Nearly all individuals who work inside of Canada are eligible to contribute toward and receive benefits from the Canada Pension Plan, or CPP. The CPP is a deferred income retirement vehicle that has been in place since 1965 when it was introduced as a complement to Old Age Security. It is designed to partially replace earnings upon retirement, disability, or death.

Canadians who reside in Quebec are not eligible for CPP benefits, since the provincial government of Quebec has opted out of the program. Instead, Quebec offers the Quebec Pension Plan.

Key Takeaways

  • The Canadian Pension Plan (CPP) is a deferred income retirement plan that provides retirement, disability, and survivor benefits to contributors and their families.
  • In 2019, the average monthly benefit for a newly retired 65-year-old is C$724, while the maximum is C$1,155.
  • A new enhancement plan taking effect in 2019 will gradually raise the rate of contributions from the old rate of 4.95% to 5.95%, increasing benefits for those currently making contributions to the CPP.
  • CPP benefits are not sent to anyone, even those who are eligible, until an application to receive them is filled out and submitted.

Canada Pension Plan Beneficiaries

Standard benefits are reserved for those who reach the full retirement age of 65, although there are provisions for people between the ages of 60 and 65 (who received a reduced amount), those with a chronic disability, and survivor benefits to those who lost someone before they reached retirement age.

Those who have paid into the system and decide to take their benefits after age 65 will receive 8.4% more for every year they hold off until age 70, when they will receive 42% more than if they had started their benefits at 65.

The CPP also provides monthly benefits to the dependent children of disabled or deceased CPP contributors. To qualify for children's benefits, a child must either be under the age of 18 or under the age of 25 while enrolled full-time at a recognized educational institution.

Contributions and Benefits

If you are over the age of 18 and earn more than C$3,500 a year, you are required to contribute to the CPP, even if you are self-employed. The earnings limit subject to CPP contributions is adjusted each year. In 2019, the ceiling was C$57,400.

CPP Enhancement Plan

Up until now, the CPP retirement benefit has replaced one-quarter of a worker's average earnings, but a new enhancement plan being phased in over seven years is designed to increase that percentage to one third. It will also increase future disability and survivor benefits.

Between 2019 and 2023, workers' contributions will gradually rise from the old rate of 4.95% (valid through 2018) to 5.95% a year. In 2019, the contribution rate is 5.10%. Employers' contributions are equal to those of employees. As in the U.S., self-employed workers contribute both the employee and employer portions. In 2024, a second, higher earnings ceiling will be introduced that allows workers who earn more to make additional contributions.

Benefit Levels

The level of benefits that a worker is eligible to receive when they retire at age 65 varies depending on how much they paid into the system during their working life—a function of the amount of their contributions and the number of years they made them. Since the contribution rate, as a percentage of income, is fixed, those who earn more money are eligible to receive higher monthly benefits from the CPP.

In October 2019, the average monthly benefit for a newly retired 65-year-old was C$672, while the maximum is C$1,175.

Individuals aged 60–70 years who work while they receive a CPP retirement benefit may increase their retirement income with a post-retirement benefit if they continue to contribute to the CPP.

Receiving Benefits

CPP benefits are not sent to anyone, even those who are eligible, until an application to receive them is filled out and submitted. If an application is denied, an appeal can be made to the Canada Pension Appeals Board. Cost-of-living adjustments, based on increases in Canada's consumer price index, are made in January of each year. In 2020, benefit amounts increased by 1.9%.