Canada Pension Plan (CPP): How to Receive Benefits

Canada Pension Plan (CPP): How to Contribute, Receive Benefits

The Canada Pension Plan (CPP) is a monthly social insurance payment for retired Canadians. The amount you receive is based on your average earnings, CPP contributions and age.

The Canada Pension Plan (CPP) is a social insurance benefit program designed to help supplement people’s income during retirement. It is intended to replace about one-quarter to one-third of a person’s average employment earnings.

This monthly, taxable benefit is available to all Canadians — including self-employed people — over the age of 60 who have worked in any province or territory outside of Quebec and have contributed to the plan. Payment into CPP is mandatory.

Contributing to the CPP

In general, all Canadian workers (aside from those in Quebec) over the age of 18 who make more than $3,500 annually are required to contribute a percentage of their employment income to the CPP. This percentage is set by the government each year and is known as the contribution rate.

For 2024, the employer and employee contribution rates are each 5.95%.

You’ll make contributions based on the amount between $3,500 and the earnings ceiling, an amount set each year based on average wages that is also known as maximum pensionable earnings.

For 2024, the maximum pensionable earnings amount is $68,500. This CPP table outlines the contribution rates and maximum pensionable earnings each year.

If you work for an employer, you pay the employee contribution, typically in small amounts deducted from each paycheque. Your employer pays the same amount as their portion.

If you’re self-employed, you pay both the employer and employee contribution amounts, since you don’t have an employer to cover half of the contribution. The self-employed contribution is calculated as a percentage of your net business income, up to the maximum pensionable earnings cutoff.

For example, in 2024 an employed person and their employer would each contribute a maximum amount of $3,867.50. A self-employed person would have to contribute a maximum of $7,735.

As of January 1, 2024, there’s also an additional CPP contribution known as CPP2, which applies to earnings above the annual maximum pensionable earnings threshold, up to a second threshold called the additional maximum pensionable earnings. For 2024, employers and employees each contribute 4% of earnings over $73,200, up to a maximum of $188. Self-employed people will contribute both portions, for a maximum of $376. CPP2 is part of the CPP enhancement, which will increase the amounts of future CPP payments (keep reading for more info on the enhancement).

You stop contributing to the Canada Pension Plan once you retire from work or turn 70. If you are between 65 and 70 and still working while receiving CPP benefits, you can also elect to stop contributing to the CPP.

Applying for CPP Benefits

CPP payments don’t arrive automatically once you turn 65. To receive CPP, you must apply for it. Though the standard age to begin receiving CPP is 65, you can start receiving benefits as early as 60 or as late as 70. The monthly amount you can receive maxes out at that point.

If you have ever been denied a CPP benefit, you live outside of Canada, or have a power of attorney that oversees your CPP account, you must apply for CPP by submitting a paper application form. Otherwise, you can apply online via My Service Canada Account. Once you submit your application, you’ll get an estimate of your monthly benefits. You should hear back within 120 days after submitting a paper application.

Receiving CPP benefits

Canadians are eligible to receive their full CPP benefits starting in the first month after their 65th birthday. You can also opt to start receiving your benefits as early as age 60, with a penalty of 0.6% for every month before you turn 65, or as late as age 70, with a bonus of 0.7% for every month you delay past age 65. You can use direct deposit to receive your CPP benefits.

If you elect to receive benefits at age 60, your benefits will therefore be permanently reduced by 36%. If you delay benefits until you turn 70, you will in turn receive a permanent increase in benefits of 42%. There’s no benefit to deferring CPP benefits past age 70.

The amount of CPP you receive is based on:

How long and how much you contributed to the program.
The age at which you opt to start receiving benefits.
Your average earnings in your working years.

There’s no minimum amount of time you’re required to have worked to receive CPP. If you had periods of low or no earnings, such as while staying home to raise children or experiencing an illness or disability, the government will automatically exclude up to eight years of your lowest earnings when calculating your CPP benefits.

You can log into your My Service Canada Account (MSCA) online to get an estimate of how much you could be eligible to receive.In April 2024, the average monthly payment for a new 65-year-old CPP beneficiary was $816.52, and the maximum monthly amount for new recipients at age 65 was $1,364.60. The government also has a handy Canadian Retirement Income Calculator that will help you calculate your CPP payments.

In 2019, the Canadian government decided to gradually increase CPP payments. Originally, the CPP was designed to replace about a quarter of a person’s average employment earnings. The CPP enhancement is intended to increase the CPP so it can replace about a third of a person’s average income in retirement. The enhancement is a top-up to the original CPP contribution amount.

From 2019 to 2023, the contribution rate gradually grew by one percentage point (from 4.95% to 5.95%) on earnings between $3,500 and the earnings ceiling. In return for making bigger CPP contributions, beneficiaries will receive bigger CPP benefits in retirement. The CPP enhancement affects only those Canadians who work and contribute to the CPP as of January 1, 2019.

In January 2024, the second part of the CPP enhancement took effect with a new earnings limit called the additional maximum pensionable earnings. You’ll pay a second CPP contribution (known as CPP2) on earnings between the original annual maximum pensionable earnings and the additional annual maximum pensionable earnings. The idea is to contribute more to the CPP in higher-income years so that the benefits you eventually receive will replace a greater percentage of your income.

As noted above, the additional maximum pensionable earnings amount for 2024 is $73,200. Employed Canadians will pay 4%, up to a maximum additional annual contribution of $188 (and their employers will pay another 4%).Self-employed people will pay 8% of their net business income, up to a maximum of $376.

If a CPP beneficiary passes away, the government requires that any benefit payments be cancelled. Their estate can receive a payment in the month of their death, but any payments received afterwards must be repaid. You can notify Service Canada by phone at 1-800-277-9914 from 8:30 a.m. to 4:30 p.m. local time, Monday to Friday.

A beneficiary’s estate may qualify for a one-time CPP death benefit of $2,500.

A surviving spouse or common-law partner may be eligible to receive a CPP survivor’s pension. Payment amounts depend on their age, whether they already receive other CPP benefits, and how much and how long their late partner contributed to CPP.

Similarly, a dependent child of a deceased CPP contributor may be eligible to receive a CPP surviving children’s benefit. This monthly payment ($294.12 per month in 2024). To be eligible, the child must be either under age 18 or under age 25 and attending post-secondary school full time.

Since the CPP is a taxable benefit, you may want to hold off applying for your CPP benefits until you have stopped working, have a lower overall income and thus fall into a lower tax bracket.

You are also allowed to share your pension income with your spouse or common-law partner, which could potentially reduce your taxable income overall and put you in a lower bracket. You can use the government’s Canadian Income Retirement Calculator to explore your options.

Note that you can also open a registered retirement savings plan (RRSP) to contribute to and receive government tax benefits. You can then move your RRSP funds to a registered retirement income fund (RRIF), another tax-deferred account, to avoid a hefty tax bill when you turn 71.