How to calculate your CPP Post-Retirement Benefit (PRB)
Once you’re receiving your CPP retirement pension, any further CPP contributions that you make won’t affect the amount of your regular pension but they aren’t wasted, because they will earn you CPP Post-Retirement Benefits (PRB).
PRBs will be added to your monthly CPP pension, even if you’re already receiving the maximum CPP retirement amount. The PRB payments will continue for the rest of your life. They are indexed to the cost of living, the same as the regular CPP retirement pension.
Related article: Understanding the CPP Post retirement benefit
What is the basic formula for a PRB?
The calculation of a monthly PRB is determined by the formula:
PRB = ((A / B) x 0.00625 x C x D) / 12
A = The amount of your CPP pensionable earnings (salary or self-employed earnings) for the year. This amount is adjusted if your regular CPP pension started in that year.
B = The Year’s Maximum Pensionable Earnings (YMPE) for that year
C = The five-year average of the YMPE, ending with the year following the earnings
D = The age-adjustment factor. It is a percentage based on your age as of January of the year following the earnings (100% – the number of months until your 65th birthday x the CPP age-adjustment percentage if you are under 65)
How does this formula apply to a specific situation?
Let’s use the example of Erin. She was born in June 1950 and started receiving her regular CPP retirement pension in 2010 at age 60. If she had pensionable earnings of $35,000 in 2013, she would earn a PRB for those earnings.
To determine the amount of her PRB for those 2013 earnings, her factors would be:
A = Her CPP pensionable earnings for 2013 are $35,000.
B = The YMPE for 2013 is $51,100.
C = The five-year average of the YMPE ending with 2014 is $49,840.
D = The age-adjustment factor for Erin as of January 2014 is 89.92% (100% – 18 months until Erin is 65 years old x the 2014 factor of 0.56% per month under age 65).
Inserting those factors into the above formula, we would get her result as:
PRB = (($35,000 / $51,100) x 0.00625 x $49,840 x 89.92%) / 12 = $15.99 monthly
How does this formula change for the year that you start your CPP?
For the year that you start your CPP retirement pension, the complicating factor is determining what amount of pensionable earnings is used to calculate your regular retirement pension and what amount will be used to calculate your PRB.
Under the legislation, your pensionable earnings are used first to calculate your regular retirement pension (for the number of months in the year before the start of your CPP, up to the pro-rated YMPE), and then any balance is used to calculate your PRB.
Let’s use the above example of Erin again, but this time pretending that she started receiving her CPP retirement pension in June 2013 at age 63, instead of at age 60. In this scenario, $25,550 of her pensionable earnings would go towards her regular retirement pension calculation (6/12 x 2013 YMPE of $51,100). The balance of $9,450 would be used to calculate her PRB.
Her 2014 PRB would then be calculated as follows:
PRB = (($9,450 / $51,100) x 0.00625 x $49,840 x 89.92%) / 12 = $4.80 monthly
Is there a way to simplify the PRB formula?
Now that you understand the actual PRB formula from the legislation, I’m going to give you a slightly different version. It gives almost the same result, but may be a bit easier to apply or remember. Let’s try the formula:
PRB = A x B x C
A = The ratio of your pensionable earnings to the YMPE for that year (A/B in the original formula)
B = 1/40 of the maximum age-65 retirement pension for the year following the earnings
C = The age-adjustment factor, based on your age as of January of the year following the earnings (the same as D in the original formula)
If we use the numbers from Erin’s first example above, her factors for this formula would be:
A = Her ratio of pensionable earnings to YMPE would be $35,000 / $51,100 = 68.5%
B = 1/40 of the maximum 2014 age-65 retirement pension of $1,038.33 = $25.96
C = The age-adjustment factor for Erin as of January 2014 is 89.92% (100% – 18 months x the 2014 factor of 0.56% per month under age 65)
Her 2014 PRB would then be calculated as follows:
PRB = 68.5% x $25.96 x 89.92% = $15.99 (the same answer as above)
Summary
As you can surmise from my simplified formula, if you were 65 years old in December 2013, a year of maximum pensionable earnings for 2013 would earn you a 2014 PRB of approximately $26.00. It would be correspondingly less or more if you are younger or older than age 65 in December 2013.
The PRB amount will change each year (due to it being based on the five-year average YMPE), but it will always be 1/40 of the maximum age-65 retirement pension for the year following the earnings. This may be all that you need to know in order to estimate your PRB, but I thought that it was also important for you to understand the formula behind that estimate.
Related links:
- How to calculate your CPP retirement pension
- CPP rate table, which provides a list of the annual Year's Maximum Pensionable Earnings (YMPE) amounts under the Canada Pension Plan (CPP):
- What are the age adjustment factors?
Comments
This is a useful article Doug. Have you ever tackled a comparison between PRB and CPP in terms of when to make the switch? People that plan to continue to work once collecting CPP need to figure out the optimal time for the cut-over.
Robert
That’s a good point, and the comparison depends very much on the individual’s circumstances.
The value of additional contributions in terms of a PRB depends solely on the amount of the earnings and the person’s age, as detailed above. The value of additional earnings to a regular CPP retirement pension however, depends on the person’s entire record of earnings, whether they’re eligible for the CRDO or disability dropouts and when they choose to start that pension.
