec Pension Plan will be “enhanced” to eventually replace one-third of a person’s average working income up to the maximum annual pensionable earnings set by the CPP/QPP.

This enhancement will not apply to earnings collected on or before December 31, 2018. One question you may wish to explore is whether CPP/QPP enhancements reduce the need for long term savings in Registered Retirement Savings Plans (RRSP) and Tax Free Savings Accounts (TFSA)? The reality is that older Canadians today will experience little benefit from the CPP/QPP enhancements. Click here for more information on RRSPs and TFSAs.

Other factors include the age at which you apply for benefits and any other provisions for which you may qualify, such as survivor benefits and child-rearing adjustments. If you continue to work and make contributions to CPP after beginning to collect payments, you can qualify for post-retirement benefits (PRB), which will also increase your retirement income after age 70. Additionally, payment amounts are adjusted annually according to the consumer price index as the cost of living increases.

CPP/QPP benefits normally begin at age 65, specifically the month after your 65th birthday. However, benefits can be taken as early as age 60 and as late as age 70. Retirement benefits are fully taxable and are indexed every year in January.

If you begin your CPP/QPP payments prior to age 65, you’ll incur a 0.6% reduction for each month you collect before your 65th birthday. This reduction works out to be 7.2% per year. If you begin collecting your pension at age 60, your reduction will be 36%.

However, if you delay your CPP/QPP payments, you’ll receive an increase of 0.7% for each month you wait after your 65th birthday. This amounts to an increase of 8.4% per year and can be up to 42% if delayed until age 70.

Because there are so many factors involved, it’s difficult to estimate what your exact CPP/QPP payment may be. Before you decide when to take your CPP/QPP retirement pension, you may want to consider the following:

To help Canadians plan more effectively for retirement, the government provides the average monthly pension amount, the maximum pension amount, and the cost of living increase annually.

Services Canada/ Retraite Quebec can supply you with your personal payment amounts. CPP/QPP retirement pension does not start automatically. You need to set up an account and apply for a personal access code. Click here for some guidance and considerations on when to start your CPP or QPP retirement benefits.

For 2021, the average CPP/QPP payment was $714.21 (at age 65) with a maximum payment of $1,203.75. The cost of living increase applied in January 2022 is 2.7%.

The most that you can receive at age 65 or over if you are eligible for both the retirement pension and the survivor's pension is the maximum retirement pension that an individual could have received. It is a taxable benefit.

You may apply to voluntarily share your CPP retirement pensions with your married spouse or common law partner and are living together. You must be receiving your CPP pension or at least be eligible to receive it. This sharing of the retirement pension may provide some tax savings.

The sharing of your pension begins when your application is approved and cannot be backdated. It ends when:

If only one of you contributed to the Canada Pension Plan and/or Quebec Pension Plan, then you can share those benefit payments. If both of you contributed to the plan, then each of you may receive a share of both pensions.

The share of your pension that can be shared is based on the number of months you and your spouse or common-law partner or de facto spouse lived together during your joint contributory period. The overall pension amount remains the same.

Married couples need to submit their original marriage certificate as part of the application process. Click here for documents you need as proof of common law union.

The CPPQPP contributions you and your spouse or common-law partner made during the time you lived together can be equally divided after your separation or divorce under certain circumstances. Check here for specifics on splitting CPP credits and here for splitting QPP earnings.

Child-Rearing

The Canada Pension Plan/Quebec Pension Plan takes into account the reality that some parents will need or choose to take a step back from work when their children are young. If your income was lower because you worked fewer hours or was nonexistent for a period of time because you were the primary caregiver for your child(ren) under the age of 7, you can apply for the child-rearing provision.

To qualify for the child-rearing provision, you must meet the following criteria:

If you are deemed to be eligible for the child-rearing provision, the months where your income was lower will be dropped from your contributory period so they don’t drag down your final average used to calculate your retirement benefit amount.

For the low-earning months during the CPP/QPP enhancement (2019 and after), pension credits will be added based on your average income in the five years leading up to the birth or adoption of your child(ren).

It’s important to note that both parents can apply for the child-rearing provision, but not for the same time period. For example, if Parent 1 chooses to work part-time for two years after the birth or adoption of a child, Parent 1 can apply for the child-rearing provision during that time frame. If at that point, Parent 1 returns to work full-time and Parent 2 chooses to work part-time for the following two years, Parent 2 can apply for the child-rearing provision during that time frame.

Upon applying, you’ll need to provide each child’s name, date of birth, social insurance number, and birth certificate. If your children weren’t born in Canada, you’ll need to provide your date of entry.

