Changes to the Canada Pension Plan were included in Bill C-51, which was passed on December 15, 2009. They are gradually being phased in until 2016 and will benefit workers to differing degrees depending on several personal factors.
You will not be affected by these changes if you started receiving a CPP retirement pension before December 31, 2010, and you remain out of the work force.
Adjustments for early and late CPP benefit payments
As of 2013, if you wait to collect until after age 65 you will get an increase of 0.7% for every month beyond that age for a total increase of 42% at age 70. This is more generous than before the changes.
It's possible to collect CPP benefits at age 60, even if you continue to work. If you collect before age 65 your monthly check will decrease by between 0.5% and 0.6% for every month prior to age 65. The total decrease at age 60 will be just under 36%. (After 2016 the decrease will remain at 36%.) This is less generous than before the adjustments.
Continue CPP Participation While Receiving Benefits
In the past, once a person started to receive benefits, no further premiums were paid.
Now, those under 65 who choose to receive benefits and carry on working are required to make payments to CPP until age 65 and the employer is also obligated to continue contributing. The monthly benefits will increase to compensate for the extra contributions during that period.
Before the changes, employees over age 65 who continued to work while receiving benefits could no longer contribute to the plan.
Now, these employees can voluntarily elect to make CPP payments beyond age 65 until age 70. If a pensioner elects to make these later contributions, her employer will also be required to contribute.
Although this will cost working retirees hundreds of dollars more a year in payroll deductions, these contributions will increase retirement benefits, even for those already receiving the maximum amounts.
Changes in Calculating Average Career Earnings
The CPP uses a career average calculation which allows for certain years of low or no earnings to be disregarded in arriving at average earnings.
If you take benefits at age 65, the span of your career is considered to be 47 years. If the CPP is taken at age 60, the span of your career is considered to be 42 years.
Previously, 15% of an employee’s potential working career was disregarded. This percentage increased to 17% in 2014. This allows a maximum of 8 years to be dropped, based on a working career of 47 years (age 18 to 65)
This provision will help more Canadians come closer to the maximum pension. It will also increase the average disability and survivor pensions, which are based on the retirement benefit calculation.
Removal of the Work Cessation Test
Up until 2012 a worker under age 65 had to “retire” before commencing a pension, but could then return to work after two months. This 'Work Cessation Test' was eliminated in 2012.
These changes offer an incentive for people to stay in the workforce longer and retire with a higher pension.
What is good for you? Would it be better for you to take benefits early and continue to work or retire? Or, would it be better for you to take Canada Pension Plan benefits at age 65 or, perhaps, age 70?
The answer depends on your retirement income needs, your ability or desire to continue working and maybe even your expected longevity.
Your financial adviser can help you work through the process of deciding when it is beneficial for you to begin receiving benefits.
For quick facts and figures reference sheets click here CPP Basics