The Complete Guide to the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP)
Discussions about retirement savings often bring up more questions than answers. How much money do I need to cover bills each month? How much should I save? Will I have enough to live comfortably?
If you’re employed and over the age of 18, you’ve already taken the first step in saving for your retirement by being part of the Canada Pension Plan (CPP) (Quebec Pension Plan for employees in Quebec).So, it’s important to understand how the system works, what you can expect to receive from CPP/QPP, and how you may optimize your payments in retirement.
Here’s everything you need to know about the Canada Pension Plan with some commentary on the Quebec Pension Plan.
What is the Canada Pension Plan/Quebec Pension Plan?
The Canada Pension Plan/Quebec Pension Plan is one of the major pillars of retirement income for Canadians. The plan provides contributors and their families with partial replacement of earnings in the case of retirement, disability or death.
Each Canadian worker (outside Québec, which has its own pension system) who earns more than the basic exemption amount must contribute to CPP, which is managed by the CPP Investment Board (CPPIB). Contributions are mandatory if you work up until age 65, then voluntary until age 70 if you continue to work. Contributions for QPP are collected by Revenu Québec and managed by the Caisse de dépôt et placement du Québec.
The Canada Pension Plan (CPP) (Quebec Pension Plan (QPP) is a contributory, earnings-based social program. It is designed to protect the contributor and their family against the loss of income associated with death, disability and retirement. To be eligible to receive payments from the Canada Pension Plan/ Quebec Pension Plan, you must meet all of the following criteria:
- You must be at least one month past your 59th birthday
- You must have worked in Canada for a period of time and have made at least one qualifying contribution to the CPP/QPP
- You would like your CPP/QPP payments to begin within 12 months (e.g. you apply after your 64th birthday if you plan to retire right after your 65th birthday)
You are eligible to receive full CPP/QPP benefits beginning the first month after your 65th birthday. If you wait until your 65th birthday, you’ll receive your full benefits – but you can choose to receive them earlier, at age 60. If you do so, however, you’ll receive permanently reduced benefits. You can also choose to delay your benefits until age 70, which grants you a permanent increase in benefits.
Allowances are made for individuals receiving benefits under QPP. If you are age 60+, you do not need to have ceased working in order to receive your retirement pension under the Québec Pension Plan (QPP). You must have contributed to the Québec Pension Plan for at least 1 year. If you worked elsewhere in Canada, QPP also takes into account contributions made to the Canada Pension Plan (CPP) when calculating the amount of your retirement pension. However, if you’ve ever worked in Québec, these earnings will not be included in your CPP account.
How Much Do You Contribute to the Canada Pension Plan/Quebec Pension Plan?
Canadian workers who earn more than $3,500 annually are required to contribute 5.25% of their earned income up to the designated maximum annual pensionable earnings to the Canada Pension Plan. Their employer must contribute a matching amount each year. Quebec employees and employers each contribute to the QPP at a slightly higher rate of 6.15% in 2022.
The maximum amount an individual who is not self-employed will contribute to the CPP in 2022 is ~ $3,500 ($3,400.80) ($3,766.10 to QPP). Self-employed Canadians are required to contribute the full amount of ~$7,000 ($6,999.60) to CPP or 11.4%; or ($7,552,20) to QPP or 12.3%. This includes the base contribution rate and the additional contribution rate for the enhanced plan. The additional plan increases the income replacement rate gradually from 25% to 33.33% and increases the pensionable salary until it reaches 114% of the maximum pensionable earnings.
While the minimum income threshold for contributing to CPP hasn’t changed in quite some time (it’s been the same since 1996), the maximum annual pensionable earnings increases each year to account for the cost of living and inflation. For 2022, the yearly maximum pensionable earnings is $64,900. At 5.3%, that is the largest increase since 1992 or 30 years. With the $3,500 minimum, the maximum individual income that can be taxed is $64,900. The increase in contribution rate is due to the continued implementation of the CPP enhancement.
You may continue to work while receiving your CPP retirement pension. If you are between ages 60-70, you can continue to contribute to the CPP. Your CPP contributions will go toward post-retirement benefits, which will increase your CPP retirement income.
At age 70, your contributions to CPP cease, even if you’re still working (regardless of whether you’re employed by a company or self-employed).
