Canada Pension Plan Changes for 2012 / 2016

CPP retirement pensions will be higher if taken after age 65

• Before the changes, CPP retirement pensions increased by 0.5% for each month after age 65 (up to age 70) that contributors delayed receiving them. For example, if contributors started receiving their CPP pensions at the age of 70, their pension amounts were 30% more than if taken at age 65.
• From 2011 to 2013, the Government will gradually increase this percentage from 0.5% per month (6% per year) to 0.7% per month (8.4% per year). This means that by 2013, if contributors start receiving their CPP pension at the age of 70, their pension amounts will be 42% more than if taken at age 65.
• The following table outlines the increase in the monthly actuarial factor for each year.

CPP retirement pensions will be lower if taken before age 65

• Before the changes, CPP retirement pensions were reduced by 0.5% for each month before age 65 that contributors began receiving them. For example, if contributors started receiving their CPP pensions at the age of 60, their pension amounts were 30% less than if taken at age 65.
• From 2012 to 2016, the amount by which a contributor’s early pension will be reduced will increase from 0.5% per month (6% per year) to 0.6% per month (7.2% per year). This means that by 2016, if contributors start receiving their CPP pensions at the age of 60, their pension amounts will be 36% less than if taken at age 65.
• The following table outlines the increase in the monthly actuarial factor for each year.

Changes to the general drop-out provision

Virtually all contributors are entitled to the general drop-out provision, which allows them to exclude a portion of their years of zero or low earnings from the calculation of their retirement benefit.

Because work interruptions occur for a variety of reasons, including involuntary job losses, and because time out of the labour force can lower the amount of one’s CPP pension, the pension formula is being enhanced to exclude up to eight years of low earnings under the general drop-out provision.

Starting in 2012, the number of years of low or zero earnings that are automatically dropped from the calculation of CPP pensions will increase.

• Before the changes, when Service Canada calculated average earnings over a contributor’s entire career (from age 18 until retirement), 15% of the contributor’s career period with the lowest earnings was automatically dropped. Under this provision, if contributors took their CPP retirement pension at 65, up to seven years of their lowest earnings were automatically dropped from the calculation of their average earnings.
• Starting in 2012, the percentage of low earnings will increase to 16%, which may allow up to 7.5 years of a contributor’s lowest earnings to be dropped from the calculation. In 2014, the percentage will increase to 17%, which may allow up to eight years of a contributor’s lowest earnings to be dropped.

Elimination of the Work Cessation Test

Starting in 2012, contributors can begin receiving their CPP retirement pensions without any work interruption. The elimination of the Work Cessation Test will make it easier for Canadians to make a phased transition to retirement.

Introduction of the Post-Retirement Benefit

Starting in 2012, if contributors are receiving CPP retirement pensions and they choose to work, they could continue to make CPP contributions that will increase their payments through the Post-Retirement Benefit (PRB). The newly-created PRB will be comprised of contributions made while contributors are receiving their CPP retirement pensions. If they are under age 65, contributions will be mandatory for them and their employers. If they are age 65 to 70, contributions will be voluntary (their employers will have to contribute if they do). People between the ages of 60 and 70 who make these contributions may begin to receive the PRB the following year.

• Self-employed beneficiaries will pay both employee and employer portions.
• Working CPP retirement pension recipients who wish to opt out of contributing to the Plan after age 65 will be required to inform the Canada Revenue Agency.
• Contributions made while beneficiaries are receiving their CPP retirement pensions will build up only the PRB. These contributions will not create eligibility or increase the amount of other CPP benefits, nor be subject to a credit split or retirement pension sharing.
• Each year of work will provide an additional PRB that will begin the following year and will be paid for life. Like other CPP benefits, the PRB rises with increases in the Consumer Price Index, providing protection from increases in the cost of living.
• The PRB will be added to an individual’s CPP retirement pension, even if the maximum pension amount is already being received.