How to calculate your CPP retirement pension
To calculate your CPP retirement pension, the first thing you should do is go online to the My Service Canada site and obtain your most recent CPP Statement of Contributions (SOC).
Also on the My Service Canada site, you can request an estimate of your CPP benefits. These estimates are very accurate if you’ll be eligible for your CPP retirement pension in the next few years. Otherwise, they can be misleading, especially if your future earnings will be significantly higher or lower than your previous average lifetime earnings.
If an estimate of your CPP retirement pension is not accurate enough for your purposes, you can do a more precise calculation of your CPP retirement pension. I’ll explain each of the steps in the calculation briefly in this article, and then you can ask questions if anything is unclear or you need more detail.
Step 1 – Calculate your number of contributory months (NCM)
Your contributory period begins either the month after you turn 18 or in January 1966, whichever is later. It ends either the month you turn 70 or the month before the month that your CPP retirement pension starts, whichever is earlier. Your contributory period excludes any month that you received a CPP disability benefit.
Your NCM would simply be the total number of months in your contributory period, minus any months excluded as a result of receiving CPP disability benefits.
For example, the contributory period of someone applying for the CPP at age 65 in 2013 or later, and having never received CPP disability benefits, would be 47 years (from age 18 to age 65). The NCM would be 564 months (47 years x 12 months).
Step 2 – Calculate your Total Adjusted Pensionable Earnings (TAPE)
First, find the “Your pensionable earnings” amounts for each year on the SOC that you got from the My Service Canada web site. These are referred to as your Unadjusted Pensionable Earnings (UPE).
For each year, divide the UPE for that year by the corresponding Year’s Maximum Pensionable Earnings (YMPE).
The following link will provide you with a list of all YMPEs since the CPP began in 1966:
Next, multiply that result by the average YMPE for the five-year period ending in the year that your CPP will start.
(UPE/YMPE) x average YMPE for five-year period
Example calculation using the year 2018:
The average YMPE for the five-year period ending 2018 is $54,440, based on YMPEs of $52,500 for 2014, $53,600 for 2015, $54,900 for 2016, $55,300 for 2017 and $55,900 for 2018.
($52,500 + $53,600 + $54,900 + $55,300 + $55,900) / 5 = $54,440
So if a person had a UPE of $4,000 in 1966, the APE calculation would be:
($4,000/$5,000 (the YMPE for 1966) x $54,440 (the average YMPE for the five-year period ending in 2018)
The resulting APE would be $43,552.
This step effectively brings the earnings for each year up to a current year value. This means, for example, that a UPE of $5,000 in 1966 (when the YMPE was $5,000) is worth the same as a UPE of $55,900 in 2018 (when the YMPE is $55,900) when calculating your CPP retirement pension.
Your Total Adjusted Pensionable Earnings (TAPE) is now calculated by simply adding together all of the APE calculations for your entire contributory period.
NOTE: If you have been in receipt of a CPP disability pension after age 60, the APE calculation is somewhat different. Instead of adjusting the UPE using the 5-year average YMPE ending with the year that the retirement pension starts, you adjust it using the 5-year average YMPE ending with the year that the disability pension started and then you escalate that amount based on CPI increases between those two years.
Step 3 – Determine your “dropout” periods
The two most common dropouts are the general dropout and the Child Rearing Provision (CRP).
Related article: The Child Rearing Drop Out Provision
If you are eligible for the CRP, you can drop out any period of time that your children were under the age of 7 and where your APE was less than your average APE. The CRP is done first and then the general dropout is applied.
The general dropout, for which everyone is eligible, drops out a percentage of the lowest remaining earnings in your contributory period. The general dropout percentage was 15% before 2012, was 16% for 2012 and 2013, and is 17% since 2014.
Example 1: As mentioned in Step 1, for someone reaching age 65 in 2013 or later, the contributory period would be 47 years or 564 months. If they never received CPP disability and weren’t eligible for the CRP, they would use the general dropout to remove the lowest 96 months of APE (564 x 17% = 95.88, rounded up to 96).
Example 2: If the same person from Example 1 was eligible for the CRP for two children born three years apart, that person could drop out up to 10 of those years (or 120 months) under the CRP, plus a further 76 months ((564 – 120) x 17% = 75.48, always rounded up to 76) under the general dropout.
