Back in May, The Department of Finance announced some proposed changes to the Canada Pension Plan that are expected to begin in 2011. If approved by the federal and provincial governments, these changes will relax some of the current restrictions in the program and increase the incentive to wait to begin receiving CPP benefit payments.
If you are under 65, collecting CPP and working, you will have to continue contributing to the CPP. This will however increase your retirement benefits by 1/40th of the maximum amount each year. Those 65 and older who are collecting CPP and working have the option to increase their benefits by continuing their contributions, which could actually give you a benefit larger than the “maximum”.
One restriction that will be completely removed is that workers under the age of 65 would no longer need to stop working or have reduced income for up to two months before applying for the CPP.
Another beneficial change is that the payment calculation will drop the 8 lowest income years, where currently 7 years are dropped from the calculation. Since the calculation starts at age 18, these years are likely while you were in university or college, or possibly if you retire early before collecting your CPP.
Possibly the biggest change, that should help to keep the CPP running for years to come, is an increased incentive to wait to collect until you are 65, or maybe even 70. Currently when you begin collecting your CPP at age 60, you have a 30% reduction in the amount you receive from the base amount at age 65. Likewise, by waiting until age 70, you would have a 30% increase over the base amount. Under the new changes, beginning at 60 would reduce your payment by 36%, while waiting until 70 would increase your base payment by 42%.
While Monday’s article discussed the current Canada Pension Plan, it did not mention these proposed changes. I’d like to thank Erick for adding a comment to point out these changes. You might be wondering, like I did for a minute, how does a personal finance blogger in Canada not make a post in the last 2 months about possible major changes to the CPP? Turns out it was announced the day I unplugged my computer and TV to move to our new house. After a few days without TV or internet, I was finally reconnected but the story had disappeared and I was none the wiser. I really enjoy getting comments, especially when they share something with me that I was unaware of!
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Hey there,
Thanks for the mention!
Any chance you could modify your blog setup to indicate whether a post has comments?
This would give your regular readers (and anyone passing through) a quick visual of whether a post has triggered a discussion that they may want to check out/participate in.
Erick,
I couldn’t agree more, planning a big facelift to the site soon!
Can some one please explain in detail how the maternity drop out effects the CPP calculation. Also how the CPP is calculated based on your credits. The statements are available of course, but they fail to describe how the estimates are arrived at. Detail needed.
Also if the drop out is 15% from your contribution period and your contribution period is the age when you take the pension this results in a different calculation, particularly if you stop working years before age 60.
Can you tell me where a person can find information as to what happens when they reach 65, would like to maybe draw Canada Pension, and may continue to work after 65 as well.
Having a problem find information on this in print.
Also, if you wish to draw CPP do you have to terminate your job rather than take a month’s leave. Have heard this comment but up top it states in the proposed changes that you do not have to terminate employment.
Thanks
Ruby,
The current rules state that someone under 65 would need to stop working or have reduced income. For 65 and over, even under these current rules you could collect CPP while still working. Keep in mind that the longer you can go without it, between 65-70, the more they would pay you once you do start. If you’re still working, you might be able to hold off. However, if you have any debt that you’d like to pay off now then it might work out better to start receiving your CPP and applying this amount against it.