Remember to apply to cash in on CPP

Hey there, time traveller!
This article was published 11/04/2008 (6442 days ago), so information in it may no longer be current.

My son Taylor received a letter recently saying, “Welcome to the Canada Pension Plan.” This means he has made his first contribution and has started to build up a retirement pension.

At 19, it may be tough to fully grasp the importance and get excited about something that will not pay back until 60 or 65, but CPP can form an important supplement to the retirement plans of many Canadians.

So I was shocked when a client sent me an article from the Toronto Star, written by Carol Goar. She pointed out that this month’s Senate finance committee report on the CPP revealed that more than 26,000 seniors over age 70 were eligible for CPP benefits and were not receiving them, as of July, 2005. No mention of how many between 65 and 70 are being left out.

Manitoba Senator Terry Stratton, deputy chair of the committee, also pointed out that the retroactivity period for missed benefits, currently only 11 months, could be increased, but needs the concurrence of the provinces. Quebec allows five years of retroactive benefits under its QPP.

If you have an opinion, contact your MP.

Remember that you must apply for your CPP benefits – they do not come automatically. If you have made any contribution to the plan at all, you will be eligible for some benefit.

Not surprisingly, a disproportionate number of the disenfranchised people are women. Many of these might have dropped out of the workforce to raise children, and assumed they were not eligible for benefits. This is clearly not the case, and the CPP program even has a dropout provision that allows one parent to skip contributions for the first six years of any child’s life, without penalty.

The CPP benefits are nothing to sneeze at. If you are a long-time worker, the maximum benefit for a 65-year-old is currently about $885 per month, indexed for inflation.

Let’s review the rules. To qualify for the maximum, you must have contributed at the maximum rate for 85 per cent of the years from age 18 until you apply. You receive full credit for the child rearing periods I mentioned, or periods when collecting CPP disability benefits.

The maximum YMPE (yearly maximum pensionable earnings) ceiling is $44,900, with a basic exemption of $3,500, according to the CRA’s latest press release on this topic. This means that you make no contribution on your first $3,500 of employment or net self-employment earnings, and you make no contributions on income above $44,900.

On incomes in between, an employee contributes a whopping 4.95 per cent of earnings to the maximum of $2,049, matched by the employer. If a person is self-employed, that maximum contribution doubles, to $4,098.

CPP eligibility begins at age 18 and ends when you apply for the benefits, anytime after you reach age 60. Prior to 65, you must stop working for at least two consecutive calendar months or earn less than the maximum monthly pension for two consecutive calendar months, to qualify.

Once your benefits begin, you can resume work, keep receiving benefits and will no longer make contributions to the plan.

If you apply for benefits prior to age 65, your benefits are reduced by one half of one per cent per month for each month you are under 65. To avoid you getting out your calculator, that means a 30 per cent reduction if you apply for your benefits to begin on your 60th birthday.

So how do we get those disenfranchised Canadians with CPP entitlements connected with their benefits? Those benefits could easily mean the difference between poverty and a more comfortable retirement.

Start with yourself. Become clear on your benefit entitlement by contacting Service Canada at 800 277-9914 or visiting your local office. The website is www.servicecanada.gc.ca

Select your language, then the Seniors section, for general information. To request your own statement of benefits or to apply, look under Online Services and Forms. You will first need to apply for a personal access code, which will also allow you to view OAS and EI benefits and applications. (You can do the same with your income tax information, as well.)

If you know someone over 60 and retired, check to see if they are receiving benefits. You could make someone’s day!

David Christianson is a fee-only financial planner and investment counsel with Wellington West Total Wealth Management Inc. His column

appears Fridays. You can e-mail him at

dchristianson@wellwest.ca.