Should you take CPP early with new changes coming?

On December 15, 2009, several changes to the Canadian Pension Plan (CPP) became law with the passing of Bill C-51. These new changes will be gradually phased in over five years starting in 2012.

The changes will have no impact on you if you are already receiving a CPP retirement pension, disability benefit, survivor benefit or combined benefits, or if you will begin to receive these benefits in 2010. If you collect CPP prior to 2011, your CPP will be grandfathered under the current rules.

Back when the rule changes were first proposed, I wrote an article on the proposed changes to CPP. It’s worth reading again.

Now that the changes have formally been accepted, If you are between the ages of 60 and 65 and plan to take-up your Canada Pension early, you should consider how the new changes to CPP may influence your decision. There is a short window of opportunity to determine the best course of action for you.

Taking CPP early

Under the current rules, you can take CPP before 65 but at a reduced rate of 0.5% for every month prior to your 65th birthday. That equates to 6% drop in CPP each year prior to 65. Taking CPP at 60 would mean a 30% reduction.

Under the new proposed rules, the percentage to reduce your CPP will increase from 0.5% to 0.6%. Simply put, that means they are going to hit you harder for taking CPP early. To give you incentive to take CPP later, they are increasing the enhancement rate post 65 to 0.7%. The message is simply CPP want to discourage you from taking CPP early and encourage you to leave it longer.

For those of you that are between 60 and 65 and have the opportunity to collect CPP early before these new changes come into effect, you should take a hard look because waiting could mean less money for those taking CPP before 65.

A window of opportunity

I can’t stress enough the importance for those age 60 to 65 who are contemplating retirement and collecting CPP in the next year. There is a window of opportunity to be grandfathered under existing rules. You should take the time to see if it is better to be under the current rules or the new proposed rules for 2012.  (SEE COMMENTS BELOW)

Other relevant articles

Lots to know about Canada Pension Plan (CPP) – CanadianFinanceBlog.com

The Four Most Common Questions about Canada Pension Plan (CPP) – CanadianFinanceBlog.com

Child Rearing Drop Out Provision

Will CPP Be there when you retire?

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

22 Responses to Should you take CPP early with new changes coming?

  1. Your blog stated the changes will have no impact on you if you are already receiving a CPP retirement pension, disability
    This is not what is listed on Service Canada website, it states in 2012, cpp contributions mandatory for employees age 60 to 65 who work while receiving CPP retirement pension?

    • Janice. You are correct. The part that is grandfathered is the amount you will collect. If you are taking CPP early prior to the implementation of the new rules, you will continue to get the same income (indexed adjusted) but if you go back to work (because you had to stop working to collect in the first place), then you will have to pay into it again. But the new contributions will also increase your future benefit.

      The point I was trying to make is the reduction by taking it early is only 0.5% per month as opposed to 0.6%. When I re-read my article, I was not clear on this point so thank you for raising the issue. Also know that CPP is phasing in the reduction as opposed to going right to the 0.6% immediately (which was not clear when I first write the article). That means rushing to take CPP early before the changes are implemented in 2012 is not urgent anymore.

      Thanks again for your comment.

    • Denise
      Yes, that is one of the changes effective Jan 2012. As of that date, you can apply for a CPP retirement pension without the need to “wholly or substantially retire”. Another change however is that if you do continue working is that you MUST continue contributing to CPP if you’re under age 65, and you MAY contiue contributing if you are between 65 and 70.

    • Gerald
      You can only receive CPP at age 53 if you have a “severe and prolonged” disability. Severe is defined as being “incapable regularly of pursuing any substantially gainful occupation” and prolonged is defined as being “indefinite and long continued, or likely to result in death”.

  2. I am a single 60 year old woman with a full time job is it worth it to take early cpp and invest it. I am not sure when i will retire or I may lose my job due to downsizing

  3. If I claim my CPP at 60 and I must continue to contribute until I am 65, can I write that off on my Income Tax.

    • Barry
      You can always deduct your CPP contributions from your taxable income, so YES, you can deduct contributions that you continue to make after starting your CPP retirement at age 60. These extra contributions will also create additional “post-retirement benefits” or PRBs, in addition to whatever retirement benefit you start receiving at age 60.

  4. Hi let me just say that this government is just screwing the small person every chance they get. No wonder no one wants to vote anymore why vote they will all screw you the same.

