What You Should Know About the Canada Pension Plan
Did you know most Canadians don’t understand their pension plan? If you want to learn about the Canada pension plan (CPP), we can help.
This guide will explain the CPP and its relation to your retirement. You’ll learn about the death benefit and how to go about paying for a funeral.
Ready to learn more? Keep reading.
Origin of the Canada Pension Plan
In the 50s, the Old Age Security was a benefit paid to Canadians over 70. Now, it’s for those over 65. In 66′ the CPP was created to provide income for working Canadians after retirement.
The CPP is a mandatory program, and its origin is from the idea that people won’t save on their own. Once forced into an automatic savings program, Canadians will prepare for the future.
What Is the Canada Pension Plan?
The CPP is a monthly benefit that’s taxable. It’ll replace a part of your income upon retirement.
People who qualify will receive the CPP retirement pension until they pass. You need to be 60 years old or older and made a valid contribution to the CPP.
What is a valid contribution? It’s from work you completed in Canada. It includes receiving credits from a common-law partner or spouse at the end of the relationship.
Paying Into the CPP
There aren’t many exceptions to this rule. You’ll pay into the Quebec Pension Plan (QPP) if you’re in Quebec. But people over 18 who earn over 3500 a year need to pay into the CPP.
You and your employer will contribute half of the contributions. Yet, you will need to cover both amounts if you’re self-employed. The payment will be based on your employment earnings.
If you’re self-employed, the amount’s based on your net business income, post-expenses.
You’ll pay contributions on the annual earnings between a minimum and maximum level. The last level is 3500, and the top-level get adjusted each January.
The adjustment will be based on increases in the average wage. It’s called your pensionable earnings.
How Do You Receive CPP?
Unfortunately, CPP payments aren’t going to arrive at your mailbox or bank account. You will need to apply for the benefit. Apply in advance, so it starts at an optimal time when you retire.
You’ll also need to decide what age you will apply. If you need help with the application, call a relative or friend. This way, they can help you complete the application.
What Amount Will You Receive?
Your CPP amount gets determined by your average earnings throughout your working life. The age you started your CPP retirement pension affects the number of contributions to the CPP.
Most people will begin getting their CPP at 65. However, you could wait until you are 70 or start when you’re 60. If you choose to get your pension at 60, the amount will be smaller each month.
If you choose to receive your CPP when you’re older, you’ll get a more significant monthly payment.
Other factors can affect the amount you receive. Taking time off to care for your young children is one of those factors.
Does the Application Process Take Long?
The government will process your online application within two weeks. For applications delivered at a Service Canada Center, it’s usually within 120 days. The same is estimated for mail applications.
Expect to experience delays if you’re missing information on your application.
What Will Happen if You Die?
If you pass, the government maintains that benefit payments must be canceled.
Yet, a common-law partner or spouse might become eligible to receive the pension. Payments will depend on their age and if they receive other CPP benefits. A dependent child could receive CPP children’s benefits.
Sometimes, a lump-sum death benefit will go to the beneficiary’s estate. Learn more about the CPP funeral benefit. Planning ahead will help you protect your family from dealing with major bills from the funeral.
What About Other CPP Benefits?
Some people will qualify for more CPP benefits. You will still need to apply for them. You should spend time researching the other benefits.
If you’re unsure, you could always ask a tax specialist.
When Should You Take Your Retirement Pension?
Before you choose to take your CPP pension, you should think about a few different factors.
Find out how your age will end up affecting the payment. Will you plan to work still while you receive the pension? Have you been contributing to your CPP?
You should also take into consideration your investments and personal savings. Do you have a company pension plan?
When you plan for retirement, you should also think about your future lifestyle. What would you like to do when you’re retired? Do you have any family health history issues or disabilities?
Will you have other income arriving from different sources? Some people will have rental income from properties or different investments.
Try to plan for your retirement effectively. Work with a reputable financial advisor who can help you begin creating a plan.
Retirement and the Canada Pension Plan
We hope this guide on a Canada pension plan was helpful. Learn about the different benefits you could get upon retirement. Work with a reputable tax accountant if you feel a bit lost.
Begin thinking about your retirement and what you envision. Set aside extra savings, and determine if you’ll work while receiving the CPP.
Are you looking for more financial tips? Check out our blog. We have an investment section to help with planning the next phase of life.
