What Is The Canada Pension Plan (CPP)?

The Canada Pension Plan (CPP) is part of Canada’s retirement income system. Anyone that is is 18 or older and employed must contribute to the CPP. The contribution calculation is based on the employee’s income. This plan applies to all provinces and territories except Quebec, which operates it’s own similar plan, the Quebec Pension Plan (QPP).

The Canada Pension Plan is a monthly benefit designed to replace 25% of your earnings. To begin collecting under the CPP you must be 65, or you can begin as early as 60 if you either stop working in the month before your CPP begins or make less than the monthly maximum Canada Pension Plan retirement pension payment in both the month before and the month of your first CPP payment. However, by starting to receive your payment at 60, your CPP payment will be 30% lower than if you wait until 65. The other side of that is you can delay your payment under the Canada Pension Plan until 70 an your payment would be 30% more than what you would have received at 65.

There are two other forms of CPP payment, the disability payment and survivor payment. The disability payment can come into effect if a disability leaves you unable to work at any job regularly. The survivor payments include a one-time payment to the estate of the contributor, as well as monthly payments to the spouse, or common-law partner, and to dependent children.

You can apply for the Canada Pension Plan either online or by mail. Tomorrow we’ll look at the other major piece in Canada’s retirement income system, the Old Age Security (OAS) Program.

Written by Tom Drake

Tom Drake is the owner and head writer of Canadian Finance Blog. While you’re here, consider signing up for the RSS feed or email subscription. Both deliver the latest articles directly to you everyday! Have a Twitter account? Then follow me for all the latest posts or to send me any comments or questions!

14 Responses to What Is The Canada Pension Plan (CPP)?

  1. Erick says:

    Hi there,

    You didn’t mention the proposed changes that will start coming into force in 2011:


  2. Tom Drake says:

    Erick, thanks for pointing that out. The proposed changes do relax a few of the CPP rules. You just picked the topic for Wed’s post!

  3. Imran says:

    In the OAS article, you wrote that an estimate for CPP+OAS for a couple is $25k and that the max benefit for OAS for a couple is $517x12x2=$12,408 per year. That means that CPP also provides about $12,592 for a couple (or $6,296 per person) each year. In this article, you wrote that CPP is “designed to replace 25% of your earnings.” That would mean that you’re estimating that the average person earns $6,296/0.25=$25,184 per year. Isn’t this a little low? Are my calculations wrong, or did I misunderstand something?

  4. Tom Drake says:

    Good point Imran, thanks for working out the math I never even thought of! I checked the Service Canada site for the recent average payments, CPP comes in at $501 and OAS at $489. So that’s $990, or $11,880 for an average individual.

    The 25% figure comes from the government. Even though it’s written about the CPP, maybe they meant the entire payment, including the OAS portion? Of course $47,520 might be a bit high for average retirement income. Or it’s possible that the 25% term is based on a quarter of a necessary income, a bit of a marketing term by the government?

  5. Imran says:

    Thanks for the clarifications, Tom! QPP also provides $863.75, so that’s another $10,365 for Quebecers. For a couple, the total’s already at $44,490. That’s not so bad. Then add DPPs (if any), RRSPs, and moving into a small home (if you don’t want to leave anything for your kids, hehe).

    Maybe you can write a post consolidating all regular sources of income for pensioners.

    I’ve been following it for a few months now, reading every blog entry (using Google Reader). Good job!

  6. Betty says:

    How do I apply for my divorced husband’s share of his cpp?

  7. sherry Leigh says:

    I was approved for cppd in 06 after a brain injury.I now want to earn money via the internet selling things.How much money can I make and still keep my cppd of 824.00 per month?I know I have to declare anything over $400.00 but I am not sure of anything more?

  8. Linda Kerr says:

    I have been receiving CPP 4 the last yr & a 1/2, but, am still working part time. Up till now I haven’t worried about the hrs because I was not getting that many. Could u please tell me if there is a maximum of hrs in a month that I can work? Thank u very much

  9. Wayne says:

    I am 63 and began to collect my CPP at age 60 after an early retirement. I began to work short term contract jobs the end of last year and didn’t want to have CPP withdrawn my pay cheque as it won’t be added to what I already receive through CPP payments. My thoughts are if I am paying for something I should receive something in return. For the government to take payments without any intention of providing benefits is criminal. I’m just looking for a form I can deliver to my employer, accountant and revenue Canada to except me from further contributions.

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  11. Patricia says:

    Hi. This is probably a dumb question, but I’m just writing up my will and I’m wondering if I can designate a beneficiary. I’m single so a spouse wouldn’t be in the picture for receiving monthly benefits if I die. Are all those years of contributions just lost then?

    • John says:

      From what I understand, yes, it all goes back to the plan. Think about all the people who don’t live long enough to collect. CPP will never go broke.

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