Changes to Canada Pension Plan Kick In Next year
If you are between age 60 and 65 changes to the Canada Pension Plan may affect those who are thinking about retirement and drawing CPP. The changes will result in 7.2% less payout for those who begin their CPP at age 60, and an 8.4 % increase for those who delay CPP to age 70.
Anyone currently receiving a CPP retirement pension, disability benefits, survivor benefits or combined benefits will not have these benefits affected by the changes. This will also not apply to anyone who receives their CPP retirement pension or other CPP benefits prior to the changes taking effect, beginning in 2011.
Clearly, with the CPP posting an 18% loss to March 31, 2009 and the boomers all staring down the CPP at 60, it was time to look at ways to extend the “cash for life program” creatively, other then raising the contributions levels of 9.9% .
So how will this work? CPP preretirement (drawing CPP before age 65) will result in a reduction in CPP benefits of 7.2% per year, which is up from the traditional 6%. Thus, if you begin to take CPP at age 60, your payments will be cut by 36%, up from 30%.
Canada Pension Plan Payment Rates (2010) |
|
Maximum monthly |
Maximum monthly benefit |
$934.00 |
New Monthly Amount: $597.76 |
This doesn’t sound too bad until you factor in a new rule that will require you to pay into the CPP at 9.9% up to the Yearly Maximum Pensionable Earnings or 9.9% X $46,300.00 which is $4583.00, if you work between 60 and 65 and are receiving CPP. This clearly is a new and present danger to taking CPP before 65 after 2011. If you had planned on double-dipping, which was the common advice before these new proposals, the idea of contributing to build additional credits may slow you down.
On the flip side, if you choose late retirement (after age 65, before age 71), your CPP benefits will increase by 8.4% per year, up from 6%. Thus, if you wait until age 70 to take CPP, benefit payments will increase by 42%, compared to 30% today.
Canada Pension Plan Payment Rates (2010) |
|
Maximum monthly |
Maximum monthly benefit |
$934.00 |
New Monthly Amount: $1,290.43 |
In summary, the new CPP legislation is clearly designed to keep us in the “saddle” beyond 65 and preferable drawing CPP well after that. You will likely continue to see more of these changes as the zoomers continue down the retirement path and place more pressure on health care and CPP costs.
Others changes to the CPP plan include a more generous calculation of career earnings. This increases the dropout percentage for years of low or no earnings from the current 15% to 17% by 2014. This will result in a higher retirement income. The other change is an annoying “Work Cessation Test”. Applicants will no longer be required to cease employment or have reduced income for a two month period in order to be eligible to apply for benefits.
The changes start implementing in 2011. If are looking at drawing CPP before 65, you may wish to complete the process before January 1, 2012. If you are thinking about delaying CPP, waiting until after January 1, 2011 could be very beneficial. For more information on these and other CPP changes visit: http://www.fin.gc.ca/n08/data/09-051_1-eng.asp