While it’s true that you can drop out any period of time under age 7, there is sometimes a complexity in determining what “less than your average APE” means.
Before I review what this means, you should probably read my article on the child-rearing provision itself. Now that you have a good understanding of who qualifies for the CRP and the difference between CRDO1 and CRDO2, you will better understand how to determine what periods of CRP are less than average.
First, any periods of CRDO1 (where earnings were less than the Year’s Basic Exemption or YBE) are always excluded from someone’s contributory period, because zero is always less than average.
Next, you have to calculate a temporary average monthly pensionable earnings (AMPE) value in order to see which months should be dropped out under CRDO2. To do this, simply divide your total adjusted pensionable earnings (TAPE) by your number of contributory months (NCM), after excluding any periods of disability pension or CRDO1 eligibility as mentioned above.
Any months of CRP eligibility where your adjusted pensionable earnings are less than this temporary AMPE value can now be dropped out under CRDO2, along with the accompanying earnings.
Step 4 – Calculate your Average Monthly Pensionable Earnings (AMPE)
First, subtract all of the APEs that you identified in Step 3 as being dropped out, from the TAPE that you calculated in Step 2. For example, if you are dropping out 96 months, you would identify your 8 years of lowest earnings and subtract the APEs for those years from the TAPE. The result of this calculation is the TAPE (after dropout).
If you are dropping out less than a full year of APE, just pro-rate that amount. For example, if you are dropping out 76 months, you would drop out your lowest 6 full years of APE, and 4 months of the next lowest year. When dropping out the 4 months, you would drop out 4/12ths of the calculated APE for that year.
Next, subtract the number of months identified as dropout periods in Step 3 from your original number of contributory months (NCM) calculated in Step 1, to get your NCM (after dropout).
For example, 564 NCM – 96 months dropped out = 468 NCM (after dropout)
Finally, your AMPE is simple math using the formula:
AMPE = TAPE (after dropout) / NCM (after dropout)
Step 5 – Calculate your retirement for benefit calculation (RTR-FBC)
This is the easiest step. Just take 25% of the AMPE that you calculated in Step 4.
The result of this step is the amount that your monthly CPP retirement pension will be, if your pension is starting the month after you turn 65.
NOTE: For retirement pensions starting in 2019 or later and if the contributor has pensionable earnings in 2019 or subsequent years, this step will include additional calculations under the “enhanced CPP changes”. Watch this article for further details on these additional calculations in the near future.
Step 6 – Apply any applicable actuarial age adjustment factor
If you are starting your CPP retirement pension earlier than age 65, decrease your RTR-FBC calculated in Step 5 by the appropriate age factor (now always 0.6% per month since 2016).
Related article: How to Get Your CPP Early
What happens if you start your CPP after 65?
If you are starting your CPP retirement pension later than age 65, increase your RTR-FBC calculated in Step 5 by the appropriate age factor (now always 0.7% per month).
If you delay starting your CPP until after age 65, there is an additional dropout provision, known appropriately enough as the over-65 dropout (surprisingly, there is no acronym for this dropout.)
Under the over-65 dropout provision, one of two things will happen:
- First, if you are still working after age 65, you can use these earnings to replace any periods of time under age 65 where you had lower APE.
- Second, if you are not working after age 65 or if your earnings after age 65 are less than any of your under-age 65 APE, you can simply drop out all periods after age 65 from both your NCM and your APE.
Impact of receiving a CPP disability pension
Receiving a CPP disability pension affects the calculation of a CPP retirement pension in two different ways.
First, any period of time when you were in receipt of a disability pension is excluded from your contributory period. For example, if you received a CPP disability pension for 10 years and applied for a retirement pension at age 65, your number of contributory months (NCM) would be 444 (47 years – 10 years x 12 months) and your general dropout would be 76 months (444 x 17% = 75.48, rounded up to 76.)
Second, if your disability pension continues right up to age 65, your adjusted pensionable earnings (APE) is based on the average Year’s Maximum Pensionable Earnings (YMPE) for the year that your disability began, instead of the year that you turn age 65. Your APE is then escalated from that value by any increase in the consumer price index up to age 65.