Canadian Pensions

The following information is taken and edited from the Service Canada web site www.servicecanada.gc.ca

The Canada Pension Plan (CPP)

CPP is a contributory, earnings-related social insurance program. It ensures a measure of protection to a contributor and his or her family against the loss of income due to retirement, disability and death.

There are three kinds of Canada Pension Plan benefits:

  • disability benefits (which include benefits for disabled contributors and benefits for their dependent children)
  • retirement pension
  • survivor benefits (which include the death benefit, the survivor's pension and the children's benefit)

The Canada Pension Plan operates throughout Canada, although the province of Quebec has its own similar program, the Quebec Pension Plan. The Canada Pension Plan and the Quebec Pension Plan work together to ensure that all contributors are protected.

FAQ

Who pays into the Canada Pension Plan?

With very few exceptions, every person in Canada over the age of 18 who earns a salary must pay into the Canada Pension Plan. You and your employer each pay half of the contributions. If you are self-employed, you pay both portions.

You do not make contributions if you are receiving a Canada Pension Plan disability or retirement pension. At age 70, you stop contributing even if you have not stopped working.

How much do I pay into the Canada Pension Plan?

The amount you pay is based on your salary. If you are self-employed, it is based on your net business income (after expenses). You do not contribute on any other source of income, such as investment earnings.

If, during a year, you contributed too much or earned less than a set minimum amount, you will receive a refund of contributions when you complete your income tax return.

You only pay contributions on your annual earnings between the minimum and a set maximum level (these are called your "pensionable" earnings). The minimum level is frozen at $3,500. The maximum level is adjusted each January, based on increases in the average wage.

Why are my contributions important?

Your contributions are used to determine if you or your family are eligible for a benefit, and to calculate the monthly amount. Both the length of time and the amount of earnings on which you contribute (up to the maximum each year) are factors. Normally, the more you earn and contribute to the Canada Pension Plan over the years, the higher the benefit will be (when you become entitled) because you will have built up a lot of Canada Pension Plan pension credits.

What is my "contributory period" and how is it used?

The total span of time during your life when you may contribute to the Canada Pension Plan is called your contributory period. It is used in calculating the amount of any Canada Pension Plan benefit to which you become entitled. Your contributory period begins when you reach age 18 or January 1966 (the start of the CPP) and continues until you begin receiving your retirement pension, reach age 70 or die (whichever is the earliest).

If I had some low-earning years, will that reduce my pension?

Remember that Canada Pension Plan calculations include both how much and how long you have contributed. However, to protect you, some parts of your contributory period can be dropped out of the calculation, such as:

  • periods when you stop working or your earnings become lower while you are raising your children under the age of seven
  • low earning months after the age of 65
  • any month when you were eligible for a Canada Pension Plan disability pension
  • 15 per cent of your lowest earning years in your contributory period

Dropping out periods of low earnings will increase the amount of your benefit.

How does the Canada Pension Plan keep track of my contributions?

Since 1966, the Canada Pension Plan has kept a "Record of Earnings" for each person who pays into the Canada Pension Plan and for people who pay into both the Canada Pension Plan and the Quebec Pension Plan. The information is supplied through the Canada Revenue Agency (CRA) and Revenu Qu├ębec.

It is important that you check your T4 slip (the statement of earnings you receive from your employer each year) to make sure that your name and social insurance number are the same as on your social insurance card. If not, your Canada Pension Plan contributions will not be credited to your Canada Pension Plan account. This could mean not getting benefits to which you are entitled or a reduction in your pension.

How do I find out how much I have contributed?

You can ask for a statement once a year. Your Statement of Contributions shows, by year, the total amount of your Canada Pension Plan contributions, and your "pensionable" earnings on which they are based. If you are over age 30, it also estimates what your pension or benefit would be if you were eligible now.

Who is a "spouse"?

For the purpose of the Canada Pension Plan, a "spouse" is the person 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.

What are Canada Pension Plan "pension credits"?

The Canada Pension Plan keeps a record of your earnings and the contributions you pay on them over the years. These are your "pension credits".