General Drop Out

At some point or another, most Canadians experience periods of lower income for various reasons, such as unemployment, deciding to attend University, or taking time away from work to care for a family member. Therefore, the Canada Pension Plan/Quebec Pension Plan automatically drops the lowest 17% (or up to eight years of earnings) from your CPP/QPP base calculation.

This provision is automatically applied to all those who contribute to the CPP/QPP. You do not need to apply for it.

Over-65 Drop Out

For those who are able to keep working after age 65 and choose to delay their pension payments, the CPP/QPP drops the lowest periods of earning prior to age 65 and replaces them with income accrued after age 65. For some, this practice increases their CPP/QPP base amount. Like the General Drop Out, this provision is automatically applied.

Disability Exclusion

Those who become physically or mentally disabled and are therefore unable to work will not be penalized for periods of low or zero earnings. These periods are automatically dropped from the calculation of the CPP base.

For the CPP/QPP enhancement period, credits will be “dropped in” for the months the person is disabled in 2019 or later, based on the person’s average income accrued during the six years prior to becoming disabled.

If you become severely disabled to the extent that you cannot work at any job on a regular basis and you are under age 65, you may receive a taxable monthly disability benefit in the form of a disability pension and post-retirement disability benefits. If you have dependent children, benefits may also be available to them.

It’s a good idea to periodically review your Canada Pension Plan Statement of Contributions to check for accuracy. The most important information is your name, address, date of birth, contributions you’ve made and qualifying pensionable earnings. You should use your T4 tax slip to compare your pensionable earnings.

You can log into your My Service Canada Account at any time to review your Statement of Contributions. If you notice any errors, or believe any information to be incorrect, contact CPP immediately.

Remember that if you’ve ever worked in Québec, these earnings will not be included in your CPP account. You’ll need to contact Retraite Québec for more information regarding any income earned in Québec.

With the exception of December, CPP payments occur in the last week of every month. Retirement, disability, children’s and survivor benefits are all paid at the same time. According to Services Canada, most CPP retirement benefit recipients request direct deposit so that the payments will automatically transfer into their account.* If you prefer to receive paper cheques, you can expect them within one week of the payment date (though the delivery date cannot be guaranteed). They will be mailed out sometime during the last 3 business days of each month.

Here are the 2022 published CPP payment dates and QPP pension payment dates (effective Jan. 3, 2022):

The CPP/QPP retirement pension does not start automatically. You must apply for it. You can apply for CPP benefits online through their My Service Canada Account (or apply for Retirement Pension under the QPP. However, there are exceptions, such as if you currently reside outside the country, if you’ve authorized another person to access your account, or if you’ve already received CPP payments because of retirement or disability.

If you’re unable to complete the online application, you can print out a paper copy (on line and paper application for QPP) and either mail it in or take it to the nearest Service Canada Centre/ Retraite Quebec. Be sure to include any required documentation before you do so.

If you apply for CPP/QPP benefits after you turn 65, Service Canada/ Retraite Quebec respectively can pay retroactive CPP/QPP respectively retirement payments for up to 12 months (11 months plus the month you apply). Retroactive payments cannot be made earlier than the month following your 65th birthday. That means if you take your CPP/QPP retirement pension before age 65, then there are no retroactive payments.

Historically, In order to qualify for the death benefit, the deceased must have made contributions to the Canada Pension Plan (CPP) for at least:

A person may contribute to both the Canada Pension Plan and the Quebec Pension Plan. The contributions made under both plans are combined when a death benefit is calculated.

Assuming you worked for the minimum number of years, the Canada Pension Plan/Quebec Pension Plan includes a one-time lump sum payment of up to $2,500 upon your death to help pay for funeral expenses.This amount is currently up for review with consideration to increasing it. If you’ve completed a will that names an executor, this death benefit goes to that person. The executor should apply for the death benefits within 60 days.

Federal and provincial finance ministers met in December, 2017 to set the death benefit at a flat $2,500, regardless of how long or how much someone had paid into CPP/QPP. The flat-rate payment will ensure no one is denied the benefit because they didn’t contribute enough money for a long enough period of time. However, this measure is not reflected in updated legislation and shown in the official Government of Canada publication on CPP/QPP death benefit as of August 2021.

In the event that the executor doesn’t apply within that window or no will has been written, the death benefit can be given to another applicant. The following priority is given:

Again, residents of Québec or people who worked in Québec may not be eligible for the CPP death benefit. However, CPP and QPP work closely to ensure all contributors are protected, so contributions to both pension plans are combined when calculating the number of years the deceased worked.

