Senior citizens are often left worrying about whether they have enough money to fund their lifestyle or spend when emergencies arise upon retirement.
However, if you’re a Canadian resident, there might be fewer issues to think about, as the Canada Pension Plan (CPP) is viewed as one of the best in the world. However, it can be challenging to understand as with other pension plans.
If you’re wondering how CPP works and the benefits you’re entitled to receive upon retirement, check this guide to know more.
What is the Canadian Pension Plan?
Like most countries, the Canada Pension Plan or CPP is a retirement pension. Qualified individuals, who are, at least, 60 years old, are eligible to receive specific amounts during monthly pension dates. It seeks to replace your income upon retirement.
Besides retirement income, an individual may also receive disability benefits. A CPP beneficiary stands to receive the pension as long as they live. In the event of death, the pensioner’s survivors will receive the benefits.
How does the CPP work?
If you’ve been working in the country for some time, you may already be eligible to receive a pension. That’s because employees fund their retirement pension while they’re working. A 5.25% earnings contribution is mandated for those who earn over CA$3,500 yearly to be eligible for assistance. Employers must match this contribution. The Quebec Pension Plan, which works almost similar to the CPP, requires higher contributions pegged at 6.15%.
Entrepreneurs and those who are self-employed will have to set aside the complete contribution requirements of 11.4% for CPP and 12.3% for QPP. Contributions are expected to rise gradually as the benefits are also slated to hike in the coming years as stipulated in the CPP Enhancement plan.
Receiving a pension doesn’t prohibit you from working though. You can still work and contribute to your CPP until you’re 70. Doing this will increase your post-retirement savings. Upon reaching 70, you’re no longer required to contribute whether you’re self-employed or are actively working. In addition, Canadian citizens and long-time residents 65 years or older may also receive an old age pension regardless if they haven’t worked or are still working.
Who qualifies for the CPP?
Employed and self-employed Canadians at least 60 years old and who’ve made contributions to the CPP are eligible to receive retirement funds. These contributions were either from your work or from credits received from a former common-law partner or spouse.
What are the benefits?
Like other retirement pension plans, the CPP has attached benefits that contributors and their families can enjoy, even after they pass on. Except for the post-retirement benefits, beneficiaries will have to apply for the other types of assistance listed below.
- Post-retirement benefits: Canadians eyeing to increase their income can work past 60 and continue their contributions. These savings will go to the employee’s post-retirement benefits fund.
- Disability pension: Contributors under age 65 and whose mental or physical issues prevent them from finding gainful employment or have a potentially permanent or life-threatening disability are qualified to receive this benefit.
- Children’s benefits: Individuals receiving disability benefits may also apply to have their children included in the assistance. This benefit covers children under 18 years old or full-time students aged 18 to 25.
- Post–retirement disability benefits: Those who become disabled after receiving their retirement pension for 15 months or less are entitled to this assistance. A contributor must submit a medical report alongside the application form to apply. Upon reaching 65, these beneficiaries’ pension automatically becomes a retirement pension.
- Survivor’s pension: A deceased contributor’s common-law or legal spouse can receive the retirement income. Even if separated, the legal spouse of the deceased can also qualify, as long as the contributor has no common-law partner. A common-law partner is defined as an individual who has lived and maintained a marital relationship with another person, in this case, the deceased contributor, for at least one year.
The surviving spouse or partner will receive a pension amount calculated based on the partner’s age and the deceased beneficiary’s total contributions upon reaching 65 years old.
- Death benefits: This one-time payment of CA$ 2,5000 is handed over to a deceased contributor’s surviving family member or estate. To qualify, a beneficiary must have set aside contributions of a third of their contributory period for the base CPP. The length of assistance must be between 3 years to 10 years.
For Canadian workers who’ve lived outside of the country, the basis for assistance provided will depend on the social security agreements between mutual countries.
How much do you get from CPP?
The CPP’s monthly retirement income will depend on the contributor’s average income earned throughout the working period, the total amount of contributions, and your age upon receiving your first pension.
While the average age for obtaining a retirement pension is 65, eligible persons can get it at 60 years or wait until they turn 70. Early receivers will get smaller amounts, while those who want to start later will get higher sums. For instance, those who wait until they’re 70 are eligible to receive the maximum pension amount.
As of 2022, Canadians’ highest retirement income is pegged at CA$1,253.59. The median monthly disbursement for new pensioners aged 65 is CA$779.32.
How do you apply?
The CPP benefits aren’t automatically handed out, and you have to apply to start receiving your retirement income. Quebec residents have their pension program, aptly called the Quebec Pension Plan. The CPP and QPP work almost the same, though there are minor differences, most notably the contribution costs.
Contributors can apply online or by sending a mail. Before launching the process, get your Social Insurance Number (SIN) and bank details ready, including your partner and children’s SINs, alongside other documents such as proof of birth as stated in the application information requirements. Applications can be initiated as early as one year before a contributor reaches 60 years old or any time before turning 70.
How long will you have to wait?
Processing times for CPP benefits applications vary. Generally, retirement benefits applications are attended to as soon as possible but may take up to 14 days for online submissions. If the application was done via mail, the processing period could last four months at most.
Disability applications can last up to four months but will be expedited depending on your case. Processing time for grave disability conditions could last only 30 days, while disabilities that cause terminal illnesses will be approved within 5 days.
Understanding how the Canadian Pension Plan works is crucial whether you’re close to retiring or a young contributor. Retirement planning has to be done early to have enough disposable income even if you’re no longer working.
Besides funding your lifestyle and major emergencies, proper planning ensures that you can invest, spend and save your money wisely when you reach a ripe age. If you want reliable insights on handling your finances, reach out to a financial a