Updated with 2018 rates
A client asked me the other day “what does it mean on my CPP statement of contributions (SOC), when it says that my pension “could” be a certain amount”. I thought that was a very good question, as I counted the word “could” at least nine times, whereas I saw the word “would” only once.
I had another client in his mid-thirties who looked at his CPP Statement of Contributions and said “Wow, I’ve only contributed to CPP for only a little over 15 years and already my pension is at the maximum of $1,134.17! How much more it will be by the time that I’ve worked and contributed for another 30 years?”
These two questions (and other similar ones) made me realize that I needed to write this article to help everyone better understand what the numbers on their CPP Statement of Contributions really do mean!
How much could you get from CPP?
Basically, the word “could” means “would” IF you were eligible for the pension or benefit as of the month that the CPP Statement of Contributions was printed.
In practicality, the word “could” means “would” IF you maintain your same average pensionable earnings until you become eligible for a pension or benefit.
Maintaining the same “average pensionable earnings” doesn’t necessarily mean the same amount that you earned in the last year shown on the SOC, nor does it mean simply calculating the mathematical average of all of the pensionable earnings shown on the SOC.
What it really means is maintaining your current average lifetime earnings pattern, considering your actual pensionable earnings for each year in relation to the Year’s Maximum Pensionable Earnings (YMPE) for that year, and considering the general dropout provision up until the date of the SOC.
If this all sounds Greek to you, you may want to read my article on How to Calculate CPP Retirement Pension, as this is basically the same as Step 4 in that article.
How much could my pension estimate increase?
In the case of my client as described above, the short answer is it won’t increase at all, because it’s already showing the maximum age-65 retirement pension amount of $1,134.17 (2018).
The slightly longer answer is that it will actually decrease from that amount UNLESS he continues to contribute at that same average maximum pensionable level until he becomes eligible for his pension at age 65.
How much will my actual CPP pension vary from the statement?
As mentioned previously, if you are close to the age shown on your CPP statement of contributions and/or your future earnings are similar to your past average lifetime earnings, the estimates on your SOC will be fairly accurate.
If not however, your actual pension amount could be significantly higher or lower than indicated on your SOC. Here are some examples:
- If you are currently age 55 and retired, your actual age-65 retirement pension “could” decrease by up to 25% from the amount shown on the SOC, or it “could’ remain relatively similar to the SOC;
- If you are currently age 55 and still working, your actual age-65 retirement pension “could” increase by approximately $29.00 for every additional year that you work, or it “could” actually decrease if your future earnings are less than your past average lifetime earnings;
- If you ever stayed home to raise children under age seven, your actual age-65 retirement pension “could” increase from the SOC by as much as 2.5% for every year that qualifies under the child-rearing dropout provision.
What value does the SOC have if the estimates are not accurate?
As mentioned above, the estimates are accurate IF you’re close to the age indicated on the CPP statement of contributions and you plan to apply soon.
If not, the SOC is still a very valuable tool for you or your financial advisor to calculate your future CPP pension, using your record of pensionable earnings shown on your SOC as the starting point, in addition to your future earnings plans.