Understanding your CPP Statement Of Contributions (SOC)
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.
It seems to me the value of the SOC is obvious as it is the base for the calculations.
I do question the website giving people Estimates which seem to mislead people. I just fell into that.
The worst part was that I have to make a decision about applying or not for CPP-D (which it seems the BC goverment may make you no matter what) but they were not able to explain what those numbers meant, how they were calculated, all I heard was “you have to apply to know what you will get”
Thank you for all the information on this site and showing that it is possible to understand and advise people if/when to apply, “before” they apply!
I will be seeking out your advice in private as it is too complicated for here.
If you see my email address, you can fire one to me about cost, but I’ll be in touch soon.
Thanks for the positive feedback! I look forward to hearing from you and being of service to you.
Excellent article. Thanks for the details. As a new immigrant I was delighted to see what my cpp earnings was with just 6 years of work. But in retrospect it all makes sense.
Hi Doug, excellent work.
I just stumbled across your articles and I’ve been engrossed for more than an hour. I haven’t done my personal calculations yet though I plan to – thanks for the formula.
From what I’ve read I have the understanding that by retiring early it will reduce my TAPE because there’s no contributions made from the time of retirement until I start taking CPP. That could be the years from 55 to 65, 60 to 65 etc.
If that understanding is correct I’m having trouble following part of this article regarding my SOC. It states
“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;”
I think I understand why it could decrease but I’m wondering what could cause it to stay the relatively unchanged?
Hi Heather – If someone had maximum earnings every year from age 18 to age 55 (37 M’s) when they stopped working, they would drop out 8 of the 10 years of zero earnings between age 55 and 65 and their CPP at age 65 would only be about 4% less than the SOC estimate. That’s what I meant by relatively unchanged, compared to a potential decrease of approx. 25%.
Great article, but I’m wondering if the estimate given on the Statement of Contribution already includes the ‘drop out’ periods? Or are they calculated after you apply? Thank you so much for your answers.
Hi Jim – Yes, the SOC estimates includes the general 17% dropout up to the date of the estimate.
So if I’m understanding correctly —
In my case my first 20 or so years of earnings were sporadic between 4k – 42 k a year but an average of say 25k a year after I drop out my lowest 8 years and average the rest..
In my current situation I have way more stable employment and I expect my last 20 years of working to be 40k – 45k a year for the next 22 years.
So if I’m understanding right my current CPP estimate on Service Canada is based on roughly an average earnings of my last 20 years of work (age 18 – 42) which are going to be lower than my average earnings going forward for another 22 years.
Once I have worked another 22 years making 40 – 45k, my average earnings will go up significantly and the amount I’m eligible to receive should increase? I’m estimating the difference between my current average of 26k a year and my estimated average yearly earnings for next 22 years of 43k. So overall an average of say 34k over 40 years?
Just trying to guestimate if my CPP estimate is anywhere near accurate and I’m thinking in my case maybe not given the difference in income of my first 20 years versus what my income should be for my last 20.
F2S – Before you average your first 20 years of earnings, you would have to escalate them to a current-year value. The easiest way to approximate what amount of average earnings are projected by the SOC estimate is to divide that estimated amount by the current year maximum retirement pension and the answer is the percentage of the YMPE that you would have to earn for the next 23 years in order to maintain that benefit amount.
For example, if your current SOC estimate indicates that your CPP at age 65 could be $600, you would have to earn 51% ($600/$1,175) of the YMPE for the remaining 23 years in order to maintain that $600 pension (in 2020 dollars). In 2020 salary dollars, that would be around $29,975. Average more than that for the next 23 years and your CPP will go up from the $600, but average less than that amount and the $600 will decrease.
Hi Doug. Does the CPP estimator on Service Canada already take into account the 8 year dropout provision being applied?
Hi Will – Yes, the online estimates by Service Canada do include the basic (17%) dropout provision, at least up to the point that the estimate is calculated. For example if you are age 35 when the estimate is calculated. For example:
– if you are 35 years old when the estimate is calculated, they will drop out 35 months (17% of the 17 years from age 18 to age 35);
– if you are 45 years old when the estimate is calculated, they will drop out 56 months (17% of the 27 years from age 18 to age 45);
– if you are 55 years old when the estimate is calculated, they will drop out 76 months (17% of the 37 years from age 18 to age 55);
– if you are 65 years old when the estimate is calculated, they will drop out 96 months (17% of the 47 years from age 18 to age 65);