What is the Canada Pension Plan (CPP)?

The Canada Pension Plan (CPP) is a federal social insurance program that provides partial replacement of earnings in case of retirement, disability, or death. Established in 1965, the CPP is designed to work alongside Old Age Security (OAS) and private savings to provide Canadians with retirement income security.

The CPP is a contributory plan, meaning you must contribute to it during your working years to be eligible for benefits. It's funded through contributions from employees, employers, and self-employed individuals across Canada (except Quebec, which has its own Quebec Pension Plan).

Who is Eligible for CPP?

To be eligible for CPP retirement benefits, you must meet the following criteria:

  • Be at least 60 years old
  • Have made at least one contribution to the CPP
  • Apply for the pension (it's not automatic)

The standard age to begin receiving CPP is 65, but you can start as early as 60 or as late as 70, with adjustments to your monthly payment amount based on when you start.

CPP Contribution Requirements

CPP contributions are mandatory for most working Canadians between ages 18 and 70. Here's how the contribution system works:

Contribution Rates (2025)

  • Employee contribution: 5.95% of pensionable earnings
  • Employer contribution: 5.95% of pensionable earnings (matching employee contribution)
  • Self-employed contribution: 11.9% of pensionable earnings (both employee and employer portions)

Pensionable Earnings Range

For 2025, you contribute to CPP on earnings between:

  • Minimum (Basic Exemption): $3,500
  • Maximum (Year's Maximum Pensionable Earnings): $71,300

This means you only pay CPP contributions on earnings above $3,500, up to a maximum of $71,300 per year.

How CPP Benefits Are Calculated

Your CPP retirement pension amount is based on:

  • How much you contributed to the CPP
  • How long you contributed
  • Your average earnings during your contributory period
  • The age at which you start receiving benefits

Maximum CPP Benefits (2025)

  • Maximum monthly payment at age 65: $1,364.60
  • Average monthly payment (new beneficiaries): Approximately $760

Most Canadians don't receive the maximum amount because they didn't contribute the maximum amount for the required number of years, or they had periods of low or no earnings.

When Should You Start Taking CPP?

The decision of when to start your CPP pension is one of the most important retirement planning choices you'll make. Here are the key considerations:

Taking CPP Early (Ages 60-64)

  • Your pension is reduced by 0.6% for each month before age 65
  • Maximum reduction: 36% if you start at age 60
  • The reduction is permanent

Taking CPP at 65

  • You receive 100% of your calculated pension amount
  • This is considered the "normal" retirement age for CPP

Delaying CPP (Ages 66-70)

  • Your pension increases by 0.7% for each month after age 65
  • Maximum increase: 42% if you start at age 70
  • You must start by age 70

CPP Enhancement

The CPP is being enhanced to provide higher benefits for future retirees. The enhancement is being phased in over several years:

  • Enhanced benefits: Will replace one-third of average earnings (up from one-quarter)
  • Higher earnings ceiling: Maximum pensionable earnings will increase
  • Implementation timeline: Fully implemented by 2025 for contributions, benefits start in 2019

Other CPP Benefits

CPP isn't just about retirement. The plan also provides:

CPP Disability Benefits

  • Monthly payments if you become severely disabled
  • Must have contributed for 4 of the last 6 years or 25 years total
  • Includes benefits for dependent children

CPP Survivor Benefits

  • Monthly pension for surviving spouse or common-law partner
  • One-time death benefit
  • Children's benefits for dependent children

How to Apply for CPP

CPP benefits are not automatic. You must apply:

  1. Online: Through My Service Canada Account (recommended)
  2. By mail: Complete application forms and mail to Service Canada
  3. In person: Visit a Service Canada office

Important: Apply 6 months before you want your pension to start. Processing can take up to 120 days.

Key Takeaways

  • CPP is a crucial part of retirement income for most Canadians
  • The amount you receive depends on your contributions and when you start
  • Starting later (up to age 70) can significantly increase your monthly payments
  • CPP provides more than just retirement benefits - it includes disability and survivor benefits
  • You must apply for CPP benefits; they're not automatic
  • The program is being enhanced to provide better benefits for future retirees

Next Steps

Understanding CPP is the first step in retirement planning. Consider:

  • Reviewing your CPP Statement of Contributions annually
  • Calculating your estimated CPP benefits
  • Developing a strategy for when to start your CPP pension
  • Consulting with a retirement planning professional for personalized advice

Remember, CPP is designed to replace only about 25% of your pre-retirement income, so it should be part of a comprehensive retirement plan that includes personal savings and other income sources.