The Canada Pension Plan is undergoing some key changes between 2011 and 2016. These changes are intended to provide more financial flexibility for recipients, depending on the retirement path that people choose. They are also designed to encourage Canadians to work longer before they start to draw a government pension.
Changes to the amount you receive
For pension plan benefits that start on or after January 1, 2012, the reduction for taking your CPP payments before the age of 65 has increased. Previously, if you elected to receive your monthly CPP benefit prior to turning 65, your monthly amount was reduced by 0.5% per month, for a maximum reduction of 30% if you started your CPP pension at age 60.
Between now and 2016, this monthly reduction will be gradually increased, so that by 2016, the reduction will be 0.6% for every month that your first payment precedes age 65. This increases the maximum reduction to 36% if you elect to start receiving your government pension at age 60.
On the other hand, if you elect to take your pension after the age of 65, you will now see a slightly larger increase in your monthly CPP amount. This increase, which is being phased in between 2011 and 2013, will ultimately provide a 0.7% increase for every month that retirement is postponed after age 65. This increase pushes the maximum benefit to 42% from 30% if you elect to postpone receiving your CPP benefits until age 70.
Removal of the “work cessation” test
Prior to this year, an individual who was between 60 and 65 years of age could elect to start receiving the CPP retirement benefit if they met the work cessation test. To meet the test, the person had to have either stopped working, or their earnings had to be less than the maximum monthly CPP benefit for at least two consecutive months.
As of January 1, 2012, if you are age 60, you can continue to work and still receive CPP benefits.
Continued CPP participation while receiving benefits
Under the old rules, once you began collecting CPP, you never again had to contribute to the plan, and therefore, you did not accrue additional CPP benefits. As of January 1, 2012, if you are under the age of 65 and are working while receiving a CPP pension, you (and your employer) must continue to make CPP contributions. These additional contributions will increase your CPP benefits.
If you are between the ages of 65 and 70 and work while receiving CPP benefits, you now have the choice of continuing to make CPP contributions (which will increase your CPP benefits) or not.
For full details of the Canada Pension Plan changes, give us a call. We can help you to determine which options are best for you.
Bill Konnert has been an Executive Consultant with Investors Group Financial Services Inc. for over 35 years focusing on helping seniors secure their savings and investments to live comfortably. He believes that a holistic approach to financial planning with caring knowledge is true value. With offices in White Rock and Vancouver, BC, he can be reached at (604) 531-3635 or Toll Free 1(888) 335-3635. Website: www.investorsgroup.com/consult/bill.konnert
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