Understanding government benefits
Government benefits represent the cornerstone of the Canadian Retirement Income System. If you are nearing retirement or in retirement it is important for you to understand how these government benefits play a role in your retirement income. In this article we will touch on the key components of the Canadian Government Benefits.
Canada Pension Plan (CPP)
CPP is a contributory plan. If you have made at least one payment into the CPP plan, you qualify to collect a benefit. The benefit you receive is based on how much, and for how long, you contributed to the Plan. The pension is designed to replace about 25% of the earnings on which you paid into the Plan
In 1998, the average Canada Pension Plan retirement pension taken at age 65 was $408.55 per month. The maximum for that year was $744.79 per month. Here are the maximum CPP amounts since then:
- 2015 – $1065.00 per month
- 2014 – $1038.33 per month
- 2013 – $1012.50 per month
- 2012 – $986.67 per month
- 2011 – $960.00 per month
- 2010 – $934.17 per month
- 2009 – $908.75 per month
- 2008 – $884.50 per month
- 2007 – $863.75 per month
- 2000 – $762.92 per month
Related article: How much will you get from CPP?
You can collect the CPP as early as age 60 but at a reduced amount. The reduction amount is being increased from 0.5% for every month you take CPP before your 65th birthday to 0.6% and will be phased in over a 5 year period from 2012 to 2016.
- 2012 – 0.52% reduction
- 2013 – 0.54% reduction
- 2014 – 0.56% reduction
- 2015 – 0.58% reduction
- 2016 – 0.60% reduction
Finally, it is important to note that CPP does not come to you automatically, you must apply for the CPP benefit.You can get an estimate of your Canada Pension Plan retirement pension, by checking your Statement of Contributions, or call 1 800 277-9914. The closer you are to the date on which you want to begin your pension, the more accurate the estimate will be.
- Four reasons to take CPP early
- The new CPP Breakeven points
- Understanding your CPP Statement of Contributions
Old Age Security (OAS)
The Old Age Security program is one of the cornerstones of Canada’s retirement income system. Benefits include the basic Old Age Security pension, the Guaranteed Income Supplement and the Spouse’s Allowance. After briefly describing the program’s history and overall features, each of the specific benefits is described in turn. Unlike CPP, the Old Age Security program is financed from federal government’s general tax revenues.
Related article: Three big changes to Old Age Security
The Old Age Security pension is a monthly benefit available, if applied for, to anyone 65 years of age or over. Here are the maximum benefits:
- 2015 – $563.74 per month
- 2014 – $551.54 per month
- 2013 – $546.07 per month
- 2012 – $540.12 per month
- 2011 – $524.23 per month
- 2010 – $521.62 per month
- 2009 – $516.96 per month
Old Age Security residence requirements must also be met. An applicant’s employment history is not a factor in determining eligibility, nor does the applicant need to be retired. Old Age Security pensioners pay federal and provincial income tax. In 2012, The government announces changes to the age of eligibility of Old Age Secutiry moving to from age 65 to 67. This change will be phased in 2023.
Higher income pensioners also repay part or all of their benefit through the OAS clawback. The clawback for starts at:
- $72,809 for 2015
- $71,592 for 2014
- $70,954 for 2013
- $69,562 for 2012
- $67,668 for 2011
- $66,733 for 2010
- $66,335 for 2009
The Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement is a monthly benefit paid to residents of Canada who receive a basic, full or partial Old Age Security pension and who have little or no other income.
Recipients must re-apply annually for the Guaranteed Income Supplement benefit by filing an income statement. Thus, the amount of monthly payments may increase or decrease according to reported changes in a recipient’s yearly income.
Related article: Understanding Guarandeed Income Supplement (GIS)
Unlike the basic Old Age Security pension, the Guaranteed Income Supplement is not subject to income tax. To receive the Guaranteed Income Supplement benefit, a person must be receiving an Old Age Security pension. The yearly income of the applicant or, in the case of a couple, the combined income of the applicant and spouse, cannot exceed certain limits.
The maximum GIS benefit for 2015 was $764.40 per month for a single person and $506.86 for a married person.
For more information on GIS, visit the government website
The allowance and allowance for the survivor
The allowance provides a benefit for low-income earners between the ages of 60 to 64 if still married. The allowance for the survivor occurs if the spouse is deceased. After age 64, the OAS replaces the spouses allowance.
While many people believe the government will take care of them in retirement, we can see from the numbers that this is far from the truth. Government benefits will help retirees but it will not provide adequate levels of retirement income. You must continue to invest in RRSPs, pension plans, or investments to ensure a safe and happy retirement.
That being said, be sure to incorporate the government benefits into your retirement plans.