The Canada Pension Plan (CPP) is a contributory social insurance benefit program designed to help supplement income during retirement. It is intended to replace about one-quarter to one-third of a person’s employment earnings.
This monthly, taxable benefit is available to all Canadians — including self-employed people — over the age of 60 who have worked in any province or territory outside of Quebec and have contributed to the plan. Payment into CPP is mandatory.
Nerdy Tip: Canadians who have worked in Quebec are eligible to receive the Quebec Pension Plan, which is similar to the CPP.
How does the CPP work?
There are two main parts to the CPP: Paying into the CPP and then eventually receiving CPP benefits.
Contributing to the CPP
In general, all Canadian workers (aside from those in Quebec) over the age of 18 who make more than $3,500 annually are required to contribute a percentage of their employment income to the CPP. You’ll make contributions based on the amount between $3,500 and the earnings ceiling, a maximum amount set each year based on average wages that is also known as maximum pensionable earnings. For 2023, the maximum pensionable earnings amount is $66,600. This CPP table outlines the contribution rates and maximum pensionable earnings per year.
If you work for an employer, you pay half the contribution amount, typically in small amounts deducted from each paycheque, and your employer covers the other half. If you’re self-employed, you pay the full contribution amount, as you don’t have an employer to match it. The self-employed contribution is calculated as a percentage of your net business income, up to the maximum pensionable earnings cutoff.
For example, in 2023 an employed person and their employer would each contribute a maximum amount of $3,754.45. A self-employed person would have to contribute a maximum of $7,508.90.
You stop contributing to the Canada Pension Plan once you retire from work or turn 70. If you are 65 or older and still working while receiving CPP benefits, you can also elect to stop contributing to the CPP.
Applying for CPP benefits
CPP payments don’t arrive automatically once you turn 65. To receive CPP, you must apply for it. Though the standard age to begin receiving CPP is 65, you can start receiving benefits as early as 60 or as late as 70. The monthly amount you can receive maxes out at that point.
If you have ever been denied a CPP benefit, you live outside of Canada, or have a power of attorney that oversees your CPP account, you must apply for CPP by submitting a paper application form. Otherwise, you can apply online via My Service Canada Account. Once you submit your application, you’ll get an estimate of your monthly benefits. You should hear back within 120 days after submitting a paper application.
Receiving CPP benefits
Canadians are eligible to receive their full CPP benefits starting in the first month after their 65th birthday. You can also opt to start receiving your benefits as early as age 60, with a penalty of 0.6% for every month before you turn 65, or as late as age 70, with a bonus of 0.7% for every month you delay past age 65. You can use direct deposit to receive your CPP benefits.
If you elect to receive benefits at age 60, your benefits will therefore be permanently reduced by 36%. If you delay benefits until you turn 70, you will in turn receive a permanent increase in benefits of 42%. There’s no benefit to deferring CPP benefits past age 70.
The amount of CPP you will receive is based on:
- How long and how much you have contributed to the program.
- The age at which you opt to start receiving benefits.
- Your average earnings in your working years.
There is no minimum amount of time you’re required to have worked to receive CPP. If you experienced periods of sporadic or low earnings, such as while staying home to raise children or experiencing a disability, the government will automatically exclude up to eight years of your lowest earnings when calculating your CPP benefits.
You can log into your My Service Canada Account (MSCA) online to get an estimate of how much you would be eligible to receive.
In June 2023, the average monthly payment for a new 65-year-old CPP beneficiary was $772.71, and the maximum monthly amount for new recipients at age 65 was $1,306.57. The government also has a handy Canadian Retirement Income Calculator that will help you calculate your CPP earnings.
What is the CPP enhancement?
In 2019, the Canadian government decided to gradually increase CPP payments. Originally the CPP was designed to replace about a quarter of a person’s employment earnings. The new enhancement is intended to replace about a third of a person’s average income in retirement. The enhancement is a top-up to the original CPP contribution amount.
From 2019 to 2023, the contribution rate gradually grew by one percentage point (from 4.95% to 5.95%) on earnings between $3,500 and the earnings ceiling. In return for making bigger CPP contributions, beneficiaries will receive bigger CPP benefits in retirement. The CPP enhancement affects only those Canadians who work and contribute to the CPP as of January 1, 2019.
Starting in 2024, the second part of the CPP enhancement will take effect with a new earnings limit called the additional maximum pensionable earnings. You’ll pay a second CPP contribution (known as CPP2) on earnings between the original annual maximum pensionable earnings and the second additional annual maximum pensionable earnings. The idea is to contribute more to the CPP in higher-income years so that the benefits you eventually receive will replace a greater percentage of your income.
The additional maximum pensionable earnings amount for 2024 is $73,200. Employed Canadians will pay 4%, up to a maximum additional annual contribution of $188 (and their employers will pay another 4%), while self-employed people will pay 8% of net business income, up to a maximum of $376.
CPP tax considerations
Since the CPP is a taxable benefit, you may want to hold off applying for your CPP until you have stopped working, have a lower overall income and thus fall into a lower tax bracket. You are also allowed to split your pension income with your spouse or common-law partner, which could potentially reduce your taxable income overall and put you in a lower bracket. You can use the government’s Canadian Income Retirement Calculator to explore your options.
Note that you can also open a retirement account, registered retirement savings plan (RRSP) to contribute to and receive government tax benefits. You can then move your RRSP funds to a registered retirement income fund (RRIF), another tax-deferred account to avoid a lofty tax bill on turning 71.
What happens if a CPP beneficiary dies?
If a CPP beneficiary passes away, the government requires that any benefit payments be cancelled. Their estate can receive a payment in the month of their death, but any payments received afterwards must be repaid. You can notify Service Canada by phone at 1-800-277-9914 from 8:30 a.m. to 4:30 p.m. local time, Monday to Friday.
A beneficiary’s estate may qualify for a one-time CPP death benefit of $2,500.
A surviving spouse or common-law partner may be eligible to receive a CPP survivor’s pension. Payment amounts depend on their age, whether they already receive other CPP benefits, and how much and how long their late partner contributed to CPP.
Similarly, a dependent child of a deceased CPP contributor may be eligible to receive a CPP surviving children’s benefit. This monthly payment ($281.72 per month in 2023). To be eligible, the child must be either under age 18 or under age 25 and attending post-secondary school full time.
An annuity provides regular payments that serve as guaranteed income during retirement. Canadian annuities charge fees and commissions, lock-in your money and are subject to taxes.
Canada’s Old Age Security (OAS) is a benefit paid to seniors. Enrollment is often automatic, and the amount you receive depends on age, income and how long you lived in Canada as an adult.