Saturday, January 7, 2017
Are you retiring in Canada this year, Pillar 2: Canada Pension Plan (CPP)
The CPP operates throughout Canada, except in Quebec. Quebec has its own program called the Quebec Pension Plan (QPP) for workers in Quebec.
The CPP retirement pension is a monthly benefit paid to those who have contributed to the Canada Pension Plan. All Canadians over the age of 18 who earn $3,500 or more per year have to pay into the CPP. The amount you pay depends on how much you earn.
The Plan is designed to replace approximately 25 percent of the earnings on which your contributions were based over your working life. You make contributions only on your annual earnings between a minimum and a maximum amount (these are called your pensionable earnings).
The minimum amount is frozen at $3,500. The maximum amount is set each January, based on increases in the average wage in Canada. In 2014, the maximum amount is $52,500. The contribution rate on these pensionable earnings is 9.9 percent, split equally between you and your employer. If you are self-employed, you pay the full 9.9 percent.
The average monthly payment in October 2013 was $534.51 among all beneficiaries and $594.19 among new beneficiaries aged 65. You have to apply for CPP benefits.
The amount of your CPP benefits will depend on several factors, including how long you contributed to the plan, how much you contributed, and finally, the age at which you choose to begin receiving your CPP retirement pension. You can choose to begin collecting your CPP benefits at any time between ages 60 and 70.
The age at which you begin receiving your CPP benefits will have a major impact on the payments you will get for the rest of your life. There are other types of benefits that are available within the CPP:
1. CPP Post-Retirement Benefit is a new cumulative monthly benefit paid to individuals who worked and made CPP contributions while receiving the CPP retirement pension.
2. CPP Disability Pension is a monthly benefit available to people who have made enough contributions to the CPP and whose disability prevents them from working at any job on a regular basis. A disability pension converts to a CPP retirement pension at age 65. The average monthly benefit in October 2013 was $855.49.
3. CPP Survivor’s Pension is a monthly pension paid to the legal spouse or common-law partner of a deceased contributor to the CPP. The average monthly benefit in October 2013 was $325.69.
4. CPP Death Benefit is a one-time, lump-sum payment made to, or on behalf of, the estate of a deceased CPP contributor. The average one-time payment in October 2013 was $2,286.03.
For more detailed information on the CPP, visit the Service Canada website.
Canada Pension Plan Investment Board (CPPIB)
The Canada Pension Plan Investment Board (CPPIB) is a crown corporation that was created to help manage and grow the money in the Canada Pension Plan (CPP).
The CPPIB takes the money that is left in the CPP after all benefits have been paid out and invests it in a number of different assets. To learn more, view CPPIB’s infographic An Introduction to Canada Pension Plan Investment Board (CPPIB).
Quebec Pension Plan (QPP)
The QPP is a mandatory public insurance plan for those who work, or who have worked in Quebec. It provides them and their families with basic financial protection in the event of retirement, disability or death. The QPP works similarly to CPP as it is funded by contributions from Quebec workers.
Similar to CPP, the amount of your QPP payments will depend on several factors, such as how much you contributed, how long you contributed and when you chose to start collecting the benefit. For more information on the QPP, visit the Régie de Rentes du Quebec website.
Note: Pension plan benefits (such as Old Age Security, and the Canada Pension Plan are protected against inflation because they are indexed to the Consumer Price Index. This means that if the cost of living goes up, the value of the benefit goes up accordingly.
However, personal savings and investments, such as mutual funds or GICs, are generally not protected against inflatio