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 April 1960. 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?
Based 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 2020 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 2021, which should occur in the following order:
1) Annual cost of living adjustment
In January 2021, her CPP should increase from her 2020 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 2021, even though her CPP only started in May 2020.
2) Post-retirement benefit increase
Since Mary’s CPP was effective May 2020, and since her 2020 earnings exceeded the YMPE, her prorated earnings from January to April will be used to calculate her regular CPP retirement pension, and her prorated earnings from May to December will be used to earn her an additional PRB. This PRB will be effective January 2021, but she shouldn’t expect to receive it until sometime between April and June 2021, with retroactivity to January.
Related article: Understanding the CPP Post Retirement Benefit
A similar PRB adjustment will be made for her in 2022 (based on her 2021 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 2020 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 2020 earnings details won’t be available to Service Canada until after her 2020 income tax return is filed and assessed by Canada Revenue, sometime in 2021.
This adjustment should likely happen sometime between September and November 2021, with full retroactivity to May 2020. 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?
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.
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?
Yes, you can apply for your CPP now even though you’re still working. Any subsequent earnings and contributions won’t increase your early retirement pension amount, but they will earn you additional post-retirement benefits: https://retirehappy.ca/cpp-post-retirement-benefit/
My parents are starting their delayed CCP in January and I noticed their payment amounts are based 2019 rates plus adjustment factor. Will this be adjusted once the CPP COLA for 2020 is known for their January payment?
Hi Paul – Yes, their actual January payments will be increased from the current 2019 calculation. But it won’t be increased according to the COLA adjustment that is announced, which reflects increases in the CPI. Instead it will be adjusted based on the increase to the 5-year average YMPE ending with 2020 instead of the 5-year average YMPE ending with 2019, which is what was used for the current calculation.
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)?
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.
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.
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.
My wife is a self employed for last 15 years.
Is she entitled for CPP after age of 60?
Please advise, Cheers.
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
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.
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
Your CPP won’t increase when you retire, but each year you work after you started receiving your CPP retirement pension will create a post-retirement benefit (PRB). Read this article to understand more about PRBs: https://retirehappy.ca/cpp-post-retirement-benefit/
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?
Each additional PRB that you earn is payable until death.
I am 68, still working full time, not receiving CPP and of course making full annual contributions to CPP despite the fact that I have maximized my contributions and cannot earrn any more Pension benefit. I have not started CPP because it would be taxed to nothing with my salary and investment income.
Is my contribution to CPP just a wasted $2500 other than being tax deductible?
Hi Brian – The short answer to your question is “Yes”.
Not too fair is it? There should be a way to work, not receive CPP and not pay premiums if you are already maxed out? Would be a benefit to the employer as well.
Hi Brian – If it’s any consolation, I agree with you on the fairness issue.
Doug.I have been collecting CPP since turning 60 ,I am going to keep working till 65,is the PRB automatically added to my payment? I will turn 62 in Sept. of this year.
Hi Glen – Yes, the PRBs should be added automatically. They will be effective starting January of the year following the earnings, but it is generally April to June before they are added to your payment (retroactive to January).
I am receiving CPP of $603.00 a month staring the end of April , 2018 (I turned 60 on March ,2018). My salary is about $60000.00 a year, can you estimate how much PRB that I will get each year if I continue to work and contribute to CPP until 65.
Hi David – You can do your own calculations if you read this article: https://retirehappy.ca/calculate-cpp-post-retirement-benefit-prb/, or you email me at [email protected] and I will do the calculations for a fee.
Interesting article. You mention the inflation adjustments to CPP after you start collecting. So I was wondering how that affects taking delayed CPP. For example, if it was determined you are eligible for $10,000 a year at 65 and therefore would get $6400 at 60 and $14200 at 70. When you actually turn 65 or 70 and decide to start CPP, are those starting amounts adjusted for inflation as well? So if inflation was 2% would you actually start at $11040 five years later at 65 or start at $12,189 ten years later at 70. If they are not, it seems like the penalty to start at 60 is much less than the %36 penalty
For the deferred at age 70 amount, I meant to say is the $14,200 adjusted 10 years later with 2% inflation to $17,309.
Hi Chris – Yes, the amounts would be indexed to inflation in addition to the age-adjustment factor.
Thanks Doug, that is very useful information I needed to plan when to take my CPP.
Is the yearly inflationary increase based on the amount you receive ie increased amount due to deferral or only the base amount?
Hi Trudy – The yearly CPI increase is applied against the entire amount that you receive, not just the base amount.