If you are well before the age of 65 you probably don’t give much thought to your pensionable earnings. It may seem like a long way off, but before you know it all of a sudden you are ready to start collecting your Canada Pension Plan. However, you really aren’t quite clear on how much you will receive and how the figure is arrived at.
It is one of two retirement pensions that you may be eligible for. The other is the Old Age Security (OAS). Aside from these you may also have pension plan income of a private nature that you paid into over your working years as a private pension plan.
Contributing to the CPP is something that you do through your working lifetime in most cases. Your employer is responsible for deducting a set amount of money from each pay check, up to a maximum yearly amount based on your salary or hourly wage. Quebec has their own plan.
For example, in 2012 an employer was responsible for deducting 4.95% of your gross income between $3,500 and $50,100. So the max. amount that could be deducted from your employment income as your CPP contribution was $2,306.70. Along with this the employer has to match your contribution.
Let’s suppose though that you are self employed. Then you would need to contribute both the employer and employee amount.
Currently you are eligible to receive a portion of your CPP once you reach the age of 60, but it will be at a reduced rate. The Government calculates how much you will receive based on what you have paid into it over your entire working life. They use the formula of 25% of the average maximum contributions. If there were circumstances during your working life where you were contributing lower amounts because of work interruption such as disability for example, then there are provisions built into the regulation to drop these out of the calculations.
In addition to this, should you become disabled during your working years you could be eligible for a disability pension to help support you until you reach the age of 65, which at that time would then switch over to the standard CPP payments.
The latest change to the CPP has just taken place via a CRA announcement that the pensionable earnings max has been raised to $52,500 for 2014 whereas for 2013 it was $51,100.
Be sure to talk to your Toronto Accountant about your CPP status if you are unclear about this as it can have an effect on your income for your retirement years.
