What is CPP?
The Canada Pension Plan is a form of retirement income that is open to all Canadians who have worked and paid into the system through deductions from their pay cheques. The amount a person receives under the system depends on how much and for how long a person contributed, along with the age at which a person started receiving CPP payments.
The average monthly CPP benefit in 2011 was $512.64. The maximum payment in 2012 is $987.67. The government adjusts the CPP rate every January to account for changes in cost of living as measured by the Consumer Price Index.
According to Service Canada, “If you have lived and worked in Canada most years between age 18 and 65 and earned about the average Canadian wage ($39,100 in 2002), at age 65 you would receive a CPP retirement pension of about $788 a month.”
Who is eligible?
Anyone who has made at least one payment into CPP is eligible for benefits once they reach the age of 65, but the size of the benefits depends on how much and for how long a person contributed into the plan and at what age they start receiving benefits.
A person can begin receiving CPP anytime after age 60, although they incur a financial penalty by doing so. In 2012, a person receiving CPP early will be subject to a 0.52 per cent reduction for each month before the age of 65 that they received payments. That number is slated to rise to 0.6 per cent each month in 2016.
On the other hand, if a person chooses to delay CPP payments they receive a similar increase for each month they wait between the age of 65 and 70. In 2012, that increase works out to 0.64 per cent per month and will rise to 0.7 per cent next year.
When should you apply?
This is really up to the individual and whether they want to receive a smaller or larger CPP benefit. However, the government recommends applying six months before a person wants their pension to begin.
Canadians can apply online or print out an application and deliver it to a Service Canada location.
Similar to OAS, a person can receive retroactive payments covering up to 12 months if they delay applying for CPP until after their 71st birthday.
How much do I contribute to CPP?
An employed person’s annual contribution to the CPP is the equivalent of 9.9 per cent of their total pensionable income, half of which is paid by the employee and half by the employer. Annual pensionable earnings are capped at a maximum that is adjusted each January (for 2012, it is $50,100), and there is a basic exemption amount of $3,500. For 2012, that brings the maximum employer and employee contribution to $2,306.70 each.
Self-employed people must contribute 9.9 per cent of their net business income, with the same $50,100 cap and $3,500 basic exemption, bring their maximum CPP contribution for 2012 to $4,613.40.
Anyone earning less than $3,500 is automatically exempt from CPP contributions.
At age 70, a person stops contributing to CPP even if they continue working.
Source : CBC News.ca
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