3 adjustments made to CPP after it’s in pay

I did some calculations for a client recently to help her decide when to take her Canada Pension Plan (CPP) retirement pension. She decided to take her pension now, but the amount showing in the letter she received from Service Canada wasn’t what she expected.

Mary (not her real name) was born in July 1954. She had relatively low earnings until age 28 and then earnings above the YMPE (Year’s Maximum Pensionable Earnings) level ever since. She had been planning to retire next year when she turned 61 and was wondering whether she should take her CPP now at age 60, next year when she retires, or at age 65.

Related article:  Should you take CPP early?

Financial Planning CalculationBased at least partly on my calculations, Mary decided to take her pension now, at age 60. However, when she received her award letter from CPP, she was surprised to find that it showed an amount less than I had said she would be entitled to.

I reminded her that my calculations included credit for her 2014 earnings, and that she should receive a retroactive adjustment to her CPP once Service Canada has confirmation of those earnings when she submits her income tax.

I realized that she was going to have several adjustments made to her CPP next year and such adjustments are not always well explained by Service Canada. These same adjustments will be made for most people who are still working in the year that they start receiving their CPP, so I thought this issue might be a good subject for this month’s article.

I told Mary that she should have three adjustments made to CPP in 2015, which should occur in the following order:

1) Annual cost of living adjustment

In January 2015, her CPP should increase from her 2014 amount based on any increase in the cost of living as measured by the CPI (consumer price index). Based on recent years, this increase will likely be in the range of 1 to 2%. This annual cost-of-living adjustment will be made to her CPP every January.

Mary will be eligible for the full annual increase for 2015, even though her CPP only started in August 2014.

2) Post-retirement benefit increase

Since Mary’s CPP was effective August 2014, and since her 2014 earnings exceeded the YMPE, her prorated earnings from January to July will be used to calculate her regular CPP retirement pension, and her prorated earnings from August to December will be used to earn her an additional PRB. This PRB will be effective January 2015, but she shouldn’t expect to receive it until sometime between April and June 2015, with retroactivity to January.

Related article:  Understanding the CPP Post Retirement Benefit

A similar PRB adjustment will be made for her in 2016 (based on her 2015 earnings) and in any subsequent years that she has earnings from salary or self-employment and makes a CPP contribution on those earnings.

3) Increase for 2014 earnings prior to CPP

When Mary’s CPP was first approved, the award letter explained that it was an “interim” calculation which may not include all of her earnings. This is because her 2014 earnings details won’t be available to Service Canada until after her 2014 income tax return is filed and assessed by Canada Revenue, sometime in 2015.

This adjustment should likely happen sometime between September and November 2015, with full retroactivity to August 2014. Sometimes however, Service Canada seems to “forget” to make this adjustment without a reminder telephone call.

Related article:  Are you receiving as much CPP as you should be?

Conclusion 

At a minimum, CPP pensions will be adjusted at least once a year. The letter from Service Canada (if any) doesn’t always do a good job of explaining the reason for the adjustments made to CPP.

Hopefully this article will help explain the reasons for and the timing of possible adjustments, but fire away if you have any questions!

Written by Doug Runchey

Doug Runchey worked for the Income Security Programs branch of Human Resources and Skills Development Canada for more than 32 years, and was a specialist in the Canada Pension Plan and Old Age Security legislation, regulations and policy areas. He now runs his own company, DR Pensions Consulting, which provides pension advice, including detailed calculations for CPP retirement planning and “credit splitting” purposes. Doug can be reached by email @ DRpensions@shaw.ca or check out his website at http://www.drpensions.ca/.

14 Responses to 3 adjustments made to CPP after it’s in pay

  1. I worked full time at WSIB of Ontario for 28 years & took an early retirementIin April 2013. I will turn 60 this November. I am planning to apply for CPP now. But I am working as a p/t cashier. Can I still apply for CPP?

  2. Hi Doug,

    In your example about Mary’s CPP you mention that her 2014 earnings exceeded the YMPE.

    Would Mary qualify for a PRB adjustment in 2014 assuming she had earnings beyond her Year’s Maximum Pensionable Earnings in the period (January to July 2014)?

    • John

      Very good question!

      Yes, as long as Mary’s 2014 earnings exceeded her pro-rated YMPE for January to July (7/12ths of $52,500 = $30,625), any excess earnings would be applied towards a PRB effective January 2015.

  3. I am a landed immigrant, currently living in Europe. I will be receiving a Canadian and German pension. Is it possible to transfer the CCP into a German pension plan. I am entitled to the CCP (lived 39 years in Canada) but delayed payment.

    • Irmgard

      Any CPP benefit that you are entitled to would be paid out on its own, and could not be combined into a German (or any other) pension plan.

  4. Hi Doug,

    My wife is a self employed for last 15 years.
    Is she entitled for CPP after age of 60?
    Please advise, Cheers.
    Mir

    • Mir

      Yes, assuming your wife paid CPP contributions on those self-employed earnings, she will be entitled to a CPP pension anytime after age 60.

      • Hi DOUG My contract with my employer has been settled, I will receive backpay 2% for 2013/ 2% 2014/ 2% 2015. My birth date is 18/04/54. I applied for CPP at age 60, will my CPP be adjusted because of my retroactive increase, do I have to call them or is it even eligible. Rick

        • Rick

          You might want to check with Revenue Canada, but I think it will all be counted as income for 2015, even though it covers 2013 and 2014 also. If so, it won’t affect your CPP retroactively but it will affect the amount of the PRB that you earn for your 2015 earnings (payable effective January 2016).

          When your CPP was first approved effective May 2014 though, they wouldn’t have known what your 2014 income was and that could trigger a retroactive adjustment. I’d need to see your lifetime record of CPP earnings to say for sure.

          Also, if your 2014 earnings exceeded $17,500 (4/12ths of the YMPE of $52,500), you should have received a PRB effective January 2016.

          • Hi Doug,
            I decided to take my CPP at 62 and currently working. I’m still contributing to CPP which I agree if you are working you should contribute. Will my CPP increase when I retire because I’m still paying into,it or remain the same.,Just curious..Thanks sue

  5. Doug:

    If I work for 5 years after taking early CPP at 60 do I recieve PRB only for the 5 years or is the PRB added to the monthly amount and this new amount becomes my monthly benefit? Would this then be paid out till death?
    Dan

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