The province of Quebec has the Quebec Pension Plan (QPP) to which employers and employees contribute instead of contributing to CPP. The plan mirrors the CPP in many ways. The QPP also was enhanced with rates increasing to 5.55% beginning Jan. 1, 2019. The enhancements include an additional plan. QPP now has a base plan to which employers and employees each contribute 5.4% for earnings between the basic exemption of $3,500 and the maximum pensionable earnings ($64,900 for 2022). The additional plan is funded by extra matching employer and employee contributions on an increasing rate scale from 2019-2023. In 2022, the contribution rate or the additional plan (enhancement) for the Québec Pension Plan is 0.75%. New contributions will be added to the portion of earnings between the maximum pensionable earnings (MPE) and a new pensionable earnings ceiling. That ceiling will be 107% of the MPE in 2024 and 114% of the MPE effective 2025. For more information, go to Changes to the Quebec Pension Plan.
CPP/QPP Payment Amount
How much you can expect to receive through CPP/QPP payments depends on multiple factors. First and foremost, the amount of your payments will depend on how much you contributed to the Canada Pension Plan/Quebec Pension Plan and for how long.
Note that the contributory period begins on your 18th birthday and ends when you begin receiving retirement benefits, turn age 70, or pass away. It is not based on the months or years you actually contributed to the CPP/QPP.
Historically speaking, CPP/QPP retirement pensions have been approximately one-quarter of a person’s average working income up to the maximum annual pensionable earnings set by the CPP/QPP. However, beginning January 1, 2019, the Canada Pension Plan and Quebec Pension Plan will be “enhanced” to eventually replace one-third of a person’s average working income up to the maximum annual pensionable earnings set by the CPP/QPP.
This enhancement will not apply to earnings collected on or before December 31, 2018. One question you may wish to explore is whether CPP/QPP enhancements reduce the need for long term savings in Registered Retirement Savings Plans (RRSP) and Tax Free Savings Accounts (TFSA)? The reality is that older Canadians today will experience little benefit from the CPP/QPP enhancements. Click here for more information on RRSPs and TFSAs.
Other factors include the age at which you apply for benefits and any other provisions for which you may qualify, such as survivor benefits and child-rearing adjustments. If you continue to work and make contributions to CPP after beginning to collect payments, you can qualify for post-retirement benefits (PRB), which will also increase your retirement income after age 70. Additionally, payment amounts are adjusted annually according to the consumer price index as the cost of living increases.
CPP/QPP benefits normally begin at age 65, specifically the month after your 65th birthday. However, benefits can be taken as early as age 60 and as late as age 70. Retirement benefits are fully taxable and are indexed every year in January.
If you begin your CPP/QPP payments prior to age 65, you’ll incur a 0.6% reduction for each month you collect before your 65th birthday. This reduction works out to be 7.2% per year. If you begin collecting your pension at age 60, your reduction will be 36%.
However, if you delay your CPP/QPP payments, you’ll receive an increase of 0.7% for each month you wait after your 65th birthday. This amounts to an increase of 8.4% per year and can be up to 42% if delayed until age 70.
Because there are so many factors involved, it’s difficult to estimate what your exact CPP/QPP payment may be. Before you decide when to take your CPP/QPP retirement pension, you may want to consider the following:
- How your age will affect your monthly payment
- Whether you plan on working while receiving your pension
- How much you have contributed and how long you have been making contributions to the CPP/QPP
- Your personal savings, investments or company pension plan
- Your retirement planning and the lifestyle you want when you retire
- Your current health, family health history or any disabilities
- Whether you have any other income such as business investments, rental income, etc.
To help Canadians plan more effectively for retirement, the government provides the average monthly pension amount, the maximum pension amount, and the cost of living increase annually.
Services Canada/ Retraite Quebec can supply you with your personal payment amounts. CPP/QPP retirement pension does not start automatically. You need to set up an account and apply for a personal access code. Click here for some guidance and considerations on when to start your CPP or QPP retirement benefits.
For 2021, the average CPP/QPP payment was $714.21 (at age 65) with a maximum payment of $1,203.75. The cost of living increase applied in January 2022 is 2.7%.
The most that you can receive at age 65 or over if you are eligible for both the retirement pension and the survivor's pension is the maximum retirement pension that an individual could have received. It is a taxable benefit.
CPP Pension Sharing
You may apply to voluntarily share your CPP retirement pensions with your married spouse or common law partner and are living together. You must be receiving your CPP pension or at least be eligible to receive it. This sharing of the retirement pension may provide some tax savings.
