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Tax Article

CPP Retirement Benefits

Published: 2012-01-05

Starting January 1, 2012 the new Canada Pension Plan rules take effect.

If you are between 60 and 65 years of age, working and earning pensionable income you are now required to contribute to CPP while collecting retirement benefits. It is not optional.

If you are between the ages of 65 and 70 years, working and earning pensionable income and collecting retirement benefits, you have the option of either continuing to contribute or you can make the election to stop contributing. To stop contributing you must file the election on form CPT30. Form CPT30 must be filed with the employer and Canada Revenue Agency.

Under the current rules (before January 1, 2012) pension benefits started before age 65 were reduced by 0.5% per month under age 65. If an individual started collecting at age 60 the pension benefits were reduced by 30%. Similarly under the current rules CPP pension increased by 0.5% for each month after age 65 (up to age 70) that you delayed receiving it. If you started receiving your pension at age 70, your pension amount was 30% more than it would have been at age 65.

Under the new rules, starting January 1, 2012 where pension benefits are started before age 65 the reduction in benefits will go up until they are fully implemented in 2016. The reduction will be 0.6% per month by 2016 and is being gradually implemented starting January 1, 2012. If pension benefits are started at age 60 under the new rules pension benefits will be reduced by 36%.

From 2011 to 2013 pension benefits will gradually increase from 0.5% per month (6% per year) to 0.7% per month (8.4% per year). This means if contributors start receiving their CPP pension at the age of 70, their pension amounts will be 42% more than if taken at age 65.

However those already collecting Canada Pension retirement benefits and are not 65 years of age are not subject to the increased reduction in pension benefits under the new plan. They will also be entitled to the Post Retirement Benefit that will be calculated starting in 2013 providing they continue working and contributing to the plan in 2012.

Those already receiving CPP retirement pension, the contributions you make to the CPP will go toward the Post Retirement Benefit (PRB). PRB is a new lifetime benefit that increases your retirement income and rises with increases in the cost of living, even if you already draw the maximum pension from Canada Pension.

Anyone who started receiving Canada Pension retirement benefits before December 31, 2010 and remain out of the workforce will not be affected by these changes.

These amendments to Canada Pension retirement benefits do not affect an employee receiving Canada Pension disability benefits nor do they affect an employee who has already reached 70 years of age.

CPP retirement pensions will be higher if taken after age 65

Year % monthly increase
2011 0.57
2012 0.64
2013 0.70

CPP retirement pensions will be lower if taken before age 65
Year % monthly reduction
2012 0.52
2013 0.54
2014 0.56
2015 0.58
2016 0.60

Kelly Schilz
Date updated: January 5, 2012

This information is provided by Crawford, Smith and Swallow Chartered Accountants LLP for informational purposes only and must not be relied upon as professional advice. Readers should not initiate any action on the basis of this information without the consultation and direction of a qualified professional advisor.