Common Misconceptions about CPP In Canada, there are two federal pension plans, Old Age Security (OAS) and Canada Pension Plan (CPP). There are plenty of questions on both pensions, often with qual misconceptions. The topic of pensions can be complicated, and this article should shed some light on where people have it wrong and provide some clarity. For this article, the focus will be on CPP. CPP is a monthly, indexed, retirement pension you receive for life. It is not government-funded, you pay into it. The amount you receive is based on your contributions. How much you contribute is based on your income. Annually, the numbers are adjusted. For 2022, 5.7 per cent of your income up to $64,900 goes into CPP. If you earn 64,900, you have contributed the maximum contribution possible for CPP. Your employer also matches the same contribution. If you are self-employed, you pay both parts at 11.4 percent. That money is invested, and the CPP Investment Board is responsible for the investment portfolio. Typically, the age to begin receiving CPP is 65. The benefits, as mentioned, are adjusted annually, and for 2022, the maximum at age 65 is $1,253.59 per month. Having said that, few people receive the maximum, with the average monthly amount being $702.77. It's possible to collect CPP as early as 60, but there is a penalty for doing so as your benefit will be reduced by 0.06 per cent per month. If you delay CPP past 65, the benefit bonus is 0.07 per month. CPP also offers a disability benefit, so if you paid into CPP and have a disability that stops you from working, you can collect CPP disability. Now that we understand CPP, here are some of the common misconceptions: Misconception: If I die, the government keeps the money. This is a common reason people may use to justify taking CPP early. However, this misconception is fundamentally untrue. If you are collecting CPP and pass away, there is a spousal benefit. How much your spouse receives depends on your age when you pass, but a portion of your CPP will go to your spouse. There is also a child benefit, so if you have children under the age of 18, or your kids are in school and under the age of 25, they will receive a portion of your CPP. In 2022, the child benefit is $264.53 per month, while the death benefit is $2,500. It is possible to pay more into CPP than what is paid out through these benefits, the additional money stays in the investment portfolio and is used to fund the CPP benefits for other Canadians.
Misconception: CPP is not sustainable Similar to the prior misconception, the concern of sustainability is another argument to take CPP early. CPP can be sustainable, however. There is the potential for a big pot of money in the CPP investment portfolio. As of December 31, 2021, there was $550.4 Billion Every three years, CPP undergoes an actuarial report, which uses a 75-year projection period. The most recent report indicated CPP was in fact sustainable over that 75-year period. Misconception: CPP will fund my retirement Everyone has different needs in retirement, but it is unlikely CPP alone will be enough. CPP was not designed to replace your entire income, originally CPP’s goal was to replace 25% of the average worker’s salary. In 2019 changes were implemented to bump up contributions. The amendments are being phased in over a 7-year period, and once completed, the benefit is projected to be 50% higher, with the aim of replacing about one third of the average worker’s salary. It is a good idea to get your statement of contributions. It lists your contributions into CPP year by year as well as provides estimates of your CPP benefit at different ages. You can access your statement of contributions through the My Services Canada account. There is no one-size fits all solution when it comes to CPP. The decisions you make about your pension need to make sense for your situation, it has to be a fit for your retirement plan. CANACCORD GENUITY WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBERCANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA The comments and opinions expressed in this article are solely the work of Clinton Orr, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this article, is for general information only, does not constitute legal or tax advice, and the author Clinton Orr does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability. Tax & Estate advice offered through Canaccord Genuity Wealth & Estate Planning Services Ltd.