Changes to the Canada Pension Plan (CPP)

Information if you provide retirement advice

As a financial advisor, banker or other similar function, you play a key role in advising Canadians on all aspects of their financial planning, including retirement planning.

The Canada Pension Plan (CPP) is adapting to better reflect how individuals in Canada now live, work, and retire. The new changes give Canadians more flexibility to make choices that are right for them as they make the transition from work to retirement. These changes will better recognize that retirement is a process that often occurs in stages, rather than a one-time event.

Some key considerations in deciding when to apply for a CPP retirement pension include:

  • employment opportunities
  • other retirement income
  • health of the individual and his or her family
  • individual’s retirement goals

The amendments to the CPP will include the following:

The monthly CPP retirement pension amount will increase by a higher percentage if taken after age 65

There will be a gradual restoration of the CPP retirement pension adjustments to their actuarially fair levels for the take-up of the pension. This will further increase the pension for those who start receiving it late (after age 65 and up to age 70), and further reduce it for those who start receiving it early (between the ages of 60 and 64). This ensures that there are no unfair advantages or disadvantages to early or late take-up of CPP retirement benefits. These changes to the pension adjustments will be phased in gradually over a period of six years, starting in 2011 and ending by 2016.

Before the changes, a CPP retirement pension increased by 0.5% for each month after age 65 (and up to age 70) that an individual delayed receiving it. This meant that an individual who started receiving their CPP pension at 70 received 30% more than if they had taken it at 65.

From 2011 to 2013, the Government of Canada 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, an individual who starts receiving their CPP pension at the age of 70 will receive 42% more than if they had taken it at 65.

The following table shows the percentage by which your retirement pension will increase, for each month after age 65 that you delay taking your pension. These percentages will change every year until 2013. For example, if you retire in 2011, your retirement pension will increase by 0.57% for each month after age 65 that you postpone taking it.

Year of retirement % (monthly increase)
2011 0.57
2012 0.64
2013 0.70

For a person who starts receiving the retirement pension at age 70, this adjustment represents a maximum increase of 34.2% in 2011, 38.4% in 2012, and 42% in 2013.

The monthly CPP retirement pension amount will decrease by a larger percentage if taken before age 65

Before the changes, a CPP retirement pension was reduced by 0.5% for each month before age 65 that an individual began receiving it. This meant that an individual who started receiving their CPP pension at 60 received 30% less than if they had waited to take it at 65.

From 2012 to 2016, the Government will gradually change this early pension reduction from 0.5% to 0.6% per month. This means that by 2016, an individual who starts receiving their CPP pension at the age of 60 will receive 36% less than if they had taken it at 65.

The following table shows the percentage by which your retirement pension will decrease, for each month before age 65 that you begin receiving your pension. These amounts will change every year until 2016.  For example, if you retire in 2012, your retirement pension will decrease by 0.52% for each month before age 65 that you begin receiving it.

Year of retirement % (monthly reduction)
2012 0.52
2013 0.54
2014 0.56
2015 0.58
2016 0.60

For a person who applies for and receives their CPP retirement pension at age 60, this represents a maximum reduction of 31.2% in 2012, 32.4% in 2013, 33.6% in 2014, 34.8% in 2015, and 36% in 2016.

The number of years of low or zero earnings that are automatically dropped from the calculation of the CPP pension will increase

Before the changes, when Service Canada calculated an individual’s average earnings over their contributory period (from the earliest of January 1, 1966, or age 18 until the effective date of their retirement pension if effective before the age of 70), 15% of their lowest earnings were automatically dropped. This is called the “general drop-out provision.” Under this provision, if someone took their CPP retirement pension at 65, up to 7 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%, allowing up to 7.5 years of the lowest earnings to be dropped from the calculation, which will likely increase the benefit amount. In 2014, the percentage will increase again to 17%, allowing up to 8 years of the lowest earnings to be dropped from the calculation.

This change will benefit all CPP contributors who are eligible for CPP benefits in 2012 or later.

Contributors will be able to receive their CPP retirement pension without any work interruption

Starting in 2012, contributors no longer have to stop working or significantly reduce earnings for two consecutive months to receive the CPP retirement pension before the age of 65. This will make it easier for Canadians to make a gradual transition to retirement.

CPP contribution rate

The CPP is financed through mandatory contributions from virtually all workers and their employers, including self-employed contributors, as well as revenue generated from investments. The combined contribution rate is 9.9% of earnings between the Year’s Basic Exemption ($3,500) and the Year’s Maximum Pensionable Earnings ($47,200 in 2010). The contribution rate is split equally between employees and employers so that the maximum amount paid by employees and employers per year is $2,163.15 (2010) each. The self-employed pay both the employee and employer share of the contributions (maximum contribution of $4,326.30 in 2010).

The changes being implemented from 2011 to 2016 are affordable within the current CPP contribution rate of 9.9%. The Chief Actuary of Canada estimates that the CPP, including the changes being implemented, is sustainable at the current rate of contribution for the next 75 years (as of the 24th CPP Actuarial Report).

To give Canadians enough time to plan, these changes will be introduced gradually.

Tools and Resources

Learn more about all the changes to the CPP.