The Canada Pension Plan – The New Regime
Effective January 1, 2012, the rules as they relate to receiving and paying CPP have changed. These rules may affect your plans in when to start taking Canada Pension payments and affect the treatment of employees between the age of 60 and 70.
Under the old rules, an individual could elect to start taking CPP early, any time after reaching the age of 60. If one decided to take CPP early, their monthly benefit was reduced by 0.5% per month for every month CPP is taken prior to your 65th birthday. In other words, if you commenced receiving your CPP at age 60, the monthly benefit you receive would be reduced by 30% (0.5*60 months) from the amount you would have received if you waited until you were 65. As well if you waited until after you were 65 to start receiving your CPP, the monthly amount was increased by 0.5%. In other words if you had waited until you were 70 before taking CPP, your benefit would have increase by 30% (0.5*60 months). Under the new rules, the factor for benefit reduction is now 0.6% per month to a maximum of 36%. The factor for the increase in taking CPP after you are 65 is now 0.7% to a maximum of 42%.
The second change has to do with the work cessation rules. Under the old rules, a person between 60 and 64 had to cease working to be eligible to apply for their CPP. Starting in 2012 these rules do not apply. Under the old rules, if you had retired and were receiving CPP, you were not required to restart your CPP contributions if you reentered the work force. Under the new rules, if you are under the age of 65, receiving CPP and you continue to work, both you and the employer are required to continue making CPP contributions on your earnings. If you are between 65 and 70 and continuing to work while receiving your monthly CPP benefit, the decision to continue contributing is a voluntary one. If you or your employee is in this 65 to 70 age bracket and wishes not to have additional contributions made while working, they must file a election, CPT30, to stop the contributions.
The question is regularly posed, should I take CPP early, should I hold off taking benefits until I am 70? These questions must be answered on a case by case basis. The fact is if you wait your benefits will be greater. If you have significant RRSP savings, a concept that may work for some is to withdraw what is need to supplement your cash flow from your RRSP and hold off taking your CPP until you are 70. In this way, in the long term you may be further ahead when looking at your monthly retirement income.