Hi Doug
I agree it is individual. I am thinking it would be possible for a benchmark to create a scenario using a simplistic example. From there the relative merits would be easier to generalize at least.
Suppose the person is healthy and 60 and already on track for max CPP. Suppose being self employed he can choose to either 1. contribute fully to CPP for 5 years or with the same money 2. start drawing CPP now, and pay half of full premiums toward PRB for 10 years or 3. hold off taking CPP until 70 but keep paying the CPP premiums at half maximum until then. With no other factors, which comes out better?
I’m not expecting you to answer this, but it is very similar to the problem I have to solve for myself.
Robert
That’s an interesting scenario that you outline, but I’d still need a bit more details on the current 42 years of contributions.
If, for instance, that 60 year-old already has 39 years of max (or near max) earnings, any further contributions under options #1 or #3 are virtually wasted.
The value of those contributions towards PRBs could easily be calculated under option #2, but the overall decision of taking the reduced pension at age 60 in order to start earning those PRBs, would still need to be considered in terms of life expectancy.
I don’t know whether this helps you or not?
If I work till age 66 and both my employer and I stop paying CPP premiums at age 65,is it not better for me to take CPP with it’s 8.4 increase at age 66 rather then taking CPP at age 65 and paying CPP premiums to get PRB for that last year of my working career
I will have over 40 years of maximum CPP contributions
Hi Doug – You can only elect to stop contributing to CPP after age 65, IF you apply for your CPP at age 65. If you wait until age 66 to apply, you’ll have to contribute to CPP and you will get the 8.4% increase but you won’t get a PRB.
Back to Doug’s question. Having max 40 years of CPP contribution. Which option would yield the most return. 1) Taking CPP at age 66 (8.4% increase)and contribute to CPP for 1 year or 2) take CPP at age 65 with PRB for 1 year.
Hi Tom – Using 2018 values for a maximum contributor, it would take approx. 17.5 years to “breakeven” if you wait until age 66, so you would be better off taking your CPP at age 65 (and then earning a PRB for your extra year of working) if you die before age 83.5 and you would be better off waiting until age 66 if you live past age 83.5. This answer ignores inflation.
Hi Doug and i agree with Tom
i hope to live beyond 83 so to me postponing cpp and oas returns beat my investment returns and the cpp/oas are indexed – paying the cpp and deferring collecting gives you about $1000 a year increase whereas paying the cpp and getting the prb gives you a $300 increase – the caveat to me is how long you live
Is there not a simple break-even on how many years one would need to live in order to break even on PRB contributions? It seems like the pension top-up is mostly independent of pre-65 earning years. So the key factor is how long will you live? Live long and it’s worth paying into PRB. Live short and your gamble is a losing one. Drop dead a year after 70 and all your PRB contributions look silly. I can surmise an end date and make a rational calculation accordingly if you would help me to understand this break-even. If the situation is individual, then perhaps show average and high/low ranges. I expect to live to 100. My wife expects to live to 88. Should we both contribute to PRB’s?
Hi Raymond – I’ve given you the formula for calculating the PRBs, and you should be able to figure out the contribution cost. The breakeven age would simply be the contribution cost divided by the PRB benefit added to your starting age. If you want me to do that calculation for you (for a fee), email me at [email protected]
I’m confused about my eligibility for the post-retirement benefit. I was on CPPD and ODSP until I reached 65 this February). Now I just started receiving OAS (plus GIS) and the regular CPP (quite a reduction from the disability CPP). So my question is, am I also able to receive this post-retirement benefit or do I have to work and contribute to CPP first?
Hi Lynn – PRBs are paid only if you have employment earnings and make CPP contributions for any period of time after you start receiving your regular CPP retirement pension.
Thanks for the quick reply and very clear one at that! If only the federal government could be so clear.
I believe its always better to “take the money and run” , and so long as one takes early CPP, and saves or invests it, then you will come out ahead. where it gets tricky is if you take it early and so its reduced, and you keep working, so you are contributing and will get PRB, then your taxable income is higher and you get dinged at tax-time…every situation is different.
I follow the PRB formula to the point of the age-adjustment factor. Your example, Erin was not 65. What is the age-adjustment factor if Erin was over 65, say 66, and collecting CPP and started back to work while collecting CPP? Would you please make another example? For this example, she paid CPP for the maximum years. The wages for this year (2022) were $40,000 not including CPP or OAS. For simplicity Erin was collection $1000 per month ($12,000) per year CPP and $600 for OAS per month (7,200 per year). Erin’s this year taxable income would be $59,200. Her 5 average YMPE is $30,000. What would the PRB for the year/month? Her total CPP for the year/month would not change. I am not sure if both CPP and PRB are paid as one total payment or 2 separate payments.
I keep reading (including on the current government info page re: PRB) that the maximum PRB is 1/40 of the maximum CPP benefit. When I look at the numbers, however, this is only true up through 2021. For example, for 2021 $1,203.75/40 = $30.09. However, beginning in 2022, this rule no longer seems to apply. 2022: $1,253.59/$36.26 = 34.57, 2023: $1,306.57/$40.25 = 32.46, 2024: $1,364.40/$44.46 = 30.69. The factor is dropping downwards from 40 in no particular pattern that I can discern other than that it keeps dropping. Am I missing something here?