The sharing of your pension begins when your application is approved and cannot be backdated. It ends when:
- Either one of you formally request a cancellation
- For QPP, when Retraite Quebec receives an application to terminate pension sharing that is signed by both married spouses, both spouses in a civil union or by one of the de facto spouses
- The month when the spouse or common law partner who has never contributed to the CPP begins contributions because (s)he begins working
- The 12th month after the month in which the spouses or common law partners or de facto spouses begin to live separate and apart
- The month in which legal separation occurs
- The month you divorce
- For QPP, when Retraite Quebec receives a notarized joint declaration of dissolution of civil union accompanied by the transaction contract
- For QPP, when Retraite Quebec receives a judgement of divorce, separation from bed and board, civil annulment of marriage or dissolution or annulment of civil union
- The month either one of you passes away
- For individuals eligible for QPP, one of the retirement pensions is paid to the Canada Pension Plan and that administration terminates pension sharing
If only one of you contributed to the Canada Pension Plan and/or Quebec Pension Plan, then you can share those benefit payments. If both of you contributed to the plan, then each of you may receive a share of both pensions.
The share of your pension that can be shared is based on the number of months you and your spouse or common-law partner or de facto spouse lived together during your joint contributory period. The overall pension amount remains the same.
Married couples need to submit their original marriage certificate as part of the application process. Click here for documents you need as proof of common law union.
The CPPQPP contributions you and your spouse or common-law partner made during the time you lived together can be equally divided after your separation or divorce under certain circumstances. Check here for specifics on splitting CPP credits and here for splitting QPP earnings.
Provisions to Help Canadians Receive Higher CPP/QPP Payments
The Canada Pension Plan/Quebec Pension Plan takes into account the reality that some parents will need or choose to take a step back from work when their children are young. If your income was lower because you worked fewer hours or was nonexistent for a period of time because you were the primary caregiver for your child(ren) under the age of 7, you can apply for the child-rearing provision.
To qualify for the child-rearing provision, you must meet the following criteria:
- Your child(ren) must have been born after December 31, 1958
- Your earned income decreased because you stopped working, took a lower position with less pay, or cut back your hours at work so you could become a primary caregiver for children you could legally claim as dependents under the age of 7
- You, your spouse, or common-law partner were eligible to take advantage of the Canada Child Tax Benefit or received Family Allowance Payments (even if you did not receive the benefit).
If you are deemed to be eligible for the child-rearing provision, the months where your income was lower will be dropped from your contributory period so they don’t drag down your final average used to calculate your retirement benefit amount.
For the low-earning months during the CPP/QPP enhancement (2019 and after), pension credits will be added based on your average income in the five years leading up to the birth or adoption of your child(ren).
It’s important to note that both parents can apply for the child-rearing provision, but not for the same time period. For example, if Parent 1 chooses to work part-time for two years after the birth or adoption of a child, Parent 1 can apply for the child-rearing provision during that time frame. If at that point, Parent 1 returns to work full-time and Parent 2 chooses to work part-time for the following two years, Parent 2 can apply for the child-rearing provision during that time frame.
Upon applying, you’ll need to provide each child’s name, date of birth, social insurance number, and birth certificate. If your children weren’t born in Canada, you’ll need to provide your date of entry.
General Drop Out
At some point or another, most Canadians experience periods of lower income for various reasons, such as unemployment, deciding to attend University, or taking time away from work to care for a family member. Therefore, the Canada Pension Plan/Quebec Pension Plan automatically drops the lowest 17% (or up to eight years of earnings) from your CPP/QPP base calculation.
This provision is automatically applied to all those who contribute to the CPP/QPP. You do not need to apply for it.
Over-65 Drop Out
For those who are able to keep working after age 65 and choose to delay their pension payments, the CPP/QPP drops the lowest periods of earning prior to age 65 and replaces them with income accrued after age 65. For some, this practice increases their CPP/QPP base amount. Like the General Drop Out, this provision is automatically applied.
Those who become physically or mentally disabled and are therefore unable to work will not be penalized for periods of low or zero earnings. These periods are automatically dropped from the calculation of the CPP base.
For the CPP/QPP enhancement period, credits will be “dropped in” for the months the person is disabled in 2019 or later, based on the person’s average income accrued during the six years prior to becoming disabled.
If you become severely disabled to the extent that you cannot work at any job on a regular basis and you are under age 65, you may receive a taxable monthly disability benefit in the form of a disability pension and post-retirement disability benefits. If you have dependent children, benefits may also be available to them.
CPP Statement of Contributions
It’s a good idea to periodically review your Canada Pension Plan Statement of Contributions to check for accuracy. The most important information is your name, address, date of birth, contributions you’ve made and qualifying pensionable earnings. You should use your T4 tax slip to compare your pensionable earnings.
You can log into your My Service Canada Account at any time to review your Statement of Contributions. If you notice any errors, or believe any information to be incorrect, contact CPP immediately.
