Think you know everything about the Canada Pension Plan (CPP)? Well, you might be surprised! This important pillar of Canada’s retirement income system has been around for decades, but there’s still a lot of confusion about how it works.
I’ve put together a list of 17 facts and myths about the CPP that might make you say, “I didn’t know that!” From how much you can get to who’s actually eligible. So, let’s test your CPP knowledge and separate fact from fiction!
CPP started in 1966
The Canada Pension Plan isn’t that old! It began in 1966 to help Canadians save for retirement. Before this, many people only had their own savings or company pensions to rely on. The government created CPP to make sure more people would have money when they stopped working. It’s been helping Canadians for over 50 years now.
You can start CPP at 60
You don’t have to wait until 65 to get your CPP. You can start getting it as early as age 60 if you want. But there’s a catch – if you start early, you’ll get less money each month. Your payments will be reduced by 0.6% for each month before your 65th birthday. This means if you start at 60, you’ll get 36% less than if you waited until 65.
You can delay CPP until 70
Just like you can start CPP early, you can also wait to start it. If you delay your CPP past 65, you’ll get more money each month. Your payments increase by 0.7% for each month you wait, up to age 70. If you wait until 70 to start, you’ll get 42% more than if you started at 65. This can be a good option if you’re still working or have other sources of income.
CPP is adjusted for inflation
The amount of CPP you get can go up over time. Every January, the government looks at the cost of living and might increase CPP payments. This is called indexation. It helps make sure your pension keeps its buying power even when things get more expensive. So, the amount you get when you first start CPP isn’t necessarily what you’ll get forever.
You need to apply for CPP
Unlike some government benefits, CPP doesn’t start automatically. You need to apply for it when you want to start receiving it. You can apply online through My Service Canada Account or by mail. It’s a good idea to apply a few months before you want your payments to start. This gives the government time to process your application.
CPP is based on your contributions
The amount of CPP you get depends on how much you’ve paid into the plan over your working years. The more you’ve contributed, the more you’ll get in retirement. Your contributions are based on your earnings – you pay into CPP on your income between a minimum and maximum amount. In 2024, you contribute on income between $3,500 and $73,200.
You can split CPP with your spouse
If you’re married or in a common-law relationship, you might be able to split your CPP with your partner. This is called pension sharing. It doesn’t change the total amount of CPP you both receive, but it might help with taxes. This can be helpful if one person has a much higher pension than the other.
CPP includes disability benefits
CPP isn’t just for retirement. It also includes disability benefits for people who can’t work because of a severe and long-lasting disability. If you qualify, you can get monthly payments to help replace some of your lost income. These payments can continue until you’re able to work again or until you start receiving CPP retirement pension.
There’s a death benefit
When someone who has contributed to CPP dies, their estate might get a one-time payment. This is called the CPP death benefit. In 2024, the amount is $2,500. This money is meant to help with funeral costs.
CPP is portable within Canada
If you move to a different province or territory in Canada, your CPP goes with you. You don’t need to do anything special – your benefits will continue no matter where you live in Canada. This makes it easy to move around the country without worrying about your pension.
CPP has international agreements
Canada has agreements with many other countries about pensions. This means if you’ve lived or worked in another country, you might be able to count that time towards your CPP. These agreements can help people who’ve moved around get better pension benefits. It’s worth checking if you’ve spent time outside Canada.
CPP is separate from OAS
CPP is not the same as Old Age Security (OAS). OAS is another government pension, but it’s based on how long you’ve lived in Canada, not on your work history. You can get both CPP and OAS. They work together to provide income for seniors. Unlike CPP, OAS starts automatically when you turn 65 (if you’re eligible).
CPP contributions are increasing
The government is gradually increasing CPP contributions to provide higher benefits in the future. This started in 2019 and will continue until 2025. You might notice your CPP deductions on your paycheque going up a bit each year. The idea is that future retirees will get larger pensions to better support their retirement.
And for the fiction:
CPP will run out of money soon
Some people worry that CPP will run out of money, but this isn’t true. The CPP fund is actually in good shape. It’s managed by professional investors and is expected to be sustainable for at least 75 years. The government and financial experts keep a close eye on the fund to make sure it stays healthy for future generations.
You can’t work while receiving CPP
This is a common myth, but it’s not true. You can work and receive CPP at the same time. In fact, if you’re under 65 and working while receiving CPP, you’ll continue to contribute to the plan. These extra contributions will increase your pension amount.
CPP is enough to live on in retirement
While CPP is an important part of retirement income, it’s not designed to be your only source of money. The maximum CPP payment is much less than most people earned while working. It’s meant to be one part of your retirement income, along with things like personal savings, work pensions, and Old Age Security. It’s important to plan for other sources of income in retirement.
You get back exactly what you put into CPP
This isn’t quite how CPP works. While your benefits are based on your contributions, it’s not a simple one-to-one relationship. The calculation is complex and takes into account things like how long you’ve contributed and your average earnings. Some people might get back more than they put in, while others might get less. CPP is designed to provide a basic level of income for all contributors, not to be an individual savings account.
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