By Sheryl Smolkin
A pension from the Canada Pension Plan (CPP) is an important foundation on which most Canadians will build their retirement income. Therefore it is important to understand how much you will be entitled to at retirement.[i]
The maximum monthly amount you can receive if you retire at age 65 in 2015 is $1,065. Service Canada reports that in October 2014 the average pension for new beneficiaries was $610.57. That’s because applicants only got a full pension if they contributed the maximum amount up to the Yearly Maximum Pensionable Earnings (YMPE) for at least 40 years between ages 18 and 65.
The YMPE in 2014 was $52,500 and it increased to $53,600 in 2015. Therefore this year the maximum CPP contribution for both employers and employees is $2,479.95. Self-employed people must remit up to $4,959.90. If you earn more than the YMPE you will notice a “salary bump” part way through the year once you have made maximum CPP (and Employment Insurance) contributions.
CPP offers protection against periods where you had reduced or zero earnings for general reasons (up to eight years) or child-rearing by automatically dropping a number of months of your lowest earnings when calculating your CPP benefit. You can start collecting CPP at age 60 but your annual pension will be reduced by .58% per month prior to age 65 (rising to .6% per month in 2016). If you take an early CPP pension and go back to work, you must continue to pay into the plan until at least age 65. CPP contributions for working Canadians over age 65 are optional until age 70.
When you are already receiving a CPP pension, contributions between ages 60 and 70 increase your benefit by a lifetime Post-Retirement benefit (PRB). The maximum annual PRB you can earn in 2015 is $319.56 and it will be added to your benefit payments in the next year.
CPP uses a Statement of Contributions to keep a record of your pensionable earnings and your contributions to the Plan. The Statement of Contributions can assist you in your retirement planning.
Your statement shows your total CPP contributions for each year and the earnings on which your contributions are based. If you contributed the maximum there will be a letter “M” beside the year. In addition, it provides an estimate of what your pension or benefit would be if you and/or your family were eligible to receive it now.
You can also request a hard copy of your statement from:
Contributor Client Services
Canada Pension Plan
PO Box 9750 Postal Station T
Ottawa ON K1G 3Z4
Table 1: CPP Contributions and Benefits
|CONTRIBUTION AND BENEFIT LEVELS|
|Year’s Maximum Pensionable Earnings||$52,500.00||$53,600.00|
|Contribution Rate – Employee/Employer||4.95%||4.95%|
|Maximum Contribution – Employee/Employer||$2,425.50||$2,479.95|
|Year’s Basic Exemption||$3,500.00||$3,500.00|
|RETIREMENT BENEFIT MAXIMUM|
|Monthly pension on retirement during the year at age 65||$1,038.33||$1,065.00|
|OTHER BENEFIT MAXIMA|
|Monthly Survivor’s Benefit|
|Spouse age < 65||$567.91||$581.13|
|Spouse age = 65||$623.00||$639.00|
|CPP Flat Rate Component:
|Monthly Disability Benefit|
|Flat rate component||$457.60||$465.84|
|Lump Sum Death Benefit||$2,500.00||$2,500.00|
|Deceased/Disabled Contributor’s Child Benefit||$230.72||$234.87|
* This figure represents the Year’s Maximum Pensionable earnings minus the Year’s Basic Exemption.