Canada Pension Plan
In Canada the government has established a multi-level system of administering retirement income to Canadians. There is Old Age Security, and the Canada Pension Plan, which are overseen by the federal government, and there are the private pensions and savings of Canadian individuals.
The Canada Pension Plan (CPP) was first established in 1966 by the Liberal government of Prime Minister Lester B. Pearson.
The Canada Pension Plan is a retirement pension that is paid as a monthly benefit to Canadians who have contributed to the Canada Pension Plan. The main goal of the pension program is to replace about 25% of the earnings on which the contributor's contributions were based. The CPP benefits are paid until the contributor's death.
As of 2006, the funding for the pension plan is set at a contribution rate of 4.95% of a worker's gross employment income. The threshold for contribution rates by Canadian individuals is set between $3,500 and $42,100, and has a maximum contribution amount of $1,910.70 per year.
The Canada Pension Plan sees the employer match the employee's contribution. This effectively doubles the contributions of the employee. Canadian workers who are self-employed must pay the full CPP contribution amount on their own.
You can qualify for a CPP retirement pension at the age of 65 if you have made at least one valid contribution to the pension plan. You can qualify between the ages of 60-64 if you have stopped working completely, or are earning less than the current monthly maximum CPP retirement pension payment as established by the government of Canada.
There are benefits to waiting to receive your Canada Pension Plan pension. If you were to start your pension at the age of 60, your total monthly payment is 30 percent lower than if you had waited until you were 65. By contrast, if you were to wait until the age of 70 to start drawing on your pension, you would find that your total monthly payment is some 30% higher. And no, there are no further financial benefits to be received by waiting beyond the age of 70. And remember - CPP is a taxable benefit!
Canada Pension Plan payments are currently indexed to the cost of living. Any cost of living increased incurred will see payments adjusted in January. Should the cost of living index ever go down, don't worry; your payments will stay the same.
There are other benefit plans available to Canadians as well. If you are over 65, you may be eligible for a pension under the Old Age Security Act. If your income is low, you may also qualify for the income-based Guaranteed Income Supplement.
For more information see: www.sdc.gc.ca