What Is the CPP in Canada? A Must-Read Guide Before Retiring

Planning your retirement income can often bring up feelings of anxiety. You’re essentially thinking about whether or not you’ll have enough money to pay your bills once you’re done with work, which can be pretty worrisome.  

To help ease these burdens, we’ve constructed a detailed explanation about the CPP, where we’ll tackle things like what is the CPP in Canada, how it works, and when you need to put down your contribution. 

Let’s get down to it!

What is CPP?

The Canada Pension Plan (CPP) is a government-run pension plan that provides retirement income to Canadians. It’s essentially a savings plan where you contribute money throughout your working life. Then, you can draw from this amount when you retire. 

The CPP is one of the three pension plans in Canada, the other two being the Guaranteed Income Supplement (GIS) and Old Age Security (OAS). Moreover, it’s important to note that the CPP is not valid in Quebec, as the province has its own pension system, the Quebec Pension Plan (QPP).

The CPP consists of three parts: the basic pension, the survivor’s pension, and the disability pension. To qualify for the CPP, you need to:

• Be a Canadian citizen or permanent resident;
• Be at least 60 years old;
• Have made at least one contribution to the CPP.

If you meet these requirements, you’re automatically entitled to the basic CPP benefits. The only requirements you need to contribute are to be employed and be at least 18 years of age. 

How Does CPP Work?

Fortunately, CPP contributions are tax-deductible. Namely, this means that you can reduce the amount of income tax you owe by contributing to this pension plan. The money you receive from CPP is taxable, with taxes depending on your wages, while the benefits are shared between the employer and the employee. 

Furthermore, the amount you receive from the CPP is based on several factors, like age, marital status, number of years you’ve contributed, and the type of pension you’re receiving. From the amount the person has contributed, the CPP dispenses an amount that replaces 25% of the earnings, which is tied to the Consumer Price Index. 

How to Apply for CPP and How Much Do You Contribute?

If you’re thinking about applying for CPP, the first thing you need to do is complete the online Canada Pension Plan Application. As a rule of thumb, it takes around 7 to 14 days to process online applications. However, if you send your application by mail or through Service Canada, the CPP will get back to you within 120 days. 

Note that you should apply well in advance of the beginning of your retirement to avoid any disruptions in income, as some applications need a longer time to process. The CPP application form will ask you to provide your Social Insurance Number (SIN) and banking information.

Regarding contribution, the amount you give to the CPP depends on your income. For reference, the maximum annual employee and employer contribution for 2022 is $3,499.80, while the maximum pensionable earnings (MPE) is $64,900. 

Annual pensionable earnings grow every year, having increased by $3,300 since 2021. The CPP rate of contribution is 5.70% of your yearly income. Currently, for 2022, the maximum CPP benefit amount you could receive as a new recipient is $1,253.59, while the average monthly amount was $702.77 in 2021. 

Provisions to Help You Receive Higher CPP Payments

If the amount you’re supposed to receive from the CPP isn’t up to your standards, some provisions can help you get higher payments. However, keep in mind that, for most Canadians, CPP benefits don’t suffice for sustainable retirement income. Therefore, many also take advantage of savings plans, such as the RRSP and TFSA, or an annuity.

Pension sharing

If you’re married or in a common-law relationship, you can share your pension with your spouse or partner. Namely, this means that you will receive smaller monthly payments, which translates to more tax savings. Of course, to share your pension, you’ll need to fill out the Canada Pension Plan Application and provide a marriage certificate or proof of common-law union. 

Child-rearing

If you are or have ever been a stay-at-home parent during your working life, you can receive the child-rearing benefit. This benefit is designed to help parents save for retirement while not working full-time (or at all) outside the home. Therefore, by applying for this provision, the CPP will drop this contributory period, so it doesn’t lower your average retirement benefit.  

To qualify for the child-rearing provision, you’ll need to meet some requirements, such as:

• Your children must have been born after December 31, 1958
• You earned less money because you were the primary caregiver of a child under the age of 7
• You or your partner were eligible for the Canada Child Tax Benefit or received Family Allowance Payments

General dropout

A general dropout is when an individual experiences periods of decreased income due to reasons like unemployment or going back to school/university. When this happens, the CPP (or QPP) drops the lowest 17% from your base calculation, enabling you to collect your total retirement income when you reach the age of 65.

Over-65 drop out

Some individuals choose to continue working after the age of 65, subsequently delaying their CPP benefits. Therefore, the CPP automatically drops the lowest income periods prior to age 65 and replaces them with the amount gained after age 65. For some, this can increase their base amount, resulting in higher post-retirement benefits (PRB). 

Disability exclusion

If you stop working because of a disability, you can still receive CPP benefits after retiring, thanks to the disability exclusion. Similar to the previous provisions, individuals won’t be penalized for periods with low or no earnings. Moreover, if you’re entirely unable to work and under 65, Canada offers a pension for disability and post-retirement disability benefits. 

CPP Death Benefit

In the case of a death of a CPP contributor, the spouse or common-law partner may be able to receive a death benefit. This benefit is designed to help spouses or partners replace some of the income they lose and cover funeral expenses. Currently, the maximum CPP death benefit is $2,500, but the government is working on increasing it.

To qualify for death benefits, the deceased must:

• Have been a Canadian citizen or resident;
• Have made contributions to the CPP for at least one-third of the calendar years in their contributory period, but no less than three years, or made contributions for ten calendar years;
• Have been married to or in a common-law relationship with their partner for at least two years.

CPP Survivor Benefit

The CPP Survivor Benefit is a monthly payment that goes to a deceased person’s spouse or common-law partner. It works by transferring a portion of the contributor’s pension to a surviving spouse or partner, hence the name. 

If the deceased was older than 65, the partner receives a percentage of the pension. However, if the deceased was less than 65, the survivor gets a flat rate and a smaller portion of the pension. 

Furthermore, to apply for survivor benefits, the surviving partner should do so as soon as possible after the death. Eligibility depends on whether the survivor was legally married or in a common-law union with the deceased contributor. Note that to apply, you must send in your application by mail. Plus, ensure you have looked over your Statement of Contributions. 

What are the Canada Pension Payment Dates?

So, what date is the Canada pension paid?

CPP pay dates are in the last week of every month, excluding December. The CPP pays your retirement, children’s, survivor and disability benefits simultaneously, automatically transferring them to your account.

For your convenience, we’ve compiled the CPP payment dates for 2022:

• February 24, 2022
• March 29, 2022
• April 27, 2022
• May 27, 2022
• June 28, 2022
• July 27, 2022
• August 29, 2022
• September 27, 2022
• October 27, 2022
• November 28, 2022
• December 21, 2022

Conclusion

We’ve reached the end of our exhaustive guide on the CPP in Canada. By carefully considering all the information we’ve covered, you can discern which benefits you’re eligible for and how you can take advantage of provisions for a higher retirement income.

With this in mind, you can live out your golden years devoid of money troubles. And what a life that will be!