Canadian Pension Plan Eligibility
Canadian Pension Plan (CPP) is a deferred income retirement plan that was introduced in 1965 as a complement to Old Age Security (OAS). All individuals over the age of 18 who work inside of Canada are eligible to contribute toward and receive benefits from the Canadian Pension Plan (CPP).
Contributions towards CPP are mandatory, even for self employed workers. The level of benefits that you are eligible to receive in retirement varies depending on how much you paid into the system during your working life.
CPP was originally financed entirely by payroll taxes (or contributions) levied on employers, employees and the self-employed. Benefits depended on current contributions.
The CPP now earns investment income, along with payroll contributions, which are split equally between employers and employees, with the self-employed paying the full rate.
Since the contribution rate, as a percentage of income, is fixed, those who earn more money are eligible to receive higher monthly payments. The percentage is 4.95% (or 9.9% if self-employed) on earnings above $3,500 up to $55,300 in 2017.
The maximum CPP contribution for employers and employees is $2,564.10 each. CPP contributions are required from age 18 but are no longer required after you start receiving CPP benefit or turn 70.
The CPP pays a monthly amount, which is designed to replace about 25% of the contributor’s earnings on which initial contributions were based, and is indexed to the Consumer Price Index (CPI).
Those living in Canada but residing in Quebec are not eligible for CPP benefits, since the Provincial Government of Quebec has opted out of the program. Instead, Quebec offers the Quebec Pension Plan (QPP).
Statement Of Contributions
The easiest way to figure out your CPP eligibility is simply get your CPP statement of contributions. Statement of Contribution Once you have that document, it will list all the years you are eligible to contribute from age 18 to 70. It will show you how much you contributed in each of those years.
The average annual CPP pension received by a retiring 65-year-old person at the end of 2016 was $7,728 – versus a possible maximum of $13,368.
Plan participants can opt to start receiving their pension anytime between the ages of 60 and 70, with the annual pension amount adjusted down or up on an actuarially fair basis. The Plan also features an array of benefits for survivors, for disability and for death.
Survivor’s pension: The spouse or common-law partner of a deceased contributor may be eligible to receive a monthly survivor’s pension. The maximum CPP survivor’s benefit for 2017 is $604.32 (under age 65) and $668.50 (over age 65).
Children’s benefits: These are monthly payments provided to dependent children of a disabled or deceased CPP contributor. The children must either be under 18 or under 25 and enrolled as a full-time student in school or university.
Death benefit: This is a one-time, lump-sum payment made to the estate of the deceased contributor. The maximum death benefit payable is $2,500.
CPP, and OAS combined with your TFSA and RRSP, will for the majority of Canadians finance their retirement needs. Taking the time to plan and understand how the CPP benefit is calculated and how much you will receive is a must for an accurate retirement plan.
The Government of Canada website has a lot of good information Canada Pension Plan – Overview
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