A Reference Guide - Old Age Security and Canada Pension Plan

Canada Pension Plan

Contributions and Credits

Contributions are paid on annual employment earnings between the minimum ($3,500) and an annual maximum level. Contributions from self-employed persons are based on net business income (after expenses). The maximum is linked directly to the average Canadian wage.

Contributory period

The contributory period is defined as:

• starting on January 1, 1966, or when the contributor reached 18 years of age, whichever is later; and
  
  
• ending the month before the contributor begins to receive a CPP retirement pension, turns 70, or dies, whichever happens first.
  
  

The contributory period does not include any month during which the contributor was deemed to have a disability according to the CPP or the QPP legislation. If a client is receiving a disability benefit when he or she turns 65, the disability pension is automatically converted to a retirement pension.

Tracking earnings

A record of earnings is maintained for every contributor to document the history of his or her pensionable earnings and contributions to the CPP. A personal «Statement of Contributions» is updated annually and is available to contributors both online and through the mail.

Drop-out provisions

Months of low or zero earnings while caring for dependent children under the age of seven may also be excluded from the contributory period. This provision ensures that reduced earnings during child-rearing years will not result in lower CPP benefits. It applies to the person who received a Family Allowance benefit or was the spouse of a Family Allowance recipient. It also applies to those who are eligible for the Child Tax Benefit.

Certain periods of low or zero earnings - up to 15 percent of an individual′s contributory period - may be excluded when calculating average monthly pensionable earnings. This "drop-out" period is intended to compensate for periods of unemployment, illness, schooling, and so on. This is calculated after the child rearing provision has been applied.

If a person continues to work and contribute to the CPP after turning 65 and has higher earnings than previously, those earnings can be substituted for similar periods of earnings before the age of 65. For example: if a person works for two years after turning 65 and contributes at the maximum level, those two years can be used to replace any two years of low or zero earnings that took place before his or her 65^th birthday. Please note that once the retirement pension begins, it is not possible to contribute to the CPP.

Credit splitting

Since 1978, the CPP has contained a provision allowing CPP credits to be divided between ex-spouses after a divorce or legal annulment. In January 1987, the provision was broadened to include couples who separate from a legal or common-law union.

When a marriage or common-law relationship ends, the CPP credits built up by the couple while they resided together can be divided equally between them. These credits can be split even if one spouse/common-law partner did not contribute to the CPP.

Credit splitting can affect the CPP entitlements of both former spouses/common-law partners. Please note the following differences in application requirements:

• There is no time limit to apply for credit splitting in the case of divorce or annulment occurring after January 1, 1987.
  
  
• Spouses who separate must have been living apart for at least one year before they can submit an application. There is no time limit for applying unless one of the former spouses dies, in which case the application must be submitted within three years of the date of death.
  
  
• Separated common-law partners must also have been living apart for at least one year before they can submit an application, unless one of the former partners dies during that year. Unlike former spouses, however, former common-law partners must in all cases apply for credit splitting within four years of the date they began living apart.
  
  

A credit split is mandatory by law in cases of divorce once the Minister of Human Resources and Social Development receives the required documentation (with certain exceptions noted below). Therefore, once a request for credit splitting is made, it cannot be withdrawn. Separated couples who were married or in a common-law relationship can withdraw their application within 60 days after being notified of a split. No split will be made if the result would be a loss of credits to both spouses/common-law partners.

Any spousal agreements in existence must be submitted. Some agreements that contain a general property waiver or specific waivers of pension credits can prevent a split of pension credits, particularly if they were signed before June 4, 1986, or if they were signed in British Columbia, Alberta, Saskatchewan, or Quebec. Most waivers, however, do not prevent a split of pension credits.

Former common-law partners of the same sex may be eligible for credit splitting if the separation occurred after July 2000 and they have been separated for at least 12 months since that date.

Contributors to both the CPP and QPP: Contributors pay into the Plan based on where they work, not where they reside. Contributors who work in Quebec pay into the QPP. Those who work in any other province or territory pay into the CPP. Depending on where a person works, contributions may be made to both plans during his or her years of employment.

The two plans provide similar benefits. A person who pays into only one of the plans should apply to that plan for pensions or benefits, regardless of where he or she lives.

People who have contributed to both the CPP and the QPP apply to the QPP if they reside in Quebec when applying for a benefit and to the CPP if they reside elsewhere in Canada when they apply. Those who reside outside Canada apply according to the last province in which they resided before they left the country.

Regardless of which plan pays the benefit, the amount is calculated according to contributions made to both plans and the legislation of the plan responsible for paying the benefit.

Provided an applicant meets CPP eligibility conditions, payments are made anywhere in the world.

Social security agreements with other countries: Contributors who have resided or worked outside Canada may meet the minimum eligibility requirements for CPP benefits through international social security agreements.

Applying For Benefits

Canada Pension Plan benefits are not paid automatically. They must all be applied for. Prompt application is recommended because retroactive payments cannot be made for more than 12 months.

Exception: An application for CPP benefits can be made retroactively if the applicant was considered unable to apply earlier because of an incapacity. A person may be considered to be «incapacitated» if he or she is incapable of forming or expressing the intention to make such an application or request.

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