The Four Most Common Questions about Canada Pension Plan (CPP)

In the past, some of my most popular articles have been ones I have written about Canada Pension Plan (CPP).  In this article, I would like to tackle the four most common questions I get surrounding CPP

How much will I get from Canada Pension Plan?

Less than you might think.  The maximum CPP amount for 2010 is $934.17 per month starting at age 65.  That being said, most people do not qualify for the maximum CPP so it is best that you call Service Canada at 1-800-277-9914 and ask for your Canada Pension Plan statement of contributions.

It’s not easy to qualify for the maximum CPP because you have to contribute full rates for 40 years between the age of 18 and 65.  Add in the trend that more and more people are retiring before the age of 65 and taking CPP early, you are seeing more an more people get less than the maximum amount.  To learn more about his you can read my recent article, How much will you get from Canada Pension Plan in Retirement?

Should I take CPP early?

Canada Pension Plan is normally taken at age 65. That being said, you can take CPP as early as age 60 and as late as age 70. To evaluate this lets introduce you to twins, Janet and Beth. Let’s assume they both qualify for the same CPP of $900 per month at age 65. Let’s further assume, Beth decides to take CPP now at age 60 at a reduced amount while Janet decides she wants to wait till 65 because she will get more income by deferring the income for 5 years.

Under Canada Pension Plan benefits, Beth can take CPP at age 60 based on a reduction factor of 0.5% for each month prior to her 65th birthday. Thus Beth’s CPP will be reduced by 30% (0.5% x 60 months) for a monthly income of $630 starting on her 60th birthday.

Let’s fast forward 5 years. Now, Beth and Janet are both 65. Over the last 5 years, Beth has collected $630 per month totalling $37,800. In other words, Beth has made $37,800 before Janet has collected a single CPP cheque. That being said, Janet is now going to get $900 per month for CPP or $270 per month more than Beth’s $630. The question is how many months does Janet need to collect more pension than Beth to make up the $37,800 Beth is ahead? It will take Janet 140 months to make up the $37,800 at $270 per month. In other words, before age 77, Beth is ahead of Janet and after age 77, Janet is ahead of Beth.

From a lifestyle perspective, it can be argued that Beth is more likely to enjoy the cashflow from age 60 to 77 a lot more than Janet will enjoy the extra cashflow after the age of 77.

This example is very simplistic. It does not take into account taxes, investment returns or indexing of benefits. Regardless, taking Canada Pension Plan early is simply about getting more money sooner. Waiting just means you have to live longer to make up the lost income.

There is new proposed legislation to change the rules on getting CPP early.  The proposal is still under discussion.

Can I split Canada Pension Plan?

Canada Pension Plan allows spouses to share their CPP with each other.  The premise behind this is you can share your CPP with a spouse but they have to share their CPP back with you.

Let’s go back and look at Beth who is married to Larry.  Beth took her Canada Pension Plan early and gets the $630 per month. Her total income is quite low and she only pays tax at the 25% marginal tax rate. Larry is 5 years older and makes $850 per month in CPP.  Larry also has a pension so his total income is much higher than Beth.  He is in the 32% Marginal Tax bracket.

The way Canada Pension Plan sharing works is they would give each other half of their CPP.  The easiest way to grasp this is to add up both amounts ($850 + $630) and divide by 2.  As a result of the sharing, Larry’s CPP amount will drop from $850 per month to $740 per month. Janet’s income will increase from $630 per month to $740 per month. The outcome is $110 per month of income will move from being taxed at 32% to being taxed only at 25%.

Remember that to qualify for Canada Pension Plan sharing, both spouses must be eligible to collect CPP, which means they both have to be over the age of 60.

The spouses must apply to split Canada Pension Plan.  Once the amount is split, the spouses can apply to unsplit.  In the case where one of the spouses passes away, the surviving spouse’s CPP goes back to their original amount. For example, if Beth passed away, Larry’s CPP would go from $740 per month back to his original $850 per month and then he would earn a survivors CPP benefit.  If Larry passed away, Beth’s CPP would go from $740 per month back to $630 per month but then should would earn a survivors benefit off of Larry’s CPP.

The key to determining if Canada Pension Plan sharing is feasible is to look at whether the higher CPP earner is in a higher marginal tax rate than the lower CPP earner.

Is CPP clawed back depending on how much I make?

The short answer is no.  There is no income or means test on your Canada Pension Plan retirement benefit.  There is a clawback or recovery system on Old Age Security but not on Canada Pension Plan.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites Retire Happy Blog, Group Benefits Online and Advisor Think Box.

41 Responses to The Four Most Common Questions about Canada Pension Plan (CPP)

  1. Great information Jim. It can be hard to keep on top of all of this, especially if you are more than a decade away from retirement. Who knows what the rules will be in the future? Still, we need to plan for our retirement income based on the information available today. Thanks!

