Find A Financial Advisor

The following is extracted from the Canada Revenue Agency. For the full article click here

What benefits does the Canada Pension Plan provide?

There are three kinds of Canada Pension Plan benefits:

• the retirement pension;

• disability benefits (for disabled contributors and their dependent children); and

• survivor benefits (including the death benefit, the survivor’s pension and the children’s benefit).

The CPP operates throughout Canada. The province of Quebec administers its own program with similar benefits, the Quebec Pension Plan (QPP), for workers in Quebec. The two plans work together to ensure that all contributors are protected, no matter where they live.

How is the Canada Pension Plan financed?

The CPP is a “contributory” plan. This means that all its costs are covered by the financial contributions paid by employees, employers and self-employed workers, and from revenue earned on CPP investments. The CPP is not funded through general tax revenues.

What is the CPP Investment Board?

The CPP Investment Board was created to operate at arm’s length from the federal and provincial governments. The Board’s qualified professionals invest CPP funds in financial markets, broadly following the same investment rules as other pension plans. The Board is accountable to the public and regularly reports its investment results.

Who pays into the CPP?

With very few exceptions, every person in Canada over 18 who earns more than the basic exempted amount ($3,500 per year) must pay into the CPP (or the QPP in Quebec). You and your employer each pay half the contributions. If you are self-employed, you pay both portions.
You do not make contributions if you receive a CPP or QPP disability benefit or retirement pension. At the age of 70, you stop contributing even if you have not started your retirement pension.

How much do I pay into the CPP?

The amount you pay is based on your employment earnings. If you are self-employed, it is based on your net business income (after expenses). You do not contribute on any other type of income, such as investment earnings. If, during a year, you contributed too much or earned less than a set minimum amount, you receive a refund of excess contributions at income tax time.
You pay contributions only on your annual earnings between the minimum and a maximum level (these are called “pensionable” earnings).
The minimum level is frozen at $3,500. The maximum level is adjusted each January, based on increases in the average wage. In 2004, the maximum level is $40,500.

Why are my contributions important?

The CPP uses your contributions to determine whether you or your family are eligible for a benefit and, if so, its amount. Both how long and how much you contribute (up to the maximum each year) are factors.
Normally, the more you earn and contribute to the CPP over the years, the higher your benefit will be (when you become entitled) because you have built up more CPP pension credits.
Your CPP credits can also be affected by “credit splitting”

What is my “contributory period” and how is it used?

The time when you may contribute to the CPP is called your “contributory period”. It is used in calculating the amount of any CPP benefit to which you are entitled. You do not contribute while you receive a CPP disability benefit, but this time is excluded from your contributory period, which increases your future benefits.

If I had some low-earning years, will that reduce my pension?

CPP calculations include both how much and for how long you contributed. To keep your pension as high as possible, the CPP drops out some parts of your contributory period from the calculation:

• periods when you stop working or your earnings are lower while you raise your children under the age of seven;

• months after the age of 65 (which can be used to replace any low-earning months before 65);

• any month when you were eligible for a CPP disability benefit;

• the 15 percent of your contributory period in which your earnings were lowest.

How does the CPP keep track of my contributions?

Since its implementation in 1966, the CPP has kept a record for each person who pays into the Plan, and for people who pay into both the CPP and QPP. The information is supplied through the Canada Revenue Agency and Revenu Québec.
It is important that you check your T4 slip (the statement of earnings you receive from your employer each year) to make sure your name and social insurance number (SIN) are the same as they are on your SIN card. If they are not, your CPP contributions may not be credited to your CPP record. This could mean not getting benefits to which you are entitled. If you change your name or lose your social insurance card, you should contact your local Human Resource Centre of Canada as soon as possible. It is listed in the Government of Canada section of most phone books.

How do I find out how much I have contributed?

You can review your CPP Statement of Contributions each year. Your Statement shows, year by year, the total amount of your CPP contributions, and your “pensionable”, on which they are based. It also provides an estimate of what your pension or benefit would be if you were eligible to receive it now.
Check your Statement carefully, particularly your earnings and contributions. You should compare these amounts to any previous T4 (income tax) slips. If you disagree with any of the figures, contact us immediately. A discrepancy could affect the amount of your future CPP benefits.

What are CPP “pension credits”?

The CPP records your contributions over the years as “pension credits”.
Generally, the more credits you have, the higher your CPP benefits will be.

What is “credit splitting”?

When a marriage or common-law relationship ends, the CPP credits built up by a couple while they lived together can be divided equally between them. These credits can be split even if one spouse or common-law partner did not pay into the CPP.

Credit splitting can affect the CPP entitlements of both former spouses or common-law partners. For more information, contact us and ask for the CPP booklet, Credit Splitting Upon Divorce or Separation.

What happens if I pay into the Quebec Pension Plan (QPP)?

Which plan you pay into (CPP or QPP) depends on where you work, not where you live. If you work in Quebec, you pay into the QPP. If you work in any other province or territory, you pay into the CPP. Depending on where you work over the years, you may pay into both plans.
The two plans provide the same benefits. If you pay into only one of the plans, you apply to that plan for your pension or benefits.

If you have contributed to both the CPP and QPP, you apply to the QPP if you live in Quebec when applying for a benefit and to the CPP if you live elsewhere in Canada when you apply.

If you live outside Canada, you apply according to the last province in which you lived before you left the country.
Regardless of which plan pays your benefit, the amount is calculated according to your contributions to both plans and the legislation of the plan responsible for paying you.

What if I lived or worked in another country?

Canada has international social security agreements with many countries. These agreements can help you get pensions or benefits from another country and Canada. If you did not live or work long enough in another country to qualify under its rules, the time you spent there may be added to your time in Canada to enable you to meet eligibility requirements.

If you have lived or worked in another country, you should contact us for more information.

Can my payments be deposited directly to my bank account?

Yes. You can obtain direct deposit forms from Social Development Canada, as well as from many banks, caisses populaires, credit unions and trust companies. Or you can contact us. If your payment comes by cheque, it usually arrives during the last three banking days of each month. If you have direct deposit, the money will be deposited in your account during the last three banking days of each month.

Can I receive CPP payments outside Canada?

Yes, as long as you are eligible to receive a benefit, you can receive your payment anywhere in the world. Most recipients will receive their cheque in the local currency of their country of residence.

Do I get cost-of-living increases?

Yes. Your CPP payments are indexed to the cost of living. Payments are adjusted in January, if needed. Payments will not decrease if the cost of living goes down.

What if someone is incapable of applying?

If, because of illness or infirmity, someone is incapable of applying for a CPP pension or benefit, a representative can apply on his or her behalf.