Changes to Canada Pension Plan (CPP)
About the Author: Wilson Wong PC, are Chartered Accountants in Calgary providing tax and accounting services to small and medium sized businesses and high networth individuals.
If you are over the age of 58 this year and you have not yet received Canada Pension Plan (CPP) benefits you may likely be thinking about it. Recently, there have been changes to how CPP benefits work.
In the past if you reached the age of 60 you may apply to start receiving CPP benefits early. Once you started receiving benefits you could have continued to be employed and not have to make further contributions to CPP. As a result of the changes, if you are between the ages of 60 to 65 and continue to work you will need to continue to contribute to CPP even if you are receiving CPP benefits.
If you are past 65 years old and receiving CPP benefits, you still need to contribute if you’re working but you may option out of paying at 65 using this form: http://www.cra-arc.gc.ca/E/pbg/tf/cpt30/. At age 70 you will no longer have any further contribution obligations to CPP.
Under the old CPP system if you elected to start receiving CPP benefits early, for example age 60, then the benefits are reduced by 30% (0.5% per month earlier than age 65). With the new changes that reduction on benefits will be as much as 36%.
Also under the old CPP system if you elected to start receiving benefits past 65 years old to receive CPP benefits you could maximize your benefits up to 130% of your entitlement. However, in the new system you could gain up to 142% of your normal entitlement for deferring to age 70.
As you can see the new rules are made to encourage further contribution to the Canada Pension Plan. Most of you would calculate your own personal break even point to decide what you think is the most ideal age to start receiving CPP benefits. You need to consider if you are going to continue to work past the age of 60 as this is the biggest change of all. You also need to consider whether the amount you expect to receive is a significant source of post-retirement income; since the delayed receiving of benefits have a much higher upside now.
Should you have any further questions do not hesitate to email me or call me at the office.
-Wilson Wong, Chartered Accountant