Generally, the more credits you have, the higher your Canada Pension Plan benefits will be.

What is "credit splitting"?

When a marriage or common-law partnership ends, the Canada Pension Plan credits built up by the couple, during the time they lived together, can be divided equally between them. Credits can be split upon divorce or separation even if one spouse or common-law partner did not pay into the Canada Pension Plan.

What is "assignment" or "pension sharing"?

Pension sharing is for spouses or common-law partners who are together and already receiving their Canada Pension Plan retirement pension(s). Pension sharing is called "assignment". With assignment, each spouse or common-law partner can receive a portion of the other's pension, if they choose to share in this way. Assignment does not increase or decrease the overall benefits paid. Each person is responsible for any income tax that may be payable on the pension they receive.

What happens if I pay into the Quebec Pension Plan?

Which Plan you pay into (Canada Pension Plan or Quebec Pension Plan) depends on where you work, not where you live. If you work in Quebec, you pay into the Quebec Pension Plan. If you work in any other province or territory, you pay into the Canada Pension Plan. Depending on where you have worked over the years, you may have paid into both plans.

The two plans are very similar but not identical. If you have paid into only one of the plans, you apply to that Plan for your pension or benefits. If you are living outside Canada, you apply according to the last province you lived in.

Regardless of which Plan pays your benefit, the amount will be calculated according to your contributions to both plans and the legislation of the Plan responsible for paying your benefit.

What happens if I lived or worked in another country?

Canada has agreements with many countries, which can help you get pensions or benefits from either country. If you did not live or work long enough in one of these countries to qualify, the time you spent in the other country may be added to meet the requirement.

Can I have my payments deposited directly to my bank account?

Yes.

Can I receive my Canada Pension Plan payments outside Canada?

Yes, provided you meet all Canada Pension Plan eligibility conditions. Payments are made anywhere in the world in the local currency when applicable and, if not, in Canadian dollars.

Will I get cost-of-living increases?

All CPP benefits, except for the death benefit are adjusted in January each year if there is an increase in the cost of living as measured by the Consumer Price Index.

What if I am incapable of applying?

If, because of an illness or infirmity, you are incapable of applying for a Canada Pension Plan pension or benefit, your representative can apply on your behalf.

What can I do if I do not understand, or I disagree with, a Canada Pension Plan decision that affects me?

You may request an explanation or a reconsideration of any decision that affects your eligibility or the amount of your Canada Pension Plan benefit. The request for reconsideration must be made in writing to the Minister of Human Resources Development Canada within 90 days after receiving a decision.

Reconsideration - is a written request, by you to the Minister of Human Resources Development Canada to review a decision. You must submit the request for reconsideration within 90 days of receiving the decision. This is an opportunity for you to ensure that all necessary information and supporting documentation to substantiate the claim are submitted to the Minister. A review of your file is carried out by a government officer who was not involved in making the initial decision.

Who can see the information on my Canada Pension Plan file?

Your information is protected by Canada Pension Plan legislation, the Access to Information Act and the Privacy Act. Information may be made available to a federal or provincial institution or a non-governmental organization to administer the Canada Pension Plan. Information may also be made available to specified federal departments or provincial institutions to administer a federal or provincial law, or to foreign institutions under a social security agreement.

Can I see the information on my file?

Yes. You can ask to see or have copies of any information about you that is in a federal government file. The Treasury Board publication, "Info Source: Sources of federal government information", and the forms to request the information are available at Canadian embassies and consulates.

Are my Canada Pension Plan payments taxable?

Yes. Canada Pension Plan payments are taxable income.

If you live outside Canada and are not considered to be a Canadian resident for income tax purposes, a non-resident tax is withheld from your monthly Canada Pension Plan payment. The tax rate is 25% unless reduced or exempted by a tax treaty between Canada and your country of residence.

Are there other Government of Canada benefits for which I may be eligible?

Yes. If you are over the age of 65, you may be eligible for a pension under the Old Age Security Act. If you are age 60 to 64, have a low income and are widowed or the spouse or common-law partner of an OAS pensioner, you may qualify for either the allowance or the allowance for the survivor.