Second level - the Canada Pension Plan
The Canada Pension Plan is funded through contributions made by Canadian workers, their employers and the self-employed, as well as through earnings on the investment of the Plan's funds. The Canada Pension Plan operates in every Canadian province and territory (except Quebec which has its own, similar plan called the Quebec Pension Plan).
In addition to being a source of retirement income, the Canada Pension Plan also provides contributors and their families with disability benefits, survivor benefits and benefits for children. In total, the Canada Pension Plan paid over 4.1 million Canadians about $19.5 billion in benefits in 2001.
The many progressive features of the Plan include:
- inflation protection;
- full portability from job to job within Canada;
- credit splitting between former spouses or common-law partners; and
- child-rearing and other drop-out provisions.
Protection against inflation
Canada Pension Plan monthly benefits are adjusted annually according to the Consumer Price Index. In other words, if the cost of living goes up, so does the amount of your benefits.
Full portability from job to job within Canada
When you leave one job to go to another, your future CPP benefits are not affected. Each new employer and you are responsible for making contributions to the CPP.
No penalties for some periods of unemployment or for staying home to raise your children until they reach the age of seven
The CPP benefit calculations include both how much and how long you have contributed to the Plan since the age of 18. If you stopped working or if your earnings were lower in some years due to unemployment, underemployment, illness or schooling, the Canada Pension will automatically remove up to 15% of these periods from your benefit calculation, if it will increase your retirement pension or other CPP benefits.
In addition, if you stopped working or if your earnings were lower while you were raising your children under seven years of age, you can have these periods removed from the calculation when you apply for your CPP benefits. This is only used if it will increase your benefits.
For more information, see Facts about the Child Rearing Drop-out Provision.
Credit splitting upon divorce or separation
If you are separated or divorced, and if you qualify, you and your spouse or common-law partner can divide equally the CPP credits you both earned during your marriage or common-law union. This makes both of you eligible for a retirement pension and possibly other benefits.
- First level - the Old Age Security program
- Second level - the Canada Pension Plan
- Third level - private savings