New Options Under The CPP Rules

New rules that are being phased in between now and 2016 for the Canada Pension Plan (CPP) will give people greater flexibility to choose when they want to begin receiving CPP benefits and on how long they can contribute to CPP after age 60.

Consider, for example, a 60-year-old worker who needs the income of a full-time job but would prefer to work fewer hours in order to take care of an ailing relative. The new rules make it easier for that person to receive their CPP benefits before age 65, which can be used to supplement their reduced income resulting from decreased hours of work.
But while the new rules offer more choices, many additional factors need to be considered in order to make those choices, cautions Chartered Accountant Michelle Connolly, Regional Vice President, Wealth Planning with CI Private Counsel LP in Toronto.
“As with any choice, there are trade-offs involved,” Connolly says. “For example, while it will be easier under the new rules to qualify to receive CPP benefits before age 65, the financial penalty for doing so will be greater. Currently, the benefit amount people receive at age 60 is 30 per cent less than it would have been if the person waited until age 65 to start receiving benefits. By 2016, that penalty will be greater – it will be 36 per cent less.”

On the other hand, people also have the option of deferring the receipt of CPP benefits until as late as age 70, in which case they receive higher benefits than they would have at age 60. Under the new rules, the amount of those extra benefits will also increase, from an additional 30 per cent in 2011 to 42 per cent in 2013.
People already receiving CPP benefits won’t be affected by the new rules - everyone else will have more choice. While each person should be guided by their own preferences and circumstances, Connolly recommends that people consider the following factors:

Everyone’s financial situation is different, and there may be other factors to consider in addition to those listed above. A Chartered Accountant can help you assess the financial impacts of the myriad of CPP benefit planning choices.

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