Changes to the Canada Pension Plan

The Canada Pension Plan (CPP) is in the process of implementing a number of changes to CPP benefits. These changes are designed to provide flexibility to Canadians as they ease into retirement and are relevant to anyone who starts collecting a CPP pension after 2010. If you are retired and started collecting a pension from the CPP before December 31, 2010, and you do not re-enter the workforce, these changes will not affect you.

The CPP changes do NOT impact the payment or calculation of your CAAT Pension Plan pension in any way. Our benefit promise remains the same.

The CPP changes will come into effect on January 1, 2011 and will be fully implemented by 2016.

Starting CPP before age 65

CPP pensions can start at early as age 60. Currently, if you start your CPP pension before age 65, it is reduced by 0.5% per month before age 65, or 6% per year, with a maximum possible reduction of 30% if you start at age 60.

Starting in 2012, the rate of the reduction will increase each year so that by 2016, CPP pensions that start before age 65 will be reduced by 0.6% per month or 7.2% per year with a maximum possible reduction of 36% if you start at age 60.

These changes will be phased in over the next 5 years:

Year          % (monthly reduction)

2012                    0.52
2013                    0.54
2014                    0.56
2015                    0.58
2016                    0.60

Starting CPP after age 65

If you start your CPP pension after age 65, the benefit payment is increased. Prior to 2011, the rate of increase was 0.5% per month for each month after age 65 (up to age 70), or 6% per year, for a maximum possible increase of 30% if you start CPP at age 70.

From 2011 to 2013, the increase is being raised to 0.7% per month or 8.4% per year, for a maximum possible increase of 42% for Canadians who start CPP pensions at age 70.  

Year          % (monthly increase)

2011                    0.57
2012                    0.64
2013                    0.70 

Changes to the “drop-out provision”

The CPP benefit calculation allows contributors to “drop out” years when they had zero or low earnings. This results in a higher CPP pension, as the average earnings used in the calculation will be higher.

Starting in 2012, the number of years of zero or low earnings that can be dropped out will increase. By 2014, when the phased-in changes are implemented you will be able to drop out a maximum of 17% of your career period (up to 8 years) of lowest earnings, an increase from the current maximum of 15% (7 years).  

Elimination of the “Work Cessation Test”

One of the other changes to the CPP is the elimination of the “work cessation test”. Currently, in order to start a CPP pension before 65, you had to have either stopped working or reduced your income below a prescribed level for at least 2 months. (After starting CPP payments, you are permitted to return to work and collect CPP).

This earnings test will be eliminated as of January 1, 2012. You will be able to start CPP as early as age 60 without stopping work or reducing your work income.

It is important to note that this change to CPP does not affect the rules for starting your pension from the CAAT Pension Plan. You cannot start your CAAT Plan Pension without terminating your employment.  

Working and collecting CPP

The current round of CPP changes will also allow Canadians to collect CPP benefits while contributing to the CPP at the same time, building what is called a “Post-Retirement Benefit” or PRB.

If you work while receiving a CPP pension and you are under age 65, you and your employer must continue to make contributions to CPP. Your CAAT Plan contributions will continue at the integrated (low and high) rate.

If you are between ages 65 and 70 and are working while collecting CPP, you can choose to make CPP contributions. If you do not make CPP contributions, your contributions to the CAAT Pension Plan will also change: you will make contributions at the higher rate only, on all earnings, and earn a full 2% benefit for the period in respect of those earnings (see our publication: Making choices: Working past age 65). If you continue to make CPP contributions, your contributions to the CAAT Plan continue at the integrated rate. 

The Post-Retirement Benefit

The Post-Retirement Benefit is created from the contributions you make while you are also receiving CPP. This additional payment begins the year following the year of contributions and is paid for life. PRB payments start in 2013 at the earliest. You can receive the PRB even if you are already receiving the maximum CPP pension.