Remember that if you’ve ever worked in Québec, these earnings will not be included in your CPP account. You’ll need to contact Retraite Québec for more information regarding any income earned in Québec.
CPP Payment Dates
With the exception of December, CPP payments occur in the last week of every month. Retirement, disability, children’s and survivor benefits are all paid at the same time. According to Services Canada, most CPP retirement benefit recipients request direct deposit so that the payments will automatically transfer into their account.* If you prefer to receive paper cheques, you can expect them within one week of the payment date (though the delivery date cannot be guaranteed). They will be mailed out sometime during the last 3 business days of each month.
Here are the 2022 published CPP payment dates and QPP pension payment dates (effective Jan. 3, 2022):
- January 27
- February 24
- March 29
- April 27
- May 27
- June 28
- July 27
- August 29
- September 27
- October 27
- November 28
- December 21
The CPP/QPP retirement pension does not start automatically. You must apply for it. You can apply for CPP benefits online through their My Service Canada Account (or apply for Retirement Pension under the QPP. However, there are exceptions, such as if you currently reside outside the country, if you’ve authorized another person to access your account, or if you’ve already received CPP payments because of retirement or disability.
If you’re unable to complete the online application, you can print out a paper copy (on line and paper application for QPP) and either mail it in or take it to the nearest Service Canada Centre/ Retraite Quebec. Be sure to include any required documentation before you do so.
If you apply for CPP/QPP benefits after you turn 65, Service Canada/ Retraite Quebec respectively can pay retroactive CPP/QPP respectively retirement payments for up to 12 months (11 months plus the month you apply). Retroactive payments cannot be made earlier than the month following your 65th birthday. That means if you take your CPP/QPP retirement pension before age 65, then there are no retroactive payments.
CPP/QPP Death Benefit
Historically, In order to qualify for the death benefit, the deceased must have made contributions to the Canada Pension Plan (CPP) for at least:
- one-third of the calendar years in their contributory period for the base CPP, but no less than 3 calendar years, or
- 10 calendar years.
A person may contribute to both the Canada Pension Plan and the Quebec Pension Plan. The contributions made under both plans are combined when a death benefit is calculated.
Assuming you worked for the minimum number of years, the Canada Pension Plan/Quebec Pension Plan includes a one-time lump sum payment of up to $2,500 upon your death to help pay for funeral expenses.This amount is currently up for review with consideration to increasing it. If you’ve completed a will that names an executor, this death benefit goes to that person. The executor should apply for the death benefits within 60 days.
Federal and provincial finance ministers met in December, 2017 to set the death benefit at a flat $2,500, regardless of how long or how much someone had paid into CPP/QPP. The flat-rate payment will ensure no one is denied the benefit because they didn’t contribute enough money for a long enough period of time. However, this measure is not reflected in updated legislation and shown in the official Government of Canada publication on CPP/QPP death benefit as of August 2021.
In the event that the executor doesn’t apply within that window or no will has been written, the death benefit can be given to another applicant. The following priority is given:
- The person responsible for paying funeral expenses
- The surviving spouse (or common-law partner)
- The next of kin, such as a child or sibling
Again, residents of Québec or people who worked in Québec may not be eligible for the CPP death benefit. However, CPP and QPP work closely to ensure all contributors are protected, so contributions to both pension plans are combined when calculating the number of years the deceased worked.
If the deceased resided in Québec at the time of death, Québec was the last place of residence prior to moving outside of Canada, the executor will have to contact Retraite Quebec to discuss death benefits.
CPP/QPP Survivor’s Pension
The Canada Pension Plan/Quebec Pension Plan takes a portion of a contributor’s pension and transfers it to a surviving spouse or common-law partner in the event of their death. If the deceased is 65 or older, the survivor receives a percentage of the deceased’s pension. If the deceased was under the age of 65 at the time of death, the survivor receives a flat rate, plus a smaller portion of the deceased’s pension.
It’s important to note that the surviving spouse or partner must apply for survivor’s benefits, and should be done as soon as possible after the death. Waiting too long can cause you to lose benefits, as back payments can only be made for up to 12 months. Unfortunately, you cannot apply online —- you must print out the form and mail it in.
Watch the definition of "spouse" for eligibility for benefits under the Quebec Pension Plan.
Getting Retirement Planning Help
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Check out the Empire Life Retirement and Savings Tool. It’s simple, it’s fast, and it’s easy. Share the results with your advisor and get the conversation started. If you don’t have an advisor, we can connect you with an advisor.