  2. In regards to pension sharing…benefits are not split 50/50 between spouses or common-law partners. CPP uses a complicated formula to calculate the split.

    To determine how much of one pensioner’s CPP RTR will be shared with the other:

    Multiply the monthly RTR by the number of months of cohabitation or marriage after Jan 1st 1966, then divide by the months in the joint contributory period.

    Joint contributory period is tricky – it starts Jan 1 1966 or when the eldest spouse turned 18. It ends when the youngest spouse starts their benefit. This is assuming that both spouses are contributors to CPP.

    Both spouses are not required to be eligible to receive CPP to split pensions. In the event that one spouse did not contribute, they simply have to be at least 60 and can receive an assigned portion of the contributor spouse’s benefit.

    I hope this helps!

    • Thanks for the clarification. The split on CPP is determined by CPP and not the couple. Pension splitting on the other hand is determined by the spouses up to a maximum of 50%.

      In many cases the split is 50/50 as in the example above. Where it gets more complicated is in the case of second marriages or late marriages.

      Thanks again!

  3. Something else to consider: When Beth starts collecting her pension at age 60, her CPP contributions will cease even if she continues working. Assuming incomes of over $46,300/yr, during the next 5 years Janet will likely pay $10,500 in CPP contributions while Beth pays nothing. (If self-employed, Janet will pay $21,000.) This means Beth will still be ahead of Janet until age 80.

  4. i need help! i am on cpp disability with a monthly income of next to nothing, i also am on social service to top up cpp. if u were in my shoes what would u do? if u have a disability long term, what would be the next step to take? i am 39 yrs old, early retirement due to illness, apply for long term disability? or go crazy seeking out additional income assistance programs, that i am not aware of, just to make ends meet…pls help…what other disability programs are there for people such as me? DESPERATE…pls respond

  5. I am thinking to stop working in two years .I am 55 years old now .I know i am no eligible to apply for yearly retirement pension till I am 60 . I have contribution of CCP etc now for last 12 year at least from my present employer .It is possible to stop work when I 57 years old and when I am 60 i can apply for yearly official retirement benefit ? Or I have to work till 60 of age to be able to get yearly retirement benefit .Please would you able to advice me I have no any knowledge about retirement benefit etc .Thanks Lots Rene Vancouver

  6. I am collecting CPP since Nov 2010 as I had to take early retirement due to my company moving to a location too far for me to travel. I found a part time job and have been working since April 2011. UI is being deducted from my weekly pay and so I wish to know if I am eligible for UI benefits as I will be laid off in and around Oct/Nov of this year. As well will my previous employment hours and salary be included in the calculation for UI benefits?
    Thank you

  7. I am receiving early CPP benefits. I am starting a new job. I understand that I am exempt from CPP contributions. I began receiving benefits at 2009 year end. How do I tell my employer not to take off CPP is this is the case? I see nothing on the TD1 that addresses this situation.

  8. I am receiving CPP spousal benefits. My Canadian husband died in 2001. I have remarried and when I die will my American husband receive spousal benefits from my CPP.

  9. In 2012 The gov. is going to start deducting cpp from people who have retired and gone back to work part time. Do our cpp payments go up or do we get it back come income tax time.

  10. I am a widow and thinking of living common law with my friend. Will living common law eliminate the portion of my cpp from my husband. Should I remain living on my own in order to continue with the same amount. Also will this affect my OAP?

  11. I am 65, but continuing to work (part time). I would earn about $20,000 per year for the next 2 years before I retire. Presently my CPP is $928 monthly. Should I contribute to the CPP or elect not to?
    John

  12. Contributions to CPP while working. With the new proposed changes, not only will you be able to collect CPP while you are working but you will have to continue to make contributions into CPP as long as you are working under the age of 65. These contributions will result in increased retirement benefits. What are the “increased retirement benefits”?

    Thanks

  13. Gday im currently on a work visa for 2 years from australia was wondering if i can get my cpp back be for i leave and wat iv got to do to get it

    cheers dale

    • I am also an australian working in canada on a visa and i am also curious what will happen to my CPP contributions- when i return to australia can i change them over to my retirement fund there?

  14. My wife and I both receive CPP but my income is still high. I want to apply for CPP income splitting, but I want to have it split at source rather than after the fact on my tax return. The only government form I can find is T1032 which is used each year on the tax return. Is there a form to use to apply for splitting at the source?
    Thanks – Lloyd Cooke

    • Lloyd, Form T1032 is not used to apply for splitting of CPP. It is only for other pension income. On Form T1032 you and your spouse elect the amount each year, up to 50%. You would normally choose an amount that would make your taxable incomes for that year equal. If you can’t do that, you just choose the maximum in order to get as close as possible.

      To split CPP, you use form SC ISP-1002. (SC probably stands for Service Canada, the agency to which you will send it – find the form and address on line or go to your nearest SC office.) You file ISP-1002 once, not annually. The split will be determined by the government and will apply to each year thereafter.

