Canada Pension Plan (CPP): it can pay to wait

Who is eligible for the CPP pension? 

Anyone who has made at least one contribution to the CPP. Contributions could have been made while you were employed, or could be a credit from a former spouse (for example, when dividing up family assets following a separation). 

You must contribute to the CPP as soon as you are 18 and have income that exceeds $3,500. That means lots of workers in Canada contribute to it, with one big exception.  

Workers in Quebec do not contribute to the CPP. Instead, they contribute to a similar program, the Quebec Pension Plan (QPP). If a Quebec resident has worked in other provinces and contributed to the CPP, their contributions will be taken into account by Retraite Québec when their QPP benefits are calculated. 

Work abroad 

If you lived and worked in another country and Canada has a social security agreement with that country, you could be eligible for a CPP retirement pension. Refer to this Government of Canada website to learn more. 

How much could you receive?  

You can get an estimate of your CPP pension for the current year or view a copy of your Statement of Contributions by logging into your My Service Canada Account. The better informed you are, the better you can plan your retirement.  

When should you apply for the CPP pension? 

You can start receiving your CPP pension as early as age 60, whether or not you are still working. However, the amount of your pension varies according to your age when you apply:

• As of 60 (until 65): You’ll receive a reduced amount 
• At 65: You’ll receive your full pension 
• After 65 (until 70): You’ll receive a larger amount (over 100%) 

The amount of your pension is also based on your average income throughout your life and your contributions to the CPP. 

If you take your pension before 65, it will be reduced 

If you apply for your pension before 65, your payments will be reduced by 0.6% for each month until you turn 65. That represents: 

• A reduction of 7.2% if you’re 1 year away from 65  
• A reduction of 36% if you’re 5 years away from 65

However, taking your CPP pension early can be justified in some situations. For example: 

• If your savings or other income do not allow you to maintain your quality of life  
• If you cannot keep working 
• If you have a reduced life expectancy because of your health or family history 

At death: Your spouse could be entitled to the CPP survivor’s pension. 

If you take your pension after 65, it will be increased 

If you apply for your Canada Pension Plan pension at 65, you’ll receive the full amount. But most people find it beneficial to delay payment after 65. Read on to find out why. 

• The main reason: your payment amount will increase by 0.7% per month, or 8.4% per year. If you wait until 70, you’ll receive a pension that is 42% higher. 
• Longevity. The CPP pension is payable until you die. If you have a good life expectancy, it’s better to wait until you become less employable. It’s often easy to make up a reduction in income by working a bit before you’re 70. 
• It’s indexed for inflation. While inflation is a major factor to consider when calculating retirement income, the CPP benefits are fully indexed. They’re adjusted for inflation no matter when you start receiving them. 

How much could you receive?

That depends on your average earnings throughout your working life and how much you contributed as well as your age. The federal government has tools to help you: 

• The Canadian Retirement Income Calculator to estimate your retirement incomes 
• The Government of Canada website to learn the average and maximum monthly payment amounts for the current year of a CPP pension taken at 65 

Your decision is final

Important: Regardless of when you apply for your pension, your decision cannot be changed. So it’s important to think about it carefully and make it part of planning your retirement finances. 

A word of advice to get the most from your Canada Pension Plan benefits: consult a financial planner for help determining the best option for your retirement. 

What is the Post-Retirement Benefit (PRB)? 

If you continue to work while receiving your CPP retirement pension, you can continue to participate in the Canada Pension Plan. Your CPP contributions will go toward post-retirement benefits (PRB) that will increase your total CPP retirement pension.

A popular supplement: The PRB is also interesting for people who decide to go back to work. 

How do you apply for the CPP pension? 

You will not be automatically paid the CPP pension. You have to apply for it on the Government of Canada website.  

It is recommended that you apply in advance. Online applications can take 7 to 14 days to process. Applications made in person or by mail can take up to 120 days to process. 

Your pension payment  

Your payments can be deposited directly to your bank account every month if you have signed up for direct deposit with Service Canada. You can choose to receive a cheque by mail during the last 3 business days of each month. For more information, refer to the payment dates on the Service Canada website. 

Apply for other government pensions 

The CPP pension is not the only retirement income available to you. If you have RRSPs they will eventually be converted to RRIFs to provide income. Some people may also have a pension plan from their employer. There are also other government benefits such as: 

• The Old Age Security (OAS) pension. If you meet the government’s eligibility criteria, you could start receiving this pension as of 65 (even if you’re still working). But be warned: unlike the CPP pension, the OAS can be reduced and even clawed back entirely depending on your income. You can choose to defer it in order to increase it (to a maximum increase of 36% if wait until you’re 70). Read our article Old Age Security in Canada (OAS). 
• The Guaranteed Income Supplement (GIS). The GIS is added to the OAS pension of low-income Canadians aged 65 and over. To learn more, read our article What is the Guaranteed Income Supplement (GIS)?  

The Canada Pension Plan retirement pension is just one of the sources of income available to help you reach your retirement goals. Because the age at which you apply for the CPP pension or start drawing down your savings depends on several factors,  be sure to consult specialists so that you make choices that are right for you.