If the deceased resided in Québec at the time of death, Québec was the last place of residence prior to moving outside of Canada, the executor will have to contact Retraite Quebec to discuss death benefits.

The Canada Pension Plan/Quebec Pension Plan takes a portion of a contributor’s pension and transfers it to a surviving spouse or common-law partner in the event of their death. If the deceased is 65 or older, the survivor receives a percentage of the deceased’s pension. If the deceased was under the age of 65 at the time of death, the survivor receives a flat rate, plus a smaller portion of the deceased’s pension.

It’s important to note that the surviving spouse or partner must apply for survivor’s benefits, and should be done as soon as possible after the death. Waiting too long can cause you to lose benefits, as back payments can only be made for up to 12 months. Unfortunately, you cannot apply online —- you must print out the form and mail it in.

Watch the definition of "spouse" for eligibility for benefits under the Quebec Pension Plan.

Unless you live in Quebec, which has its own Quebec Pension Plan (QPP), if you’ve made more than $3,500 a year, you’ve paid into the CPP (and so has your employer, at a very generous — if government-mandated — 50% share). Once you hit 60, you can start collecting your pension payments. Depending on your financial situation, however, you may not want to get your CPP payments right away. That’s because, for every year you wait, your CPP payout increases. You reach the maximum amount when you hit 70, so if you can make it that long, it’s often best to wait.

CPP payments are made near the end of every month. For 2023, those dates are:

As for how much your CPP payment will be, that depends on two main factors: how much you earned and how old you are when you begin taking your pension.

In 2023, employees over the age of 18 who earn more than $3,500 per year must pay CPP. (As we mentioned above, if you live in Quebec you'll pay into the QPP, which has a slightly higher rate.) CPP contributions are split equally between employer and employee, based on the employee’s income up to a maximum set by the federal government. If you make more than $66,600 in 2023, you’ll contribute the maximum amount to CPP.

To receive the maximum CPP payment, you need to have made the max CPP contribution each year for at least 39 years. The maximum employee contribution changes each year; in 2023 it is $3,754.45, or 5.95% of your salary (less a $3,500 exemption), whichever is more. For self-employed people — who pay both the employer and employee contributions — the maximum CPP contribution is $7,508.90.

In 2023, the maximum CPP payout is $1,306.57 per month for new beneficiaries who start receiving CPP at 65. Although the max CPP payout is substantial, not everyone gets it. The average CPP in October 2022 was a much lower $717.15 per month, after all. This is because not all people have contributed enough over their lifetimes to receive the full CPP payment.

The amount of CPP you receive each month upon retirement is based on your contributions during your working life. The way CPP works is very simple. When you contribute to the Canadian Pension Plan, your money goes into a fund that’s used to pay out CPP in your retirement.

The CPP payments you receive can be shared with a lower-income spouse or partner. They can be split in the case of relationship breakdown, and if one spouse or partner was out of the workforce, or worked part time, there is a provision for “child rearing” that will exclude the lower earning years from the CPP payment calculation, effectively increasing the CPP payment you can receive. CPP is considered income and fully taxable at your marginal tax rate. To avoid a big tax shock at the end of the year, you can request that income tax be deducted from each payment.

You can start taking CPP at age 60, but you will lose up to 36% of your pension permanently if you take it that early. This is because CPP payments are reduced by 0.6% for every month before your 65th birthday you start taking your CPP. If you started on your 60th birthday, that would mean a reduction of 7.2% per year (12 months/year x 0.6% per month), which can be a substantial amount of money.

Conversely, if you delay receiving your CPP until age 70, your payments will be permanently increased by 0.7% for every month after your 65th birthday you delay, or 8.4% per year. That means if you delay CPP until age 70, you will receive 42% more than someone who starts taking payments at 60. Despite those numbers, most people start receiving CPP the month after their 65th birthday. And no, you can’t just keep waiting and pumping up your payments. There’s no further increase after age 70.

Your CPP pension amount is based on how much you contributed and how long you paid CPP. There is a “general drop-out” provision that excludes certain months with low earnings, and if you were out of the workforce for a number of years due to child care duties, or you worked part time, you can request a “child rearing” consideration. You can get more information here.

The average CPP payment for beneficiaries who receive their first payment at 65 years old as of October 2022 is $717.15, as mentioned above. Of course, there are other scenarios possible, such as survivor or disability benefits.

