If you have been employed since 1995, you have been automatically paying into the Canada Pension Plan (CPP) – Canada’s contributory social insurance program. For some retirees in Canada, this program is crucial to ensuring that they can meet their basic needs after their working years. For others, CPP payments are a nice supplement to their existing retirement savings.
If you are preparing for or nearing retirement, you likely have many questions about how this program that you have been paying into for so many years, actually works. Common questions include:
- What is CPP payment?
- How much does CPP pay?
- What is the CPP contribution rate?
- Which factors affect CPP amount?
- What is the CPP payment schedule?
- How to apply for CPP payments?
- Will Canada Pension Plan payments be enough?
Below, we cover everything you need to know about CPP payments in 2021.
What is CPP Payment?
CPP is a monthly, taxable benefit that all Canadians are entitled to regardless of how many years they have worked. To qualify for CPP payments, you must be at least 60 years old and have made one “valid contribution”.
“Valid contributions” can be contributions to CPP from work that you were paid for in Canada, or they can be the result of receiving CPP contribution credits from a former spouse or a former common-law partner.
You can apply to start receiving your payments as early as age 60 and as late as age 70. This decision on when to start collecting your CPP payments is a personal choice that is based on your financial situation, your health, and your plans for retirement.
How Much Does CPP Pay?
How much you get from CPP depends on:
- the age you are when you start collecting your Canada pension payments
- how much and for how long you contribute to the program
- your average earnings
The average CPP payment per month is $619.44 (as of March 2021), but your unique situation will determine how much you receive from the Canada Pension Plan program.
The CPP payment schedule is monthly. If you start your pension in 2021 at the age of 65, the maximum amount of CPP payment you could receive each month is $1,203.75.
If you start accepting Canada Pension payments early, your pension amount is reduced by 0.6% for every month before your 65th birthday.
If you wait to start collecting CPP until age 70, you will receive 0.7% more for every month that you delay, after your 65th birthday. This means that by age 70, you will be receiving 42% more than you would have if you started collecting at age 65. There is no benefit to delaying Canada Pension Plan payments until after you are 70 as there are no further increases.
CPP Contribution Rate
The CPP contribution rate is the percentage of earnings that an employee and their employer contribute to the Canada Pension Plan program each pay period.
In 2021, your CPP contribution rate as an employee is 5.45%. Your employer will also contribute 5.45% for a total contribution of 10.9% each year. This CPP rate typically changes each year.
If you are self-employed, you will contribute the full 10.9% CPP contribution rate yourself.
If you earn $61,600 or more in 2021, you’ll reach what the Canada Pension Plan calls the yearly maximum pensionable earnings (YMPE). Any income over this amount will be exempt from the 10.9% CPP contribution deduction, so your maximum contribution for the year will be $6,332.90 (includes both employer and employee contributions).
If you earn less than $61,600, the contributions made by you and your employer will still be 10.9% of your pensionable earnings. All your income for the year will be subject to the CPP deduction and your total contribution will depend on how much you earned that year.
Situations that Can Affect Your Pension Amount
There are many factors that impact your CPP payment amount calculation, including:
- Continuing to contribute while receiving your Canada Pension payments (only applicable up to age 70)
- Working after age 65 and delaying the collection of CPP for months or years
- Having periods of low or no salary due to unemployment, child rearing, or disability
- Pension sharing with your spouse or common-law partner
- Divorce or separation
If you work and continue contributing to CPP while receiving your CPP payments, or you work after age 65 (up to age 70) and you delay collecting CPP, your monthly CPP pension amount may increase. These factors may also make you eligible for other benefits.
If you had periods of low or no salary because you were unemployed, caring for young children, or disabled, the Canada Pension Plan program takes these into consideration and makes adjustments (where possible) to increase your CPP payment amount.
Pension sharing is an option that can help decrease your income tax in retirement because it can lower your taxable income.
If you get divorced or separated, there are mechanisms in place to allow you to split equally any CPP contributions made while you were married to your partner.
For more detailed information on these factors, see the Government of Canada’s page on CPP benefit amounts.
CPP Payment Dates for 2021
“When is the next CPP payment?” This is a common question for Canadian retirees as they often plan activities and expenses around their CPP payment schedule.
The CPP payment dates for 2021 are:
- July 28, 2021
- August 27, 2021
- September 28, 2021
- October 27, 2021
- November 26, 2021
- December 22, 2021
CPP payments do not start automatically – you must apply in advance of when you would like to start receiving your CPP retirement pension money.
The online application will be processed in 7 to 14 days, while the mail-in application can take up to 120 days. Therefore, it is critical to plan ahead and apply well in advance of when you would like to start receiving CPP payments.
Supplementing Retirement with a Reverse Mortgage
Retirement is supposed to be a time to relax and enjoy some well-deserved time off in your later years, but it can also be a time of uncertainty and worry if you have limited retirement savings. The Canada Pension Plan that gives you a set CPP payment schedule, and other government benefits will certainly help cover expenses for some of your basic needs, but many retirees still wonder if CPP will be enough.
If you’re making plans to travel, renovate your home, pay off debt, or live your retirement years to the fullest, the CHIP Reverse Mortgage® from HomeEquity Bank may be right for you. If you’re a Canadian homeowner age 55+, you can borrow up to 55% of the appraised value of your home in tax-free cash, and you don’t have to make any regular mortgage payments.
Find out how the CHIP Reverse Mortgage® may be able to enrich your life in retirement and supplement your Canada pension plan payments. Call 1-866-522-2447 to learn more. You can also use our reverse mortgage calculator to get a free estimate of how much tax-free cash is available to you.