Answers to
Practical Questions
I have heard about Government of Canada Pensions: the Canada Pension Plan (CPP) and the Old Age Security (OAS). How much is available?
Also, do you want to impress your parents? Tell them how much they could qualify for.
We are very lucky to live in Canada because we get to collect CPP and OAS pensions when we turn 65.
The maximum amount one can collect from CPP when one turns 65 is $13,110 per year. The maximum amount one can collect from OAS when one turns 65 is $6,846 per year. CPP payouts have recently been improved, but the changes have a long phase-in period.
Today, the total that these two pensions could provide your parents is $19,956 per year.
Importantly, both of these pensions are indexed to inflation, which means they will be increased by the consumer price index by the government each year. Nothing is free, however; as both of these pensions are also taxable, which means you must include them in your income when you file your taxes each year.
If these two pensions were the only income you had, your current after-tax income would be about $18,000 per year.
More important details on both of these pensions are as follows:
Canada Pension Plan (CPP)
Today, the maximum amount your parents are likely to be able to collect from the Canada Pension Plan (CPP) when they turn 65 is $13,110 per year. Now having said that, the average payout to new CPP beneficiaries in 2016 is $7,975. That is a lot less, but still not bad. CPP benefits have recently been improved to a maximum of $20,000 per year, with a long phase-in period.
Here is a summary of the major CPP rules that influence how much your parents will actually collect today:
CPP is kind of like a forced savings account: the amount one gets out of CPP depends on how much one has put in while working.
The contributory period begins when one reaches age 18, and ends when one either starts receiving the CPP retirement pension, turns 70 or dies (whichever happens first).
Almost every person over the age of 18 who works in Canada and earns more than a minimum amount ($3,500 per year) must contribute to the CPP.
The contribution rate is 9.9% of earnings, split equally between the employee and your employer.
The minimum one must contribute is 9.9% of $3,500 per year and the maximum you can contribute is 9.9% of $53,600 per year.
One can elect to receive a full CPP retirement pension at age 65 or as early as age 60 with a reduction, or as late as age 70 with an increase.
If you have a special situation, or want to learn more about CPP increased benefits, visit the CPP website.
Old Age Security (OAS)
Today, the maximum amount you can collect from Old Age Security when you turn 65 is $6,846 per year.
It is pretty easy for most Canadians to be eligible for the full pension amount.
Here is a summary of the major OAS rules that influence how much you will actually collect:
You qualify for the full OAS pension if you are a Canadian citizen or legal resident and have resided in Canada for 40 years after you turn 18. Even without this status, you may still qualify.
OAS is the Government of Canada's largest pension program. It is funded out of the general revenues of the Government of Canada, which means that you do not pay into it directly.
Some financial commentators worry that since OAS is not a savings plan like CPP, but a "pay as you go plan," OAS benefits may be cut in the future if the government runs out of money.
While the chance of the government running out of money is not a major concern today, it certainly could become an issue if the federal government continues to run big deficits.
The OAS pension is a monthly payment available to most Canadians 65 years of age and older who meet the Canadian legal status and residence requirements. It allows you to delay receipt of your OAS pension by up to five years after the first date of eligibility in exchange for a higher monthly amount when you turn 70.
Your employment history is not a factor in determining eligibility: you can receive the OAS pension even if you have never worked or are still working. Once you are collecting the OAS, if your income exceeds $72,809 per year, your OAS benefits start to get clawed back, and they disappear altogether when your income exceeds $117,000 per year. This makes sense as it permits the government to shift pension benefits from those who don’t really need the extra income to those who do.
Wondering how the OAS works for your special circumstances, visit the OAS website.