The Canada Pension Plan Doesn’t Work Like You Think

Waiting to start your CPP retirement pension may add nothing to your income, but you will have given up money in the interim.  If you are receiving a survivor benefit now, or might get one, read on.

The Canada Pension Plan includes an overall combined benefit limit.  It says survivor benefit plus your own retirement benefit cannot exceed the maximum retirement benefit for one person.  (In 2016 that is $1,092.50 monthly)

You could take a smaller pension as early as age 60. The plan discounts pensions taken before age 65 because of the longer pay period expected, but that may not affect you. You might get no more by waiting.

Suppose someone has a survivor benefit of $550 per month and could receive a discounted retirement pension of $650 on their own account at age 60.  If they waited until 65 they would theoretically receive the maximum pension.   Despite the substantial discount, they should probably start at 60.  They will not receive their entire personal entitlement because of the maximum, but waiting for a larger personal pension will gain little.   The maximum will still be the total of the two parts.

The calculation that determines the combined benefit is complicated.  To decide the timing of your own CPP benefit you must know how much it will be at 60 and how it will change by 65 if you do nothing.

To know that, we will need your Statement of Contributions.  You can get that information from your local Service Canada Office, or by calling 1-800-277-9914.  Their internet site is essentially useless.

With the statement of contributions in hand, you can estimate your entitlement.  The decision depends on many factors including the CPP rules, your age, health, projected employment or business income to age 65, tax position, child rearing years, and your need for more cash income.  Your advisor may have some of the information about your factors now.  If not, it would be a good time to update your plan.

Get your Statement of Contributions and forward it to your advisor.  They will have a few more questions then, but cannot start before they get it.

We’re all different. Some people want the money to spend while others use it to top up their RRSP.  Every situation is different, but the fact remains that if you don’t take the money, it is gone forever.

Thanks to my friend Tom Weichel at IPC Securities for the idea for this article.  His firm does these calculations for clients.  If interested you can reach him at or at 705-748-5181

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in an international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you. 

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