Understanding the CPP post retirement benefit

Updated in June 2015

What are post-retirement benefits?

The CPP post retirement benefit (PRB) program allows Canadian who are receiving the CPP but still working and contributing to the CPP to receive additional benefits for their contributions.

The program started in 2012 and the first PRB payments were made in 2013.

Previously, once you started receiving CPP retirement benefits, you could no longer contribute to the CPP. Now:

  • If you are between 60 and 65 years old, receiving CPP and still working, you must contribute to the CPP.
  • If you are between 65 and 70 years old, receiving CPP and still working, you can choose whether to contribute. (To stop contributing, you must fill out a Canada Revenue Agency form.

Between 60 and 70, if you are receiving CPP, working, and contributing to the CPP, you will earn a PRB for each year of your contributions.

How do I get a PRB?

ResearchYou don't need to apply for a PRB; you will automatically receive it the year following your year of contributions. Your PRB is effective in January but you may not receive the payment until April or May, with a retroactive payment to January.

The PRB will be added to your monthly CPP pension, even if you are 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.

Each additional year that you continue working and contributing after you start collecting CPP will earn you a new PRB that will be added to your monthly CPP benefit the following year.

How much will I receive?

The amount of PRB that you will receive depends on your earnings and your age.

If you are 65, the maximum monthly CPP pension that you can receive in 2015 is $1,065.00, and the maximum monthly PRB is about 1/40th of that, or $26.63. The maximum annual PRB is $319.56.

If you are any age other than 65, both CPP and PRB amounts are adjusted — reduced before 65 and increased past 65. Below age 65, both CPP and PRBs are reduced by a factor of 6.96 per cent per year (.58 per cent per month). Above age 65, they are increased by a factor of 8.4 per cent per year (.7 per cent per month). (These percentages are for 2015. The below-65 numbers will change slightly until 2016; the above-65 numbers will not change.)

How does it compare to my contributions?

Using a maximum contributor as an example, we can look at the numbers.

In 2015, a maximum contributor makes an annual contribution of $2,479.95 to the CPP. (A maximum contributor is a person who earns more than the Year's Maximum Pensionable Earnings (YMPE). For 2015, the YMPE is $53,600.)

If this maximum contributor is 60 years old, and is collecting CPP retirement pension and still working, their contributions will earn PRBs:

  • Their first year of contributions earns a PRB of about $228 annually, indexed, for life.
  • Their second year of contributions earns a PRB of about $251 annually, indexed, for life.
  • Their third year of contributions earns a PRB of about $274 annually, indexed, for life.
  • Their fourth year of contributions earns a PRB of about $296 annually, indexed, for life.
  • Their fifth year of contributions earns a PRB of about $320 annually, indexed, for life.

At the end of the fifth year, their total PRBs will be about $1,369 annually, indexed, for life.

Their CPP contributions for the five years 60 to 65 would have been $12,400.

In return for these contributions, if they live for 20 years past age 65, they will receive approx $27,380 in PRBs, plus what they received during the four years from 61 to 65 (approx $2,509) for a total of $29,889.

All numbers are approximate, are for a maximum contributor, and are in 2015 dollars.

For a 65-year-old maximum contributor, the PRB payback is a return of about 13% per year, indexed, for life. (Maximum PRB of $320/maximum CPP contribution of $2,479.95 = 12.90%).

For a self-employed person, who must pay both employee and employer portions of the CPP, the return is half that of an employee.

Two situations where payback is better

There are two situations where the payback for PRBs is even better than for most contributors, and that's for a low wage earner or someone nearing age 70.

No one contributes to the CPP on the first $3,500 of their income (the Year's Basic Earnings). So in effect, a low wage earner is contributing less than 4.95 per cent of their overall earnings to the CPP (4.95 is the percentage of their earnings that employees currently pay into the CPP). For example, a fictitious person who earned $3,501 would contribute $0.05 to the CPP for the year. Their PRB the following year would be about $1.75 per month or $21 per year.

