Canada Pension Plan or CPP refers to the government run pension for Canadians who have earned employment income throughout their careers. Most people who have worked for many years in Canada, or a country with a social security agreement, can expect to receive between a few hundred to a little over a thousand dollars per month when they begin payments, for which the standard age is 65, until their death. Payments are fully taxable as income and can be partially or fully split with a spouse or common-law partner subject to restrictions. Residents of Quebec have an analogous program called QPP.
One aspect of CPP which receives considerable attention is the ability to take payments up to 5 years before or after the standard age of 65. Taking payments early permanently reduces the size of each payment, and delaying payments permanently increases their size. Much has been written about the pros and cons of taking CPP earlier versus later; you can find our analysis on the topic here. In short, if you are struggling to make ends meet, delay CPP as long as you are able. If you don’t need your CPP payments to help you with expenses, then taking around age 65 is generally best, though it depends on your health and your assumption for future investment returns.
The precise calculation for CPP payment eligibility is fairly complex and its intricacies are beyond the scope of this article. The basics are that a Canadian who has lived and worked in Canada for around 35 years or more, earning over $65,000 per year in today’s currency would be eligible for the maximum payment amount – about $1,250 per month or $15,000 per year at age 65. However, very few Canadians actually receive the maximum as a result of not working long enough or low earnings, particularly early on in one’s career. The average monthly CPP payment is about $727 or $8,700 per year, which is only 58% of the maximum.
CPP payments can be split with one’s spouse or common-law partner subject to some restrictions. The longer you and your spouse were a couple during the CPP contribution years, the greater share of the CPP payments that can be split. So if you contributed to CPP for 30 years, and have been with your common-law partner for 15, you can split half of your CPP payments, but the rest is still attributable to you. In this case, 75% of your payments would be attributable to you and 25% to your spouse (since you split half of the payment in two, 25% remaining with you and 25% going to your spouse).
The Canada Pension Plan also administers several other programs which are used to benefit spouses of deceased CPP contributors, children of deceased or disabled CPP contributors and also a one-time death benefit towards a contributor’s estate. The Government of Canada website has very good summaries of these programs on their website.