What is old age pension in Canada
Old age pension plans (often called government or public pensions) are one of the major pillars of retirement income available to older Canadians. Public pension plans are designed to provide Canadian families with some income certainty in retirement. Some old age pension plans are contribution-based, others are age-based, while others are tied to the income received in retirement (from employment earnings, company pension plans, and personal retirement savings). Understanding where your pension income will be coming from and how much you are entitled to receive can help you confidently plan ahead for retirement.
Types of old age pension in Canada
There are three main types of old age pension available in Canada: The Canada Pension Plan (CPP), Old Age Security (OAS), and the Guaranteed Income Supplement (GIS).
- The CPP is a monthly payment available to Canadians 60 years of age and older who have worked and made contributions to the Canada Pension Plan.
- Old Age Security is a pension you can receive if you are 65 or older and have lived in Canada for at least 10 years.
- The Guaranteed Income Supplement is a pension benefit you may be eligible to receive if you collect OAS and have a low income.
Other types of pension include the Canadian Pension Plan disability benefit – available to Canadians under 65 who have made CPP contributions but who have a disability that prevents them from working – and the Guaranteed Income Supplement Allowance.
The Canadian Pension Plan (CPP)
The CPP is a monthly, taxable benefit you receive that helps to replace your income in retirement. The CPP is not automatic; you need to apply to receive it. The amount you are entitled to is based on three factors:
- Your average employment earnings throughout your life
- Your contributions to the CPP
- The age you start receiving the CPP pension benefit.
You can choose to receive the CPP benefit as early as age 60 or as late as 70.
How much is old age pension in Canada?
If you were to start receiving your Canada Pension Plan in 2023, at age 65, the maximum monthly amount you’d be eligible for is $1,306.57. Learn more about the factors that affect your monthly pension benefit.
Old Age Security (OAS)
Old Age Security is a monthly pension benefit for those 65 and older. The amount you receive depends on your income and the number of years you have lived in Canada. You are entitled to receive OAS even if you have never worked or are still working. In some cases, you will be automatically enrolled for the OAS pension, while in some instances you may have to apply.
If you are living outside of Canada, you are eligible to receive the OAS benefit if you are 65 or older, were a Canadian citizen the day you left Canada, and have lived in Canada for at least 20 years since the age of 18.
OAS payments: How much is Old Age Security in 2023?
If you receive the full OAS payment starting in 2023 (January to March), you are eligible for a monthly benefit of $687.56 if you are between age 65-74, and $756.32 if you are 75 and over, if you have earned an annual income of less than $129,757 in 2021. Find out more about OAS payments.
Old age pension increase in 2023
How much will CPP and OAS increase in 2023?
CPP an OAS payment are adjusted based on increase in cost-of-living as measured by the Consumer Price Index (CPI). Payments may increase to adjust for inflation, however, if the cost-of-living decreases, your payments will not decrease.
Adjustments in CPP and OAS payments work a little differently. Your CPP monthly payment increases in January if there is an increase in cost of living. However, OAS payments are reviewed and assessed every quarter (January, April, July, October) to ensure that they reflect the increase in cost of living. Based on changes in CPI, OAS payments increased by 0.5% in April compared to the previous quarter. CPP payments increased by 6.3% in 2023 to adjust for cost of living.
The figures represent 2023 tax year.
Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement (GIS) is a monthly benefit only available to lower-income Canadians who collect Old Age Security. Unlike the CPP or OAS pension benefits, the GIS is not taxable and is not included in your income. The amount you are entitled to receive depends on your marital status and your annual income. The payment is adjusted at the beginning of each quarter to reflect increases in the cost of living.
How much is the GIS in Canada?
If you are single, widowed, or divorced, the maximum monthly payment you are entitled to receive (as of the first quarter of 2023) is $1,026.96, provided your annual income is less than $20,832. The GIS payment amounts are reviewed at the beginning of each quarter to reflect increases in the cost of living. Find out how much you are entitled to receive based on your situation.
Benefits of old age pensions
Old age pension plans play an important role in helping Canadian retirees live comfortably. They provide a guaranteed stream of income, which can help ensure retirees have enough money to cover their living expenses. This can be especially important for individuals who may not have had the opportunity to save adequately for retirement on their own. One of the key benefits of pension plans is that they can provide a predictable and stable source of income in retirement.
Maximum old age pension
Another key benefit is the control and flexibility they provide: You decide when is the best time to start receiving these benefits and can maximize them accordingly. The easiest way to maximize your guaranteed monthly payments is to defer your old age pension benefits for as long as possible – typically to age 70.
What is the maximum CPP payment for 2023?
For instance, even though you may choose to receive your CPP old age pension starting at age 60, delaying your receipt of these benefits can increase your pension:
- If you were to delay receiving your CPP until after age 65, your payments will increase by 7% each month (or 8.4% per year) – up to a maximum increase of 42% if you start at age 70.
- If you were to start collecting your CPP before the age of 65, payments will decrease by 0.6% each month (or 7.2% per year) – up to a maximum reduction of 36% if you start at the age of 60.
Avoid OAS Clawbacks
If you increased withdrawals from your registered retirement plans last year to keep pace with the rising cost of living, your higher reported income may impact benefits like OAS. That’s because you must pay back a portion of your OAS if your annual income exceeds $81,761 (for the 2022 taxation year). This is commonly known as OAS Clawback. The funds from a CHIP Reverse Mortgage are considered a loan, and the money isn’t added to your taxable income and does not affect old age benefits such as the OAS, allowing you to maximize your benefits.
What to do if your pension is not enough?
Of course, to delay receiving your old age pensions would mean finding other ways to supplement your income, such as working longer or drawing from your personal savings. The challenge is that in today’s environment of persistently high inflation, it’s much tougher to delay your pensions – especially if your savings are on the lower side. Fortunately, there is a strategy available to you to increase your cash flow in the present and receive the maximum allowable pension benefits.
The CHIP Reverse Mortgage provided by HomeEquity Bank allows Canadian homeowners age 55+ to access up to 55% of their home’s appraised value and turn it into tax-free cash. With a CHIP Reverse Mortgage, you don’t have to make any regular monthly mortgage payments or pay back the loan until you move or sell your home. You can choose to receive the tax-free funds as a lump sum or in regular monthly deposits – and use the cash to cover your living or other expenses, such as debt consolidation, building an emergency fund, or home renovations.
By tapping into the equity you’ve built in your home, a reverse mortgage gives you the financial cushion to delay receiving your old age pensions, allowing you to maximize the CPP and OAS benefits available to you. Call us today toll-free at 1-866-522-2447 to find out how much tax-free cash you qualify for to help maximize your retirement income.