From time to time, we host online chats that are so popular, our guests cannot possibly answer all of our readers' questions within their alloted hour. Such was the case last Friday when we had BMO retirement expert Tina Di Vito online for a discussion about the upcoming changes to the Canada Pension Plan.
When we told Ms. Di Vito how popular she was (a little flattery never hurts), she was more than happy to look at some of the most common questions that went unanswered and offer up her advice. Your questions, and Ms. Di Vito's answers, follow...
1. How are the changes being phased in over the period from 2011 to 2016?
The changes relating to the percentage increase/decrease for late/early CPP take-up will be phased in as per the table below (information derived from Service Canada website):
Increase per month for taking CPP after age 65
2011 - 0.57%
2012 - 0.64%
2013 - 0.70%
Reduction per month for taking CPP before age 65
2012 - 0.52%
2013 - 0.54%
2014 - 0.56%
2015 - 0.58%
2016 - 0.60%
2. What if I leave work at 60 but don't collect CPP until 65? How will that affect the amount of my pension?
Your CPP pension is calculated based on your contributions and a predefined contributory period, which generally ends at the time you start receiving your CPP. For this reason, if you stop working at age 60 and delay taking CPP to age 65, there will be five years of zero earnings at the end of your contributory period. This may result in a lower CPP retirement pension at age 65. For this reason, it may be beneficial to start the CPP at age 60. It is advised to contact Service Canada to determine how this may impact your personal situation.
3. Do you continue to pay into CPP after you're 65 if you decide to delay starting to receive CPP until 70 years of age?
Under the new rules, which will come into effect in 2012, you are not required but will have the option to continue contributing to CPP after 65 if you are still working. If you are not working, the months after 65 can be dropped from the contributory period.
4. Is anybody realistically suggesting that I should continue working until 70, risk a heart attack (and death) from the stress, just so I don't have a reduction in CPP benefits? This may be helping the Feds deal with underfunding of CPP, but how does it really help address the fundamental issues of inadequacy of pensions for a lot of Canadians?
The stated objectives of the CPP changes are to modernize the system to better reflect the many paths that Canadians take to retirement. It does so by providing greater flexibility for older workers to combine pension and work income; to expand pension coverage; and improve fairness in the Plan's flexible retirement provisions. While CPP is an important source of retirement income, it is not meant to be the only source - CPP is meant to replace 25 per cent of a person's employment income up to a maximum limit ($47,200 this year). Also, note that the federal government is currently consulting with the provinces to determine whether it is feasible to increase CPP coverage.
5. Where can I go to in order to get a "good" estimate or calculation of what my CPP will be when I decide to collect, i.e. in five years when I turn 60? Is there a site where I can input variables for a good estimate?
6. At age 65, I retired and I started receiving my CPP but have since gone back to work. Can I start making contributions again?
Under the old rules, once you are receiving CPP you cannot make any more CPP contributions. However, under the new rules, which will come into effect in 2012, if you are collecting CPP retirement benefits and are working, you may voluntarily elect to make CPP contributions if you are between 65-70 years of age, in which case your employer will also be required to contribute. This will allow you to continue to build up your CPP Post-Retirement Benefit.
7. If I have already retired (at 60), will my CPP be grandfathered? That is, will I continue to collect my pension as it is or will it fall into the new benefits plan?
If you have already retired and are collecting the benefit, you will not be impacted by the changes unless you return to work where, beginning in 2012, if you are collecting CPP retirement benefits and are working:
- You and your employer will be required to make CPP contributions if you are under age 65
- You may voluntarily elect to make CPP contributions if you are 65 years or older, in which case your employer will also be required to contribute.
8. In the scenario where you do not claim CPP until age 70, do you have to continue to work (say after 60) and contribute to CPP in order to receive the maximum benefit?
Your benefit is calculated based on how much and for how long you have contributed to the CPP during the contributory period. You may not have to continue working and contribute to CPP after 60 to receive the maximum benefit. Generally the contributory period continues until you start receiving the CPP retirement pension. Please note that you may be able to eliminate the low earnings months from 60-65 with the General Low Earnings Drop-out Provision and the months after 65 can also be dropped out of the calculation.
9. I was out of the workforce from 1978 to 1989 raising kids under the age of 7. I understand that there is some consideration for child rearing in the CPP calculation. Can you shed some light on how this works and how much they apply?
The Child Rearing Provision can be applied to the calculation of your benefit by omitting the years when you were raising your children under the age of 7. This ensures that the periods of low earnings do not reduce your pension later. You can refer to the Service Canada site for more information.
10. When is the exact date the changes will take place. I am 60 now and want to start drawing. Also, have you done the calculations for total benefit and used 70, 75 and 80 years?
Most of the changes will begin in 2012. The change that will take effect in 2011 is the late pension augmentations, where if you decide to take the pension after 65, your pension will be increased. If you elect to take the CPP before 2012 you will not be impacted by the changes unless you return to work, in which case you will be required to contribute to the CPP even while you are receiving it.
We do have calculations for the total lifetime CPP you receive at age 70, 75 and 80 - see below.
They are based on these assumptions:
- The CPP pension amount is assumed to be the 2010 maximum ($11,210/year)
- The new rules are fully implemented (i.e. 2016 and after)
- Any future cost-of-living adjustments are ignored
- The potential effect of any additional benefit that may arise from post-retirement benefits (i.e. CPP contributions while receiving CPP) are ignored
- The CPP funds received are assumed to be used and not invested
Total CPP received at the end of the year at the following ages
Start CPP at age 60 - $78,914
Start CPP at age 65 - $67,260
Start CPP at age 70 - $15,918
Start CPP at age 60 - $114,784
Start CPP at age 65 - $123,310
Start CPP at age 70 - $95,508
Start CPP at age 60 - $150,654
Start CPP at age 65 - $179,360
Start CPP at age 70 - $175,098