MP Cheryl Gallant, Renfrew-Nipissing-Pembroke, reminds constituents that from 2011 to 2016, the Canada Pension Plan (CPP) is gradually changing.
“The changes our Government has made to the CPP are to ensure the plan remains fair and sustainable,” stated MP Gallant. “If you notice a change with your CPP benefit, or deduction, and would like to know more about how these changes may impact any retirement planning, I encourage you to contact my office for details.”
Starting in 2012, if you are under age 65 and you work while receiving your CPP retirement pension, you and your employer will have to make mandatory CPP contributions. These contributions go towards the new Post-Retirement Benefit (PRB), which is effective January 1 of the year following your PRB contribution. This additional benefit will be added to your current retirement benefit, gradually increasing your retirement income. Before the change, if you were receiving a CPP retirement pension and working, regardless of your age, you did not pay CPP contributions.
Starting in 2012, if you are age 65 to 70 and you work while receiving your CPP retirement pension, you can either choose to make CPP contributions or you can opt out of making these contributions. If you decide to make the contributions, your employer will also have to make CPP contributions. These contributions will allow you to continue to build your CPP Post-Retirement Benefit, even if you are already receiving the maximum CPP pension amount. Before the change, if you were receiving a CPP retirement pension and working, regardless of your age, you did not pay CPP contributions.
Starting in 2012, the percentage of low earnings will increase to 16%, allowing up to 7.5 years of your lowest earnings to be dropped from the calculation, which will likely increase your benefit amount. In 2014, the percentage will increase again to 17%, allowing up to 8 years of your lowest earnings to be dropped from the calculation. Before the changes, when Service Canada calculated your average earnings over your contributory period, 15% of your lowest earnings were automatically dropped. This is called the “general drop-out provision.” Under this provision, up to 7 years of your lowest earnings were automatically dropped from the calculation of your average earnings. This change benefits all CPP contributors who are eligible for CPP benefits in 2012 or later.
These changes to the CPP may affect your retirement planning, including when you decide to apply for your CPP retirement pension. How the changes to the CPP affect you will depend on your age, your work history, and when you plan to retire. The CPP, which is designed to replace about 25% of your average pre-retirement employment earnings up to a maximum amount, is one part of your retirement plan. The other components of retirement income include the Government of Canada’s Old Age Security (OAS) pension, employer pension plans, and personal savings and investments.