Canada Pension Plan (CPP)

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

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


  • 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?

Monthly Benefit Average (Oct 2006) Maximum (2007)
Retirement pension (at age 65) $473.09 $863.75


\begin{align} Total \, Pensionable \, Earnings = \sum Pensionable \, Earnings \end{align}
\begin{align} Average \, Monthly \, Pensionable \, Earnings = \frac{Total \, Pensionable \, Earnings}{max[Months \, of \, Contributions,120] } \end{align}
\begin{align} Monthly \, Retirement \, Pension = \frac{Average \, Monthly \, Pensionable \, Earnings }{4 } \end{align}
\begin{align} Monthly \, Retirement \, Pension = (Average \, Monthly \, Pensionable \, Earnings)/4 \end{align}

Disability Benefit

Monthly Benefit Average (Oct 2006) Maximum (2007)
Disability benefit $772.88 $1,053.77
  • 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
Employer-paid Premiums Employee-paid Premiums Benefits
??? tax credit taxed as income

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?)

Lump Sum Benefit Average Lump Sum (Oct 2006) Maximum Lump Sum (2007)
Death Benefit $2,227.82 $2,500.00

Other Survivor Benefits

  • paid to spouse or orphan
  • 60% of maximum retirement benefit at age 65
Monthly Benefit Average (Oct 2006) Maximum (2007)
Survivors benefit (under age 65) $347.89 $482.30
Survivors benefit (age 65 and over) $293.75 $518.25
Children of disabled contributors benefit $200.47 $204.68
Children of deceased contributors benefit $200.47 $204.68
Combined survivors & retirement benefit (pension at age 65) $667.48 $863.75
Combined survivors & disability benefit $911.00 $1,053.77

Sharing Benefits


CPP benefits can be shared in three ways


  • 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


* 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


  • 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

PS Network

Market Better
twitter.png Twitter
blogger.png Blog
marketingreflections.png Newsletter
Spark Insight
website.png Website
Grasp Risk
twitter.png Twitter
blogger.png Blog
website.png Podcast
website.png Website
Tame Risk
website.png Taxevity
Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License