Canada Pension Plan, Families

The Canada Pension Plan

The Canada Pension Plan (CPP) provides financial benefits to retirees, people with disabilities and other eligible individuals. In order to collect benefits, you must have previously made contributions and you need to apply. It’s useful to understand how the CRA and Service Canada calculate these amounts and show them on your Statement of Contributions to the Canada Pension Plan.

Contributing to the CPP

If you are between ages 18 and 69 and are employed, your employer automatically deducts CPP contributions from your paycheque. The amount of contributions withheld from you is called the employee contribution and is matched by your employer and remitted to CRA monthly. If you are between ages 18 and 64, contributions are mandatory. If you are between the ages of 65 and 69 and are already receiving a CPP pension, you may choose to stop making CPP contributions.

Stopping Your CPP Contributions

If you are at least age 65 but under age 70 and still employed (or Self-Employed) to stop making CPP contributions you must complete some paperwork.

Your CPP contributions will stop on the first of the month following the month the form was received by the CRA. This request will be valid until you are age 70 unless you choose to revoke it.

Making CPP Contributions

After your employer withdraws your CPP contributions from your paycheque, he matches them and sends them to the CRA. For example, if your employer withdraws $50 from your paycheque as a CPP contribution, $100 will be sent to the CRA — $50 from you and $50 from your employer.

If you are self-employed, you must pay both the employee and employer contributions. This is done annually when you file your income tax return and is calculated on your Net Self Employment Income over $3,500.

Calculating CPP Contributions

Annually, the CRA issues guidelines to employers regarding CPP contribution rates. The employee contribution rate for 2020 is 5.25 percent. Note that you are not required to make CPP contributions on the first $3,500 of your earnings or on any earnings over the Maximum Annual Pensionable Earning rate for the tax year. As the percentage rates have been changing since 2019, a complete list of current and past rates can be found here.

Managing Your CPP Contributions

You cannot manage the amount of CPP that is taken from your paycheque. However, if you have two different jobs and your employers contribute more than the maximum annual contribution on your behalf, the CRA allows you to reclaim this amount when you file your taxes.

The Different Types of CPP Benefits

Funded by payroll contributions from employers, employees and the self-employed, the CPP provides cost-of-living indexed pensions starting as early as age 60, extending for the life of the recipient. The following benefits are administered through the Canada Pension Plan and shown on a T4A(P) –  Statement of Canada Pension Plan Benefits tax slip;

  • CPP Retirement Benefits – Box 14: The amount you receive each month is based on your average earnings throughout your working life, your contributions to the CPP, and the age you decide to start your CPP retirement pension.
  • CPP Disability Benefits – Box 16: If you are under 65, have contributed enough to the Canada Pension Plan and have a mental or physical disability, you may be eligible for these monthly benefits. You can check the eligibility requirements here.
  • CPP Survivor Benefits – Box 15: This monthly benefit is paid to the person who, at the time of death, is the legal spouse or common-law partner of the deceased contributor.
  • CPP Child Benefits – Box 17: Children’s benefits are monthly payments to the dependent children of disabled or deceased CPP contributors.
  • CPP Post-Retirement Benefits – Box 19: If you continue to work while receiving your CPP retirement pension, and are under age 70, you can continue to participate in the CPP.

The CPP Enhancement

Changes announced in June 2016 were put in place for the 2019 tax year, with the Canada Pension Plan (CPP) Enhancement. This means you will receive higher benefits in exchange for making higher contributions. The CPP enhancement will only affect you if, as of 2019, you worked and made contributions to the CPP.

Claiming Your Pension

You qualify to receive CPP monthly payments when you retire as long as you have worked and made at least one valid contribution to your CPP account. The CPP is designed to replace about 25 percent of the average person’s income. The average CPP payment is between $650.00 and $700.00 per month.

If you do not pay into the CPP, you will not be eligible for CPP benefits. To check how much you have contributed as well as your potential benefits, contact Service Canada or log into your My Service Canada Account online.

References & Resources