The three kinds of CPP benefits are:
- Disability benefits (which includes benefits for disabled contributors and benefits for their dependent children);
- Retirement pension;
- Survivor benefits
CPP is available throughout Canada, but Quebec has its own similar program called Quebec Pension Plan or QPP. CPP and QPP work together to ensure all contributors are protected.
Every person in Canada over the age of 18 who earns a salary must pay into CPP. You and your employer each pay half of the contributions. If you are self-employed you all the whole amount.
The amount you pay into CPP is based on your salary. If you are self-employed, it's based on your net business income. Investment income does not count in calculating your contribution.
Your contributions is based on your annual earnings between the minimum and the maximum level called your "pensionable" earnings. The minimum level is frozen at $3,500 and the maximum level is adjusted every January, based on the increases in average wage.
The "contributory period" is the total span of time during your life when you may contribute to CPP. It is used in calculating the amount of CPP benefit to which you will be entitled. It begins when you reach 18 and until you begin to receive your retirement pension, age 70 or die whichever is first.
The calculation of your CPP benefit is based on how much and how long you contribute. The age at which you choose to retire also affects the amount you receive. Also, during periods of low income, you will contribute less so your benefit could be less. Some parts of your contributory period can be dropped out of the calculation. Examples would be when you stopped working or had lower earnings when you were raising your children under the age of seven, any month you were eligible for CPP Disability, etc.
When you die, some of your CPP benefits are paid to your spouse. A spouse for CPP purposes is someone to whom you are legally married. "Common-law partners" is defined as two people, regardless of sex, who have lived together, in a conjugal relationship for at least one year.
CPP benefits are adjusted every January if there is an increase in the cost of living as measured by the Consumer Price Index. The average monthly retirement pension in 2004 was $457.99.
CPP payments are taxable income and each year you will receive a T4A(P) slip showing the CPP payments you received during the previous year.
Provided you meet all the CPP eligibility conditions, payments can be made anywhere in the world in the local currency or in Canadian dollars.
Your retirement pension normally starts the month after you turn age 65. But you can start receiving your pension as early as age 60 or anytime up to age 70. CPP adjusts the amount you receive by 0.5 percent for each month before or after your 65th birthday from the time you receive your pension. The adjustment is permanent, so if you choose to start your pension early, the payment does not increase when you reach 65.
For example, if you start getting your benefit at age 60, you will received 30 percent less and if you wait until age 65. If you start your pension at age 70, your benefit will be 30 percent higher than if you start at age 65. By starting at age 60 though, you're more likely to receive your beneift for a longer time. There is no financial benefit in delaying receiving your pension after the age of 70.
For more information visit the Human Resources and Social Development Canada website.
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