CPP – Changing Pension Policies

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Many Canadians are choosing to change the way they live, how long they work, and when they are going to retire.  Therefore, to ensure their benefits stay fair and sustainable, the Government of Canada has adapted the Canada Pension Plan (CPP) to the evolving needs of Canada’s aging population.

The question on everyone’s mind is, “Will I be affected?”  Unless you started receiving a CPP retirement pension on or before December 31, 2010 and remain out of the workforce, then, yes, you will be affected.

Changes to the CPP are as follows:

  • Your monthly CPP retirement pension amount will increase by a larger percentage if you take it after age 65:  0.7% up from 0.5% per month that you delay receipt after age 65.
  • Your monthly CPP retirement pension amount will decrease by a larger percentage if you take it before age 65:  0.6% up from 0.5% per month that you are in receipt of your CPP retirement pension before age 65.
  • If you are under 65 and work while receiving your CPP retirement pension, you and your employer will have to make CPP contributions.  Prior to the changes, if you were in receipt of the CPP retirement pension and working, regardless of your age, you did not make CPP contributions.
  • If you are between the ages of 65 and 70 and work while receiving your CPP retirement pension, you elect whether or not to make CPP contributions.  As noted, prior to the changes if you were in receipt of the CPP retirement pension and working, regardless of your age, you did not make CPP contributions.
  • The number of years of low or zero earnings that are automatically dropped from the calculation of your CPP pension will increase.  In calculating average earnings, up to 7.5 years of your lowest earnings are eligible to be dropped from the calculation, increased from 7 years.
  • You will be able to begin receiving your CPP retirement pension without any work interruption.  Prior to the changes, if you decided to take your CPP before age 65, you had to stop working or significantly reduce earnings for two months known as the “work cessation test”.  This period no longer applies and your CPP can be taken as early as age 60 without work or earnings reduction.

The most notable changes are the mandatory contributions for working individuals 60 to 65 years of age, as well as the elective option for working individuals 65 to 70 years of age.  If you are working, between the ages of 65 and 70, and do not wish to make CPP contributions starting January 2012, you must file a CPT30 election form with the Canada Revenue Agency and with your payroll department in December 2011.  If, once you have elected to cease CPP contributions, you choose to restart contributing in the future, a new CPT30 form must be completed and filed to revoke your previous election.  Only one CPT30 form can be used per individual per calendar year.

If you have questions about changes to the CPP retirement pension, filing a CPT30 election form, or just want to chat, give us a call. We would be happy to hear from you.