Demystifying the Canada Pension Plan

You’ve been contributing for years, but do you know what you’ll receive? 

For Canadians at or nearing retirement, the Canadian Pension Plan (CPP) can be a mystery. 

Many people who have contributed for years are unaware when they should begin their CPP and how much they’ll receive. 

It’s not as simple as collecting the CPP as soon as you can or leaving it until age 65. 

Here are some facts that can help you and your financial advisor determine what’s best for your situation: 

You can take CPP early and continue working

You can start collecting CPP as early as age 60. However, it will be reduced by .6 per cent per month prior to your 65th birthday up to a maximum reduction of 36%. 

For example, if you qualify for $1,000/mth at age 65, your pension at age 60 would be $640/mth.

If you continue working after starting to collect CPP, you will continue to pay into CPP until 65 in return for a modest supplemental benefit.   

CPP income is taxed on top of your employment income at your highest marginal income tax rate. 

You can delay your  CPP past age 65 and receive more 

Delaying your CPP payment until after age 65 increases your payment by .7%/mth for every month over age 65, to a maximum 42% increase at age 70.

For instance, if you qualify for a $1,000 pension at 65 and choose to delay until age 70, you’ll receive $1,420/mth.

If you are collecting CPP and continue to work past 65, you can apply to stop contributing to CPP – but it’s not done automatically. 

 Your CPP is based on approximately 25% of your average annual earnings – with adjustments 

CPP income calculations are complex with the enhancements made in 2019 and drop out provisions for 8 lowest earning years and child-rearing years. 

To start, we suggest contacting Service Canada ( for CPP Income estimates for two basic scenarios – starting CPP at age 60 and starting CPP at age 65. 

There are death and  survivor benefits

The CPP death benefit is a lump sum payment of $2500. 

The survivor benefit applies only to spouse or minor children. 

It is limited to CPP maximum retirement benefit if the spouse is over 65 and already collecting CPP. 

If the surviving spouse is under age 65, the combined survivor and retirement benefit may exceed the maximum retirement benefit.

Things to consider before applying for CPP

Employment – It generally makes sense to take CPP if you have stopped working. If still working, early CPP and tax implications should be considered.

Survivor’s Benefit – If you are already receiving CPP Survivor’s Benefit and apply for retirement benefits, you may be capped at the CPP maximum. Get a CPP estimate before deciding.

Personal Health and Life Expectancy – Recent data shows most Canadians live well past the “breakeven point” between taking CPP at 60 or 65. And CPP payments are indexed for inflation. 

Delaying payments may result in more money received over a retiree’s lifetime.  

Asking for professional help – If the first step is contacting Service Canada for your CPP pension information, your next step should be contacting your financial advisor for help.                                  

Deciding on when to start CPP impacts decisions on other retirement income, tax planning and what remains for your estate. Talk to an expert.  

Submitted by Dan Allen, CFP, MFA, EPC, Senior Financial Advisor, Manulife Securities Incorporated

Dan Allen