No matter what your age, your pension as a Canadian citizen is important. It becomes important from the moment you start working and start contributing to the Canada Pension Plan (CPP).
When you the age of retirement, however, receiving your pension is not automatic. You have to apply for it.
To apply for CPP, there are several steps involved. We will take you through the CPP application process in this article.
The first thing to remember is that you should submit your application for CPP benefits in advance of the date you would like your benefits to begin.
If you have not already done so, you should register and log into your My Service Canada Account. Once you register, you will receive a personal access code to complete your registration.
You can apply by mail, but most people have reported that managing your pension is much more convenient if you do it online. The advantage is that you have immediate access to all of your historical contributions and benefits data and can view summary information at a glance.
You must apply on paper if you are receiving, ever have received, or have been denied a CPP benefit. CPP benefits include a disability pension, survivor’s pension, or a children’s benefit. You also have to apply on paper if you are a Canadian citizen residing outside of Canada or if you have authorized a third party (given someone power of attorney) to handle your CPP account.
Once you have submitted your CPP application, you can check the status of your application in your My Service Canada Account. For online applications, you could start receiving your pension within 7 to 14 days of the date of application. For applications delivered by mail or in person to any Service Canada Centre, you need to factor in up to 120 days.
Eligible Canadians applying for the CCP need to submit details of their Social Insurance Number and bank account information by submitting online or on paper the Application for a Canada Pension Plan Retirement Pension (ISP-1000) form.
If you apply online, you do it through your My Service Canada Account (MSCA). Registering with MSCA is the first step to getting to know everything about the Canada Pension Plan. MSCA is a secure online portal where you can apply, view, and update your information regarding the Canada Pension Plan (CPP).
Other plans that you can manage on MSCA include the Canada Pension Plan Disability (CPP-D), Employment Insurance (EI), and Old Age Security (OAS).
Under the CPP, you may receive retirement benefits from the age of 65, although you do have the option to receive reduced benefits from the age of 60. Increased benefits are offered to those who delay their CPP application until the age of 70 or later. We discuss the timing of your CPP application in more detail below.
If you’re asking how you apply for CPP at age 60, the answer is that there is no difference in the application process whether you are 60, 65, or 0ver 70.
All Canadians who are working – even if self-employed, over 18 years of age and earning more than CA$3,500 per year are required by law to contribute part of their monthly income to the CPP. If you work in Canada and contribute to the CCP, you are most likely eligible to apply.
One exception applies to Canadians who live in Quebec, where they are obliged to contribute to the Quebec Pension Plan, which provides similar benefits to the Canada Pension Plan.
To qualify for pension benefits, all applicants need to have made at least one valid contribution to the CPP.
If you have never worked, and therefore have never contributed to CPP, then you cannot apply for CPP. The Old Age Security (OAS) pension does, however, take care of that. If you are 65 or older and have been resident in Canada for at least ten years, you will receive an OAS pension amount monthly.
If you fall into this category and Service Canada has not informed you that you have been automatically enrolled for the OAS pension, you will have to apply for this benefit. You are eligible for your first OAS payment the month after you turn 65.
It is worth noting that you can make your retirement more comfortable by investing a little more now. Think about your life insurance or private healthcare options, for example. Of course, these are entirely separate matters. They have nothing to do with your CPP, but are similar because they ensure that your health finances will be adequately taken care of when you retire and that your family is taken care of when you die.
A few enhancements to the CPP became effective in 2019. They involve gradually increasing the rate of contributions from the old rate of 4.95% to 5.95% by 2024, with your employer paying an equal amount. This means that those currently contributing to CPP will receive slightly better benefits upon retirement.
If you’re self-employed, you pay the whole contribution, scaled according to what you earn. The contribution rate for 2021 is 10.9% (a 0.4% increase on the 2020 rate) of the amount you earn if you fall into the bracket between $3,500 and the cap of $61,600.
This capped figure means that the 2021 maximum contribution for employers and employees is $3,166.45. If you’re self-employed, the maximum contribution you can make each year is $6,332.90.
Curious about the amount of benefits you will receive when you retire? Visit the Canadian Retirement Income Calculator page. It is also a great way to understand how you can work toward financial stability in the future.
Because of the CPP enhancements mentioned above that require higher contributions from workers and employers, both the maximum and average CPP payout will increase in 2021. The amount of your pension payout depends on a host of factors and will change from one year to the next. That is why the Retirement Income Calculator is such a useful tool to figure out answers to questions such as, “How much CPP will I get in 2021?”
The maximum CPP depends on two things. The first is that you will have to have worked for a total of 39 years. The second is that your income will have to have been equal to or more than the yearly maximum annual pensionable earnings threshold.
Since the variables are different for everyone, it is best to use the Retirement Income Calculator referred to above to determine your individual benefit amount.
You, as the worker, are not the only possible beneficiary of your CPP benefits. The benefits of your CPP contributions over the course of your working life can be enjoyed by any of the following people:
A child must either be under the age of 18, or under the age of 25 while enrolled full-time at a recognized educational institution, to qualify for children’s benefits.
If you delay applying for your CPP benefits past the age of 65, your payments will increase by 0.7% each month (which adds up to 8.4% each year) up to a maximum of 42% if you begin the process after turning 70. The opposite mechanism is at play if you elect to start receiving your pension at age 60. In that case, payments will decrease by 0.6% each month (or by 7.2% per year), up to a maximum reduction of 36%.
If you do apply after your 65th birthday, it is worth requesting retroactive payments.
You can receive retroactive CPP payments for up to 11 months. The start date which you choose will determine the amount of the benefit you receive each month. Retroactive payments do not apply if you elect to receive your CPP retirement pension before the age of 65.
You should base your decision as to the best age to collect CPP on factors such as your health, financial situation, and plans, if any, for retirement. We recommend that you look at other aspects of your savings and their taxation implications. By planning a little, you can save a lot in taxes and spend it on yourself instead!
Once you have applied for CPP online, you can look forward to payments being directly deposited into your bank account. Should you have any further questions, Service Canada has a great client service team to assist you.
Now that you have secured your pension, if you haven’t done so already, maybe it’s time to look at additional ways to protect your hard earned money. We at Insurdinary are one of Canada’s most respected insurance brokers. With access to all of the top insurance companies across the nation, we will provide you with the best quote on the market – from health, dental, travel and life; to everything in between. We look forward to hearing from you!