      When both spouses have contributed to CPP, both must be receiving or applying to receive a CPP retirement pension and both pensions will be split. The amounts will be determined based on the benefits earned while the spouses were together, so the split will not necessarily be 50% of each total.

      The only time one spouse can split CPP without the other also doing so if the other spouse never contributed to CPP at all.

      I hope this is helpful. If you need additional assistance, most accountants and financial planners can help. Getting help from the government itself can be a challenge but if you can’t use a professional, try calling 1-800-277-9914.

  15. I work in CANADA AB.for two years 2008-2010 as a sandblaster/coater.i would like to know if there is a refund for the CPP contributiondo? if there is how can i claim it?in which agency do i have to go? currently i am here now in the Philippines.

  16. Assuming you are receiving a monthly CPP income of $975, approximately how much tax could you expect to pay on that amount.

  17. I want to claim death benefits of my husband who was a canadian citizen since more then 36 years. In 1995 he came to Pakista (Karachi) and got married. And did not go back canada. we lived 16 years togather. On 22nd apr 2011 he died due to Stiffman Syndrome.
    We have no children. I am not canadian but only legal spouse of my husband. I have all his cards related to his canadian citizen. Please help me, how can I claim his death benefits to survive please.
    Waiting for the reply……..God may bless you always.

  18. Can I apply for the spousal % of my ex husband Barry John’s OAS? He was 65- July 12 2011 /
    I was 65- Aug 30/ 2011. Can you tell me what form I need to fill out, if not done automatic’ly

  19. I have been offered a settlement from CPP disability. They have not disclosed what I will recieve. Should I accept or should I continue on to the tribunal hearing?
    If they freeze my income at date of disability and i wasn’t working due to raising my kids will they take my income from when I was working to calculate my future earnings? Or am I screwed as they put my date of onset as Sept 2009. If you don’t know the answers..do you know someone who does that I can e-mail? Thank you
    Sincerely.
    Rebecca Maxwell

  20. the CPP numbers are outdated (2010). The startegy of collecting early or waiting till age 65 are still valid, however I would like to see this piece enhanced with 2012 rates as well as the new penalties / update on cessation (nil)/ new Post Retirement Benifit Plan / and drop out provision which started January 2012.
    thank you

  21. If you stayed home for 12 years with your children, do you get to subtract 7 of those years. I worked from 1970-1980, and then again from 1992-2012, a total of 30 years, and will continue to work until 2015.

  22. I live in the US (but I am Canadian) and my X husband is a an employee of a city in B.C. He is 55 so I am of the understanding that I can get my commuted value dispersed to me. I see some information states that I have to have it transferred to an actual RRSP, LIF, or deferred life annuity. Am I not able to get my hands on one lump sum of the CPP? I have student loans and I am wanting to pay my bills down……suggestions?

  23. I worked in canada for 4 years i paid the pension every mounth i was working there on a work permit i am now back working in Scotland and wont be back to canada can a claim the money i paid to the penison back thanks.

  24. Thanks for the article – interesting. If I start to draw CPP at age 60 yet continue to work, will I still have a CPP deduction from my pay cheque?
    thanks

  25. My husband and I share our Canada Pension Plan Income. My husband took some part-time work and now collects Emplloyment Insurance. However they are now clawing back part of his CPP — which is only as high as it is since we share and my income was always the highest. Is there anything I can do?

  26. Hi still waiting on an answer to my question….

    If I start to draw CPP at age 60 yet continue to work, will I still have a CPP deduction from my pay cheque?

    Any thoughts????????

  27. Dear Sir:

    I can make $650 per month in cpp at age 66 or wait until age 70 and make $855. When is my break even age if I wait until age 70?

    Tks Ron

  28. ron wilmot
    Dear Sir:

    I can make $650 per month in cpp at age 66 or wait until age 70 and make $855. When is my break even age if I wait until age 70?

    Tks Ron

  29. All,

    Can i withdraw my whole CPP amount at the of 65 ?

    In Germany, If you on PR(not citizen) and if you can live 2 years outside of the country(native) then you are eligible to withdraw whole amount in one stock.

    Ketan

  30. Could you tell me how long it takes to get retro pay from Canada. Pension disability.
    I was approve April 7 and they are backdating it to 2012,

  31. Any benefit paid by the federal government that is considered taxable income is being clawed back, period. It isn’t earned by employment or investment but is still called income as if it were. It comes from the government and a portion goes back to the government. The portion is income dependent. That’s a clawback.

  32. A question…

    I was married and living common law with my husband for 32 years…We then separated
    Why is it…The woman he lived with for less than 5 years
    receives the survivor benefit and CPP..
    I am not greedy by all means..but it just doesn’t seem to fair..

  33. I Live in Mexico and receive CPP. If I marry my Mexican girlfriend, will she be eligible for CPP also?

    Thank you.

    Jim Templeton

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