As we mentioned before, to receive the maximum CPP, you would have to be making the maximum CPP contribution for 40 years. The federal government sets the Year’s Maximum Pensionable Earnings (YMPE) every year. That number is the basis for both CPP and pension contributions. In 2023, the YMPE is $66,600. Here's a helpful chart:

Old Age Security (OAS) is a pension given to Canadians over 65. The amount you receive each month is determined by how long you have lived in Canada after the age of 18. Payments are based on your marital status and level of income, and the maximums are calculated quarterly. The maximum monthly OAS for the first quarter of 2023 is $687.56 for people 65-74 years old and $756.32 if you're 75 or older.

Guaranteed Income Supplement (GIS) provides a monthly non-taxable top-up to Old Age Security. GIS is income-tested. The next year’s payment will be calculated based on the net individual or family income reported on your income tax return. You can get more information on GIS here.

You must apply for CPP. It does not start automatically. To qualify for CPP, you must:

Service Canada can automatically enroll some people in OAS, but not others. They’ll let you know if you’ve been automatically enrolled. Otherwise you’ll have to do it yourself (here’s the site). Unlike CPP, OAS is completely funded by the federal government, and you do not pay into it directly.

To qualify for OAS, you must:

You can receive the maximum OAS payment if you’ve lived in Canada for at least 40 of the 47 years between your 18th and 65th birthday.

OAS is considered income and is fully taxable at your marginal tax rate. OAS is income-tested, which basically means the government is watching you. If you make more than a certain amount of income in a year, the CRA is coming for its money. (Your OAS distributions will be reduced, or “clawed-back.”) If your income is more than $129,757, congratulations: you do not qualify to receive OAS.

Based on the most recent figures, if you're over 75 and you receive the average CPP payment plus the maximum OAS, you will receive $1,473.47 per month. That’s $17,681.64 per year, before taxes. If these means of public retirement income are your only sources of income, then you may also qualify for some GIS. You can get an estimate of how much you might need to retire by using our free retirement calculator. The calculator will also tell you if you’re saving enough for retirement or if you should aim to put away a little more money.

The Canada Pension Plan (CPP) retirement pension is a monthly paid benefit that replaces part of your income when you retire. Employees and employers contribute to CPP.

Learn more about CPP from the Canadian Government:

Starting in 2019, CPP payments to retirees began to gradually increase. CPP contributions (the deduction from your pay) also increased, so that higher benefits will be available when you retire. The CPP enhancements, being implemented over seven years in two steps, will increase the maximum CPP pension by as much as 50% for those who make enhanced contributions for 40 years!

Step 1 - 2019 to 2023: From 2019 to 2023, the contribution rate for employees is increasing by a total of one percentage point (from 4.95% to 5.95%) on earnings between $3,500 and the YPME set for 2019. (See table above)

Step 2 - 2025 to 2025 - Starting in 2024, a second, higher earnings limit will be introduced. This new limit, known as the year’s additional maximum pensionable earnings, will not replace the first earnings ceiling. Instead, it will subject your earnings to two earnings limits. This limit is referred to as the second earnings ceiling. This change will require you to contribute 4% of earnings between the YMPE and AYMPE to the CPP. These contributions are also mandatory.

Note: The additional range of earnings covered by the plan will only affect you in years when your annual earnings are above the first earnings ceiling.

Read more about the CPP Enhancement

Changes instituted to the Canada Pension Plan (CPP) on January 1, 2012 by the Canada Revenue Agency may affect you.  The changes affect only those aged 60 to 70 who work and receive a CPP/QPP retirement pension.

If you elect not to make CPP contributions, but then wish to restart CPP contributions in the future, a new CPT30 form may be filed to revoke a previous election to change your contribution status at that time. The CPT30 form can only be used once per calendar year.

Important Note - If you are opting out of CPP contributions, along with a copy of Form CPT30, you will need to provide Western Payroll with proof of your age and proof you are in receipt of CPP.  To provide proof you are in receipt of CPP, you may provide one of the following:

Source: MapleMoney

The Canada Pension Plan (CPP) is a defined benefit pension plan administered by the federal government. Its purpose is to provide working Canadians with a source of guaranteed income when they retire.

While you are working, you contribute to the CPP through regular deductions from your paycheque. CPP payments can start as early as age 60, and last for the remainder of your life. Not everyone receives the same payment, however. Your CPP payment amount will depend on a number of factors, including how many years you contributed, and how much you earned while you were working.

