The Canada Pension Plan is a pension that provides Canadian citizens, who have contributed, and their families, with a partial replacement of their earnings upon retirement, death, or disability. The amounts paid into the plan are equal contributions based on earnings between an employee and his/her employer at a rate of 4.95%. Self-employed individuals contribute the full amount in themselves at a rate of 9%, which is added to their tax liability at the end of the year upon completing their income tax return.
The CPP retirement pension does not start automatically. You must apply for it and following conditions must be met for approval:
• You must be at least one month past your 59th birthday
• You must have worked in Canada and made at least one contribution into the plan
• You must want your monthly payments to begin within one year
Upon approval of the CPP, you will fall under one of the following categories:
• Retirement Pension-You can apply for your full CPP at the age of 65 or you can apply for early CPP at the age of 60. You could also wait until you turn 70 and receive a larger monthly payment
• Post Retirement benefit-If you continue to work after receiving the CPP, you can still pay into the plan and until the age of 70 and receive a higher monthly premium (Post retirement)
• Disability Benefits-If you are under 65 and are disabled that you cannot work you may qualify for the disability monthly pension
• Survivors Pension-Upon your death, a portion of your CPP may be paid to your spouse or common law partner
• Children’s Benefits-If you die or become severely disabled, your dependent children may qualify for the CPP Children’s Benefits
All funds contributed into the plan by an individual, over their work history, determine the monthly amount of a person’s CPP payment. If you have some years where you have not worked, or have low contributions into the program, the CPP will use the Dropout provision in calculating your monthly premiums. This means that the CPP will allow up to 8 years of your lowest earnings to be dropped from the calculation when determining your monthly CPP entitlement.
If you stopped working, or received a lower income, for some years in order to raise your children, you may qualify to use the CPP’s Child Rearing Provision to increase your monthly benefits. To qualify for the Child Rearing Provision exemption, the following conditions must apply:
• Your children must be born after December 31,1958
• Your earnings were lower because you either stopped working all together, worked fewer hours, or took a lessor paying job, in order to stay home with your children
• You or your partner were eligible to receive the Family Allowance
Only one spouse or partner can apply for this provision.
If a person passes away before applying for the CPP, the government cannot pay the pension to anyone else unless the deceased was over 70 at the time of passing and the estate submits a CPP retirement pension application no later than one year after the date of death. In this case, the CPP can pay up to 12 months of premiums into the estate. In addition, upon death, the estate, spouse, common-law partner, or next of kin, can apply for a onetime payment of the CPP Death Benefit, if minimum contribution requirements are met. Upon death, your spouse, or common-law partner, may be eligible to receive the CPP’s survivor’s pension and your children may be eligible to receive the CPP children’s benefit.
Recently the CBC News published an article called “Why the Canada Pension Plan will still be solvent-and then some-when you retire; to read this article click on the link below.
~ Douglas Ross~