If a contributor is nearing age 70, their PRB will be increased by 42% (8.4 per cent x 5 years or 60 months x 0.7 per cent). (This is the post-65 increase that is applied to both the CPP and PRBs, as described earlier.) So a maximum CPP contribution of $2,479.95 will earn a monthly PRB of approx $37.80 ($26.63 x 142%) — or about $453.60 per year indexed for life. This is a return of $453.60/$2,479.95 = 18%.

To stop contributing

If you are over 65 and want to stop contributing to the CPP, you must complete the CPT30 form and give a copy to your employer. If you are self-employed, you must complete the appropriate section of the CRA CPP contributions on Self-Employment and Other Earnings and file it with your income tax return.

You can change your mind and start contributing to the CPP again but you are allowed only one change per calendar year.

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/.

26 Responses to Understanding the CPP post retirement benefit

  1. Thanks Doug,

    What happens if you delay CPP to 70? (My plan)
    Do you still earn PRB if you contribute before then? From working on a consulting basis &/or employment)Such as at 63 or 67.
    Retired at 57.

    Thanks

  2. Grant

    Sorry, but PRBs are only payable on earnings and contributions after you start receiving your regular CPP retirement pension. If you wait until age 70 to apply for your regular CPP retirement pension, all earnings will be considered when that is calculated, instead of going towards PRBs.

  3. Hi Doug,
    I am trying to determind whether to take my CPP early.I am planing to work until I am 65
    I am turning 60 in June 2014.I have 35 yrs max contibutions to CPP and 5yrs of 50%contributions to CPP. What do you estimate my CPP at 60?
    What will my PRB be if I continue to work until 65 with max CPP contibutions?

  4. Don

    If you already have 35 years of max contributions, you will be eligible for a max age-60 CPP retirement pension of $689.45 (66.4% of $1,038.33).

    For every full year of max earnings that you have after starting your CPP, you will earn a PRB of approx. $26/mth starting the following January, but reduced by your age-adjustment factor as of that January.

  5. I am going to be 60 and will continue working will receive 640.00 a month if I collect. I will continue to pay cpp and will be making 47000.00. should I collect and if I collect cpp what would prb be?

    thank you

  6. I retired at beginning of year 2013 and did not have contribution since. I plan to apply for CPP when I turn 65 around Sept. In addition, I had stayed home in 1997 and 2008 for 2 years. so
    (1) what is the impact of my CPP payment in 2016 with those years where there were no CPP contribution.
    (2) As I turn 65 in Sept 2016, which is the best month for applying CPP payment?

    • Karen

      (1) At age 65, the general 17% dropout means that your lowest 8 years of earnings won’t be counted against you. If you only had those 2 years of low earnings (plus 2014, 2014 and 2016), they won’t have any impact on your CPP payment at all.
      (2) You can apply up to 12 months in advance, but it usually only takes Service Canada 3-4 months to process a CPP retirement application.

  7. Doug: interesting, but it seems to me
    1. contribute for more than 39 years at max
    2. plan to work to 70 – either collect my CPP at 65 and then pay into a PRB plan or
    3. do not collect CPP, do not contribute into CPP, and collect at 70 so my CPP increase by about 5,000 pa (correct?)
    If I live for 20 years my increased CPP under scenario 3 is 20 x 5,000 or 100,000 in increased CPP in 2015 dollars. plus the benefit of my non contributions to CPP into other investments.
    Impossible for the PRB scenario to come close to that gross benefit (2,500 or so pa for 20 years less contributions).
    Or am I missing something – it seems to me this PRB is for folks who are missing the 39 year cap.

    • Robert

      Unfortunately scenario #3 is not a choice that you have, as you can only elect not to contribute to CPP if you are over age 65 AND receiving your regular CPP retirement pension.

  8. Thank you for the information. I thinks it was informative,how ever it is only for the wealthy or hi income earners and does nothing for the average low to middle income person. I just got my infor letter from Services Canada today and after working fifty years of my life, I recieve a whopping $.44 cents a month. This is a total waist of taxpayer money, it costs more then .44 cents to do the paperwork and write a check or electronicaly transfer moneys and for all the letters that go out well that is another buck or more each. All for an amount that is staggering to comprehend. And I am sure that some how they are already working on how to make it a taxable benefit and then get more back then they give
    thanks

  9. I thought that the PRB was a plan to help low income earners get a better pension benefit. Fortunately I enjoy my work but am continuing to work over age 70. The benefit calculation is based on living another 20 years. What if you only live 5 or 10 years more? If you have not been repaid what you and your employer put in, does your estate get it back? I guess I am an optimist because I am signed up for PRB.