If you are over 18 and working in Canada (outside of Quebec), it's very likely that you are contributing to the Canada Pension Plan. There are exceptions, which I'll explain in more detail later, but know that the vast majority of employed Canadians are contributing to the CPP.

For 2020, the CPP contribution rate for employees is 5.25% on earnings between $3500 and $58,700. Employers are required to match the employee contribution of 5.25%, therefore the maximum contribution for 2020 is $2,898.00 each. If you are self-employed, you can also benefit from the CPP, but you are responsible to make both the employee and employer contribution while you are working.

Because CPP contributions cease on any income over $58,700, this is known as the maximum pensionable earnings amount (YMPE). This is why many workers see an increase in their take-home pay at some point during the year. CPP contributions have been maxed, and contributions are paused until the beginning of the following year.

But enough about CPP contributions. You're probably wondering how all of this benefits you when it comes to receiving CPP payments. Let's take a closer look at how the CPP works after you retire.

By contributing to the CPP, you are ensuring the viability of important government benefits for when you need them later in life. Also, as your CPP contributions increase along with your income, you become eligible for a larger benefit when you begin receiving payments.

As a contributor to the CPP, there are 4 primary benefits you may become eligible for at some point in the future: retirement pension, the post-retirement benefit, disability benefits, and the death benefit.

The CPP retirement pension is a monthly benefit that is designed to replace a portion of your employment income after you retire. To qualify for a retirement pension, you have to be at least 60 years of age, and you must have made at least one eligible contribution to the CPP during your working years.

Your CPP payment is not triggered automatically. You must apply for it when you're ready to begin collecting benefits. Part of the reason for this is that you can choose when to start collecting CPP. You can receive an unreduced benefit at age 65, or opt for a lesser amount earlier. The benefit is reduced by a certain percentage for every month you begin collecting CPP before 65.

These days, more and more Canadians are choosing to continue working past age 60. When this happens, they can choose to collect their CPP while they continue to work. Any contributions they make up to age 70 will be designated towards their post-retirement benefits (PRB). CPP contributions stop at age 70, even if you continue to work.

If you are under 65 years old, have contributed to the CPP, and have a mental or physical disability, you may be eligible to receive a CPP disability benefit. Your disability must be severe enough that it prevents you from performing regular work duties, or be considered long term and indefinite, potentially resulting in a shortened life expectancy.

If you are receiving the disability benefit, and are the parent of a minor child, or an adult child between 18 and 25 attending a post-secondary institution, your child may be eligible to receive a benefit under the CPP. They can also receive a benefit if you were to pass away.

The CPP death benefit is a one-time payment made to the estate of a CPP contributor. When this occurs, the authorized estate representative is the one responsible for administering the death benefit on behalf of the estate.

In the absence of an estate (where there is no will, and an authorized representative has not been named, the party responsible for paying the funeral expenses is eligible to apply for and receive the death benefit, to assist with burial costs etc. All eligible contributors to the CPP receive a flat amount of $2500 as a death benefit.

If you were eligible to receive the maximum CPP payment in 2020, you would receive $1175.83/month, or $14,109.96/year. Unfortunately, most Canadians receive a lesser amount, in fact, the average monthly CPP payment is closer to $650.

There are a few reasons for this, with the main one being that it's not easy to maximize your contributions during your working years. Another factor is that many Canadians apply for the CPP prior to age 65, resulting in a reduced monthly benefit.

To qualify for the maximum CPP payment, you would need to have made CPP contributions for at least 39 years between ages 18 and 65. You would also need to maximize contributions for the majority of your working years by earning the maximum pensionable earnings amount ($58,700 in 2020).

CPP payments are paid out on the 3rd business day prior to the end of every month. These days, most Canadians receive the funds via direct deposit into their bank account. I wrote an article recently that lists the CPP payment dates for 2020.

There is no perfect answer to this question, as everyone's situation is different. If you wait until age 65 to begin collecting CPP, you will receive an unreduced monthly benefit. You can choose to collect as early as age 60, or anywhere in between, but your benefit will be reduced for every month before age 65.

If you have other ample income sources and don't require the CPP to meet your day-to-day living requirements, it may be beneficial to wait until age 65. On the flip side, if you are retiring before 65, and are relying on the CPP to supplement your retirement income, it may be better to take it early.

These are merely guidelines, however. There are those who believe that it's best to begin collecting CPP as soon as you qualify, given that our lifespan is uncertain. While people are living longer than ever these days, nothing is guaranteed.

Before applying for the CPP, I highly recommend that you consult with a retirement planning professional who can help you make the best decision.

