government website
official CPP Payment Rates

The Canada Pension Plan took effect on Jan 1, 1966.

• fully funded by contributions from employees, employers and investment income from those contributions
  • not funded from general tax revenues
  • follows same investment rules as other pension plans
• compulsory participation
• no clawback: ignores other assets and income
  • however, other benefits may be reduced: Guaranteed Income Supplement, the Allowance, disability insurance, Workers' Compensation

There are three types of benefits

1. retirement
2. disability
   • includes benefits for children of disabled contributors
3. survivor
   1. death benefit
   2. survivor's pension
   3. children's benefits

Notes

• tax deductible contributions
• benefits are taxable to the recipient
• benefits portable between employers
• compulsory participation
• inflation protection: benefits linked to CPI and adjusted each January
  • the death benefit is not indexed
• you must apply for benefits (payment is not automatic)

Retirement Benefit

• 25% of Average Maximum Pensionable Earnings (AMPE) at age 65
• if not 65, adjust by 0.5% per month (6% per year, max ±5 years)
• for early benefits, must prove that
  • no longer employed, or
  • income below CPP benefit (below the YBE?)

can benefits be delayed beyond age 70?

Equations

Disability Benefit

• one of the government disability income plans
• if severe and prolonged

• for the disabled and their children or orphans
• qualification
  • contributions for a specified time (four of the last six years)
  • earned income requirement (minimum of 10% of the YMPE)
  • meet the definition of disability (restrictive)
    • a physical or mental disability which is both
      • severe: unable to work at any occupation
      • prolonged: long-term or fatal
  • younger than age 65
  • apply in writing
• you must continually prove that you are still disabled
• the benefits are fixed amount, adjusted each January 1 for CPI
  • also paid to your dependent children (under age 18, or age 18-25 and in school full time)
  • no spousal benefit
• benefits end at age 65 when the CPP retirement pension starts
• elimination period: 4 months
• you may also be able to receive benefits from individual disability insurance

Survivor Benefit

Death Benefit

• lump sum = min{$2500, 6 x monthly pension at age 65}
• taxable to recipient (if paid to estate, then taxable to deceased)

(payable only to the estate of the contributor?)

Other Survivor Benefits

• paid to spouse or orphan
• 60% of maximum retirement benefit at age 65

Sharing Benefits

CPP benefits can be shared in three ways

Assignment

• redistributes income from CPP pension(s)
• when only one spouse contributed to the CPP and both spouses are 60+
• ends upon
  1. divorce
  2. if non-contributing spouse becomes contributor
  3. on death of either spouse
  4. one year after separation

Divorce or Separation

• can divide pensionable earnings equally
• apply within three years of date of marriage breakdown

Death

* spouse can apply for Surviving Spouse’s pension; benefit depends on various factors
* child can receive monthly Children’s Benefit to age 18 (can continue with proof of full-time attendance at postsecondary institution)
* benefit adjusted annually
* two benefits if both parents were CPP contributors

Splitting Pension Income

Spouses can split their pension income (each gets and pays tax on half the couple’s pension income)

• 50/50 credits splitting required upon divorce or annulment (unless prenuptial agreement) and upon request if common-law
  • each gets half the credits earned while a couple

Contributions

• jointly funded by contributions from
  • employees (tax credit)
  • employers (tax deduction)

• contributions made based on income from the age 18 to retirement (min 60, max 70)
  • contributions stop at the earliest of
    • the date you start receiving CPP retirement benefits
    • when you reach age 70, even if you are still working
    • upon your death

No contributions are required while you are receiving CPP disability benefits

Contribution Rates

government website

Contributions are based on Pensionable Earnings

• minimum: $3,500 (1996-2006)
  • called the Year's Basic Exemption (YBE)
• maximum: $42,100 (2006)
  • called the Year's Maximum Pensionable Earnings (YMPE)
  • adjusted each January, based on increases in the average wage

The contribution rate is 9.9% (2003-2006)

• if you are employed, you and your employer each pay 4.95%
• if you are self-employed, you pay both portions, which is 9.9%
  • based on net business income (after expenses)

Contributions explained differently (integrate above)

• contributions made by employer and employee (self-employed pay both portions)
  • 2005: 4.95% each → 9.9% total
• based on employment earnings between Year's Basic Exemption (YBE) and the Year's Maximum Pensionable Earnings (YMPE)
  • 2005: YBE = $3,500 and YMPE = $41,100
• employer contribution is tax deductible
• employee contribution is tax deductible (receives a 16% federal tax credit)
• contributions are made from age 18 until the of the earlier of the start of the CPP benefits, age 70 or death