    • Myra

      The payback for PRB contributions is much shorter than 20 years, but if you die before that payback period your estate does not benefit. If you are age 70 or over though, you cannot make any further CPP contributions.

  10. Hello, Doug,

    In August I became 67, planning to work till 71…

    I am not sure if to begin now receiving my CPP and apply to PRB or to just wait and cash the monthly CPP at 70, with the 42% increase (I would receive $780 including the 42%) …I have already contributed 25 years to the CPP maximum amount .

    If I receive the CPP now, I would have to return it? (my salary is 96K)

    What is more convenient for me?

    Thank you!

    Ana

  11. Doug,
    I just turned 65 and started to collect my CPP(the maximum amount ).
    I continue to work and plan to do so for another 3years.
    I am trying to decide if a post retirement benefit is worth the money I would continue to invest in the plan.
    My understanding is that I would continue to pay the maximum CPP amount of 2479.95 for an annual PRB of 320 per year.is that correct?
    I feel like I am missing something here.Why would I do this?
    Wouldn’t I be better off to take this money and invest it in a TFSA or other investment?

    • Marilyn – My purpose in writing this article was just to present facts and not to convince you of anything. I consider the PRB to be a pretty good return on your investment, but If you think that you can get a better ROI elsewhere (such as a TFSA) then by all means complete the CPT30 form to opt out of making any further contributions.

    • If you can, try and negotiate with your employer to give you some of the cost saving they get by you deciding to opt out of future CPP contributions.

  12. If you are an employee and have no control over what happens with the employers contribution (Use it or lose it) , the PRB is a fantastic deal.

    13% indexed – based on your tax deductable contribution of 2480.00.

    Just try buying an annuity and you would get (F age 65, no guarantee period and) about $143 per year and it won’t be indexed. (Source RBC annuity calculator)

    Consider continuing with the PRB and using other money to fill your TFSA.

  13. Doug

    I have a question regarding the survivors benefit calculation.

    In my monthly CPP amount includes a PRB that is growing each year as I continue to work. When I die will the PRB be included in in the base to determine my spouse’s Survivor Benefit or will it be excluded from the base. My basic pension is slightly below the maximum CPP but with my PRB it is at least 70 higher and growing as I continue to work and contribute.

    The reason this is important is my spouse’s CPP if she takes it today at age 62 is only 400 per month. It would seem to me that best time to activate her CPP is when she would qualify for a CPP amount of 445 per month (1114.17 – 668.50 in the case of this year). She will continue to work after activating her CPP and any contributions after that should be considered a PRB and not included in the maximum survivors calculation. She would receive CPP basic monthly maximum (1114.17 in the case of this year 2017) plus her PRB.

    If the base includes my PRB then it would seem she should activate her CPP even sooner. I am thinking we should be able to lower the that amount to 403 (445-(60%x70)) per month.

    We are approaching this on the assumption that she will live to at least 82 years old.

    Does my reasoning and calculations make sense.

  14. Hi Doug,
    I have just turn 69 And working for an online company.
    I started collecting my CPP at age 60 because I needed the money for family medical issues.
    I turned 65 in mid Mar. of 2013 & continued paying CPP as did my employer until I opted out in Apr/2016. Between Apr/2013 & Mid Apr/2016 I paid $7931. in CPP contributions as did my employer. By your calcs above, that should have guaranteed me $750ish/year in PRB’s. Today I got a letter from Service Canada informing me that I am entitled to a PRB of $12.21/month. At that rate I will be just over 123 years old before I recover what I paid into the CPP Post Retirement plan, nevermind what my employer paid in.
    What am I missing here? Or, is this the NEW Math I keep hearing about?
    John

    • John – You should have received your first PRB effective Jan 2014, your second effective Jan 2015, your third effective Jan 2016 and your fourth effective Jan 2017. They are cumulative an should total far more than $12.21.

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