The Canada Pension Plan (CPP) provides retired individuals with monthly taxable income. The amount provided will depend on a few factors, and there are some things to consider before applying for a pension. The following is what you want to know before beginning the application process.
Step #1: Make Sure You Qualify
In Canada, there are two minimum requirements for an individual to qualify for CPP. These requirements include:1
- The minimum age to qualify is 60 years old.
- At least one contribution made to the Canada Pension Plan must have been. Contributions can come from work performed in Canada or contribution credits from a past spouse or common-law partner.
Individuals who have worked in Québec may receive a different pension plan. It will depend on their circumstances and a requirement to meet an alternative set of qualifications.1
Step #2: Understand How Monthly Payments Are Determined
Monthly payments provided by the CPP are not standardized and will depend on three primary factors and several secondary factors.
Primary factors include:2
- Age at the time you start to receive pension plan payments.
- How long and how much you paid into the CPP.
- Your average earnings while working.
In addition, the secondary factors that impact monthly payments will depend on personal circumstances.
These factors include:2
- If you're working while receiving CPP payments (until the age of 70), it may increase your payment.
- Contributions made after age 65.
- Periods of reduced or no salary may impact payments. To help, the Canada Revenue Agency (CRA) will exclude up to eight years of a low-income period from your final pension payment calculation.
- Periods in which you were raising children under the age of seven.
- Whether you received disability payments or have been disabled.
- ShaYou are sharing your pension.
- You have been divorced.
Step #3: Decide When to Receive Payments
One of the biggest factors to consider when applying for the CPP is the age at which you will begin receiving payments.
Individuals have the option to start receiving payments at age 60, but there will be a penalty for doing so. That penalty is a 0.6 percent reduction to your monthly payments (or 7.2 percent a year). This reduction will continue until it hits a total of 36 percent, or the individual reaches age 65.3
Alternatively, those who decide to wait to receive their pension after age 65 will receive a monthly payment increase of 0.7 percent, totalling 8.4 percent a year. This increase will continue until this benefit reaches 42 percent or the individual reaches age 70.3
Step #4: Submit Application
Once you’ve determined eligibility and understand what impacts your monthly pension payments, it is time to apply for the CPP. There are two primary ways to apply to the CPP, online or through a paper application.4
Online applications are the fastest option. Some individuals, however, may be required to fill out a paper application if they:
- Received any CPP payment in the past.
- Have been denied CPP in the past.
- Do not live in Canada.
- Utilize a third party to manage their pension.
The Canada Pension Plan can provide retired individuals with a monthly payment to assist them in their retirement. However, before applying for the pension, individuals should cover these four steps with their financial advisor to help ensure they applying at the right time for their individual needs.
Please consult financial, legal, or tax professionals for information specific to your situation. The information and material presented are general, may have changed since the published date shown, and should not be considered financial advice. LetsPlan.ca is published in Canada exclusively for residents of Canadian jurisdictions where our products and services may be legally offered. The services offered within this site are available exclusively through our Canadian advisors. While we often provide original content, Twenty Over Ten initially provided the subject matter for this post. It has since been edited, reviewed and approved by our Privacy and Compliance Officer. Advisors may only conduct business with residents of the province(s) in which they are licensed and registered.