Financially Speaking – Canada Pension Plan and Quebec Pension Plan

Financially Speaking – Canada Pension Plan and Quebec Pension Plan

Here is the second in a series of financial advice columns provided by Philippe Pomerleau, F. Pl.
RBC Financial Planning

Canada Pension Plan / Quebec Pension Plan

A helpful guide to government income that may be available to you.

You should obtain professional advice from a qualified tax advisor before acting on any of the information in this article. This will ensure that your own circumstances have been considered properly and that action is taken on the latest information available.

This article provides you with detailed information as to what you may be entitled to receive and how your decision regarding when to receive these amounts may affect your overall benefit.

CPP and QPP provide retirement, disability and survivor benefits to individuals who have contributed to CPP, QPP or both. CPP is for individuals who work in provinces and territories outside of Quebec and QPP is for individuals who work in Quebec.

If you worked, made at least one valid contribution (payment) to CPP/QPP and are at least 60 years of age, then you qualify to receive CPP/QPP retirement benefits. While you can begin receiving CPP/QPP payments when you turn 60 years of age, you are not required to begin receiving CPP payments until you are at least 70 years of age. Your monthly CPP/QPP payment will depend on numerous factors including your average salary and how many years you worked and contributed to it.

If you begin taking CPP before the age of 65, your CPP is reduced by a certain percentage for each month before you reach age 65, calculated from the time you begin receiving your pension. However, your CPP retirement pension is increased by 0.7% for each month after age 65 (and up to age 70) that you delayed receiving it. This means that if you begin receiving CPP at 70, your monthly CPP income will be 42% higher than it would have been if you had elected to begin CPP when you reached 65.

The amount of QPP that can be received is also impacted by when you decide to begin receiving it. Although the rates are different than the CPP, if an individual decides to take QPP before 65, the amount of monthly QPP is reduced. Additionally, if an individual decides to take QPP after 65, the amount of monthly QPP received is increased. Changes to the monthly reduction and addition are being phased in over the next few years.

Determining when you should begin taking CPP/QPP involves consideration of your financial needs. If you are trying to maximize the total benefit you will receive in your lifetime, you need to consider the expected rate of return, your life expectancy and inflation.

Do you have to stop working or limit your monthly income before receiving CPP/QPP?
No. This was the case under old CPP rules, but as of 2012 the requirement to stop working or significantly reduce your earnings to take up early CPP no longer applies. This may help you phase into retirement or supplement your employment earnings. For example, with CPP pension, you may be able to reduce your work hours and still maintain the same income from the combined CPP and reduced employment earnings.
For QPP, as of January 1, 2014, individuals who are 60 years of age or over who contributed to QPP for at least one year will be able to apply for QPP even if they are still working.

If you are under age 65 and are receiving your CPP monthly pension and continue to work, you and your employer are required to continue to contribute to CPP. If you are between the ages of 65 and 70, are collecting a CPP pension and continue to work, the decision to continue to contribute to CPP is voluntary, so you may elect not to make CPP contributions. However, if you opt to participate in CPP, your employer will be required to also contribute. These contributions will result in increased retirement benefits. In Quebec, if you are receiving QPP, you can work and continue to receive QPP pension. However, you must contribute to QPP once earnings exceed $3,500. Similar to CPP, these additional contributions result in an increase in the monthly QPP.

Spouses or common-law partners who are together, who are both at least 60 years old, and who are both receiving the CPP/QPP retirement pension can share their CPP/QPP retirement benefits. This is called pension sharing, and may result in tax savings. If only one of you is a CPP/QPP contributor, you share that one pension. The overall benefits paid do not increase or decrease with pension sharing. By electing to share, a portion of the higher income spouse’s retirement pension may be received by the lower income spouse and taxed in the lower income spouse’s hands.

CPP disability benefits are available to certain individuals who have made contributions to CPP and are disabled. The CPP definition states that a disability has to be both “severe” and “prolonged.” To receive this benefit, you must be under 65, and have stopped working because of your medical condition. To find out more details regarding eligibility and how to apply, please visit the Service Canada website. QPP disability benefits are available to an individual under 65 who has a severe and permanent disability and has contributed sufficiently to QPP. For more information regarding eligibility and how to apply for QPP disability benefits, please visit the Régie des rentes du Québec website.

There are three types of survivor benefits provided by CPP and the QPP. The death benefit is a one-time, lump sum payment. The survivor pension is a monthly pension paid to the deceased contributor’s spouse or common-law partner. The orphan’s pension or the children’s benefit is paid to a minor child of the deceased individual who meets certain requirements. For information on these benefits, visit the Revenu Québec website or Service Canada website.

For more information you can get in touch with Philippe via the contact details below or visit his website.



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About Author

Philippe Pomerleau

Philippe Pomerleau has worked in the financial sector for years. He is based in Quebec City and speaks English and French.

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