    • Randy – The answer to this question depends mostly on when you reached age 65. Prior to 2012, once you started receiving your CPP retirement pension, you no longer contributed to CPP and your pension therefore wouldn’t ever increase (except for the annual cost of livng increase). Since 2012, contributions are mandatory to age 65 and optional between age 65 and age 70, regardless whether you’re receiving a CPP retirement pension.
      So, when did you reach age 65?

  5. Please tell me what is the maximum CPP one can receive ?
    If a person is 65yrs and still working and contributing to CPP, is there any benefit. (PRB)
    What is the reason for not contributing at age 65-70.

    • Chandrakant

      From the perspective of a total CPP payout, you’re generally better of taking it at age 60 if you die before 80, and you’re generally better off waiting until age 70 to take it if you live beyond age 90.

      In between those two extremes, it will vary somewhat depending on your lifetime CPP earnings history and when you actually retire.

      If you want detailed calculations to help you make that decision, email me at DRpensions@shaw.ca. I do charge a fee for this service.

  6. Greetings Doug,
    I am writing to get some information for my uncle who is a Canadian and has been living in the United States since 1971. My uncle is now 80 and has never applied to receive CPP or OAS. He worked for 4.5 years in Montreal and 7 years for Chrysler’s in Windsor before getting married and leaving for the states in 1971. I understand that the CPP commenced in 1966, therefore, he payed into it for 5 years. He is wondering what exactly is he entitled to and how much will be his monthly payments and lastly will he receive backpayments from his 70th birthday. Lastly, I don’t know if this helps, but he was self employed in the United States and paid into a pension there until his retirement. Your assistance would be much appreciate.

    • Leo
      I’d need to know your uncle’s earnings for those 5 years to give you an actual CPP amount, but if his earnings were at maximum, each year of contributions would normally be worth approx. $25 per month towards an age-65 pension. Since your uncle is over 70, that amount is increased by 42% to approx. $35.50.
      That means that for his 5 years of max CPP contributions he could be eligible for as much as $177.50 monthly. Unfortunately, the maximum retroactivity is 12 months, and here’s the weblink for info on how to apply: http://www.servicecanada.gc.ca/eng/services/pensions/cpp/retirement/index.shtml
      For OAS, he would normally need to have 20 years of residence in Canada after age 18, and it sounds like he may be very close to having that. If not, he still might qualify under the Canada/USA social security agreement, so it’s still worth applying, and here’s a weblink: http://www.servicecanada.gc.ca/eng/services/pensions/oas/pension/index.shtml
      If he has near the 20 years of residence in Canada, his OAS would be approx. $275 monthly, and again there’s up to one year’s retroactivity.

  7. CRA msca show at age 61 monthly CPP would be $630 and at age 65 $870 (approx).
    when to start taking CPP ? before age 65 or at age 65 ?
    the monthly income is less if start CPP at age 63 instead of starting at age 61 ?
    so take it early, don’t wait till age 64 – otherwise better wait till age 65
    is my understanding correct ?
    thanks

    • Yee – I’m not 100% sure that I understand what your understanding is, but you’re definitely wrong that the monthly amount at age 63 is less than at age 61. At least, that is not possible under any situation that I can think of.

      Whether it’s better to take it before age 65, at age 65 or after age 65 depends mainly on:
      - your current lifetime average earnings pattern;
      - your current and planned future earnings;
      - your life expectancy

      In very general terms, you’re better off taking it at age 60 if you don’t expect to live past 75ish and you’re better off taking it at age 70 if you expect to live past 85ish. Everything in between varies a bit, but age 65 is often never the best age to start your CPP regardless what your life expectancy is.

  8. Hi Doug,

    If I wait to start my CPP until age 70, and then suddenly die, what would be the effect on my spouses pension. Does the age 65 max combined retirement and death benefit pension rule still apply to her or is it adjusted, in anyway to reflect my having waited to age 70 to start it? (Assume no additional contributions by me between 65 & 70).

    Dave

    • Dave
      If/when you start your CPP has no impact on the amount of survivor’s pension that your spouse will receive, either as a standalone benefit if your spouse had no contributions of her own, or when it gets combined with her own retirement pension.
      Sorry if that’s not what you hoped to hear!

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