Canada Pension Plan

The Canada Pension Plan (CPP) provides contributors and their families with retirement, disability, survivor, death and children’s benefits. It is an example of a defined benefit pension plan. The Canada Pension Plan operates throughout Canada with one exception, the province of Quebec has their own Québec Pension Plan (QPP) that is similar to the Canada Pension Plan.

The assets of the CPP are managed by the CPP Investment Board (CPPIB). The CPPIB dates back to 1997 when an Act of Parliament created the organization to manage and invest the CPP Fund to help ensure the long-term sustainability of the Canada Pension Plan.

Contribution information
With very few exceptions, every person in Canada between the ages of 18 and 70 who earns a salary must pay into the Canada Pension Plan. Contributions are made on employment income above $3500, the basic exemption, and up to yearly maximum pensionable earnings (YMPE) of $64 900 in 2022.

You and your employer each pay half of the contributions. In 2022 this is 5.7% of "pensionable" earnings, i.e. earnings between the basic exemption and the YMPE, for both the employee and the employer.

If you are self-employed, you pay both portions, for a total of 11.4% for 2022. In this case, contributions are based on your net business income (after expenses). You do not contribute on any other source of income, such as investment earnings.

The total contribution rate of 11.4% for 2022 includes 9.9% for the base plan, and 1.5% for the CPP enhancement.

Applying for CPP benefits
You are required to apply to receive CPP benefits. If you made CPP contributions the year before starting your pension, make sure they do an adjustment once the pension is in pay.

When you apply for CPP you must confirm your personal information and provide banking information for direct deposit and the date when you'd like your pension to begin. You can apply a maximum of 12 months before the date you would like your pension to start.If you are 65 years plus 1 month or older, you can request retroactive payments for a maximum of 11 months, or back to your 65th birthday plus 1 month—whichever is shortest.

The application for CPP is online, by signing in or registering for a My Service Canada Account (MSCA). Not everyone can apply online as the application procedure excludes a number of cases. If you have applied online, you will receive a letter within a month confirming your eligibility, your start date and the amount you will receive.

For the latest information, your best resource is the Government of Canada's Canadian Pension Plan - Overview.

Pension sharing
The CPP allows retirement pension sharing between spouses or common-law partners. The portion of your pension that can be shared is based on the number of months you and your spouse or common-law partner lived together during your joint contributory period. Pension sharing can reduce the total income tax owned for the couple. There is a separate form to apply for pension sharing.

Retirement pension
The retirement pension is a monthly payment available to CPP contributors beginning as early as 60 years of age or as late as age 70.

Your pension is based on your contribution history, how much you have contributed and how long you have contributed. There is some protection built into the CPP system for low-earning years, via the general drop-out provision, and the child rearing provision, which must be requested.

Base CPP aims to replace 25% of the earnings on which the worker contributed, assuming retirement at age 65. To get the maximum CPP pension, a worker must have earned the YMPE or more for 39 years between age 18 and age 65 so most people do not get the maximum pension. For example, in 2020 the maximum was $1155 per month but the average pension was $679. The 39 years are based on the general drop-out provision, which allows 17% of the lowest income months to be dropped from the calculation.

Enhanced CPP is designed to upgrade the 25% figure to 33.33% of earnings. However this will happen progressively over a 45 year period, to year 2065.

When to claim it
The "normal" age to claim your CPP pension is 65. Retirement earlier or later than 65 will decrease or increase the monthly pension, respectively. Benefits do not increase beyond age 70 so there is no reason to wait later.

Claiming CPP early: If you need the income, or if your life expectancy is low, you may be a candidate for taking CPP as early as possible. Early retirees are also possible candidates because this reduces the number of "zero work income" years in their record. But each situation is different and you are encouraged to simulate different scenarios.

Delaying CPP: In 2012, less than 4% of new CPP recipients were 66 or older. . But delaying the start of your CPP pension, and perhaps Old Age Security (OAS), has the effect of significantly increasing the yearly benefits payable. These benefits are indexed to the cost of living and are guaranteed to last until death. Therefore, by drawing down other sources of income sooner, to make up for the shortfall created by the delay in CPP and/or OAS, the retiree is making a choice equivalent to the purchase of an indexed life annuity. This decreases longevity risk, and may allow the retiree to enjoy a greater total income in early years. Good candidates for this strategy will have no bequest motives, no cash-flow issues, and will be in above-average health. According to Tim Cestnick, one must live beyond the age of 81 to justify, mathematically, delaying CPP to age 70. See also this blog post.

DIY calculations
Step-by-step instructions on how to calculate your CPP pension are given by Doug Runchey.

CPP Calculator
See the CPP and QPP calculator.

Disability benefits
The disability benefit is a monthly benefit available to qualified CPP contributors and their dependent children.

Survivor benefits
Survivor benefits are paid to a deceased contributor’s estate, surviving spouse or common-law partner and dependent children. Benefits include:


 * The death benefit – a one-time payment of up to $2,500 to, or on behalf of, the estate of a deceased Canada Pension Plan contributor;
 * The survivor's pension – a monthly pension paid to the surviving spouse or common-law partner of a deceased contributor. Maximum monthly benefits in 2009 are $506.38 for individuals younger than 65 and $545.25 to those over age 65; and
 * The children's benefit – a monthly benefit in 2009 of $213.99 for dependent children of a deceased contributor.

Payment information
Canada Pension Plan payments are taxable income.

Payment rates
Canada Pension Plan rates are adjusted every January if there are increases in the cost of living as measured by the Consumer Price Index.

Payment dates and direct deposit
If you have not requested payment by direct deposit, your payment will arrive at your home address by mail during the last three banking days of each month. You can request payment by direct deposit, which automatically deposits your Canada Pension Plan and Old Age Security payments into your bank account in Canada, the United States, or in a number of other countries.

Financial situation of the Plan
By design, CPP is only partly funded, i.e. outflows are paid mostly from new contributions, but can also come from investment income derived from the CPP fund.

As of March 31st, 2021, the CPP fund value was $497.2 billion. The CPP fund's asset allocation at that date was about 56% public and private equities, 23% fixed income, cash and "absolute return strategies" and 21% "real assets" (mostly real estate and infrastructure).

In the recent triennial review released in 2019, the Chief Actuary of Canada reaffirmed that the base CPP remains sustainable at the current contribution rate of 9.9% throughout the 75-year period of his report. The contribution rates for additional CPP are also deemed appropriate. The Chief Actuary's projections are based on the assumption that the Fund will attain a 3.95% real rate of return for base CPP and 3.38% for additional CPP. This takes into account the impact of inflation.

Balwin (2020) notes that the Chief Actuary's conclusions are based on "best-estimate assumptions about the future", including investment returns and several other variables. If the future differs from these best-estimate assumptions, the contribution rates needed to keep the plan healthy may be lower or higher than the current legislated rates. In other words, a negative experience could lead to higher contribution rates or lower benefits.