The fastest way to apply for CPP is by filling out an application online. According to the CRA, the turnaround time for online applications is between 7 and 14 days. You can also apply in-person at a Service Canada location or by mail, but the processing time is much slower this way, as long as 4 months. Regardless of the method you choose, it's always a good idea to apply well in advance of when you plan to begin receiving CPP benefits.

To ensure that the CPP program is sustainable for future generations, the federal government recently announced changes to CPP contribution rates in future years. As I previously mentioned, the contribution rate for 2020 is 5.25%, but this will rise to 5.95% by 2023.

Learn what is CPP and what you are entitled to in this blog.

So, what is CPP?

The CPP is one of three parts of the Canadian government’s retirement income system. Established in 1965, this taxable, government benefit provides a basic benefits package to Canadian retirees and disabled contributors. This robust system is responsible for paying both retirement and disability benefits to its Canadians across the country. It is a key part of running payroll as an employer.

Similarly to employment insurance, almost every Canadian citizen makes required CPP contributions once they turn 18 and can legally start working in Canada. The amount of contribution is dependent on a person’s salary.

The CPP is a retirement benefit that you receive upon retiring that provides a lifetime income after the age of 65. The CPP makes up for part of your employment income, and once approved, the government dispenses your pension to you for the rest of your life.

To receive this benefit, a person must meet specific thresholds to qualify, including:

Learn more about your eligibility for the Canada Pension Plan here.

Valid contributions constitute work executed in Canada, or a result of receiving benefits or “credits” from a former common-law partner, or spouse following the end of a relationship. The CPP requires mandatory pay-as-you-go contributions by all workers, including self-employed individuals.

To access CPP benefits, you must be eligible under the qualifications mentioned above, actively apply for the benefits, and be approved by the Canadian government.

Most Canadians are eligible to contribute to and receive benefits from the Canada Pension Plan. The CPP is a deferred income retirement vehicle that works alongside Canada’s Old Age Security Plan, a primary pension plan for seniors.

The CPP reserves standard benefits for those who reach 65 years of age. If you are between 60-65, you can access specific provisions, including chronic disability and survivor benefits. Survivor benefits pertain to compensation after the loss of a spouse or partner before they have reached retirement age.

Each province works alongside the CPP for taxation, except for Quebec, which has the Quebec Pension Plan (QPP). In other provinces, CPP taxes are based on wages. The benefit is shared between the employer and the employee with the goal of reducing the total combined taxable amount of employee wages. While wages are taxed starting at the age of 18 and end when you turn 65, this age rule doesn’t apply if the individual has already begun receiving CPP benefits or has died.

The CPP takes the money from the taxed wages and places them into a “trust fund” that is managed by the CPP Investment Board. The board then invests those wages in many different avenues, such as bonds, stocks and other assets, helping to maximize the size of the CPP pool.

Individual CPP amounts are calculated based on the number of years they contributed the required amounts. To receive the maximum allowance from the government, individuals must have contributed to the CPP for the required minimum of 40 years and have also contributed the necessary amount for each of those years.

Depending on the amount the individual has contributed each year, The CPP dispenses a monthly amount that replaces around 25% of the contributor’s earnings. On top of it, it is all tied back to the Consumer Price Index. This is a complex system that considers several factors when calculating the amount of CPP that an individual will receive.

Since it is a taxable benefit, many choose to share the income from the CPP between themselves and their spouses or common-law partners. When shared, this helps alleviate a fraction of the tax burden.

If you are self-employed, you have different things to consider, including whether or not you pay yourself a salary or take dividends. Depending on your choice, your CPP will be calculated differently.

Applying to the CPP is easy. First, you must complete an online application. In some cases, you may have to fill out a paper application and either mail it in or bring it, along with the necessary supporting documents, to your nearest Service Canada Centre.

The online application process has two steps:

If you want to receive the CPP, you must apply. Canada Pension Plan payments are not automatic. The Government of Canada suggests that you apply well in advance of when you want your pension to begin - meaning if you have plans to retire, you should consider applying sooner than later to avoid any income disruption.

As mentioned above, one must qualify for the CPP based on several factors. Not all who apply will receive it, even if you meet the eligibility requirements until you formally apply for the benefits. If an application for the CPP is denied, you can appeal to the Canada Pension Appeals Board for a review of the application.

Individuals applying must have a Social Insurance Number (SIN) and relevant banking information. For those looking to share their pension (and ultimately relieve themselves of a more substantial tax burden), you and your spouse or common-law partner must both have your SIN on hand.