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Canada’s Public Pension system

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Canada Pension Plan

Canada Pension Plan – Background

• Began in January 1966
• Employment-based contributions
• Self-supporting
• Payable outside Canada
• Reviewed and revised regularly
• Québec has a program with similar benefits (QPP)

Notes 1

Canada Pension Plan - Sustainability

• Financing provisions of the CPP changed
• Established the CPP Investment Board
• Actuarial Reports show that the plan is on solid financial ground

Notes 2

CPP Investment Board

• Separate Act, Minister of Finance is responsible
• 12 person board with proven financial expertise
• Operates at arm’s length from government
• Professionally manages the CPP fund (investments not needed to pay benefits)
• Broadly subject to the same investment rules as other pension funds
• Reports its investments and returns regularly

Notes 3

Contribution Rates Schedule

Year	Employee	Employer	Self-Employed
2001	4.3%	4.3%	8.6%
2002	4.7%	4.7%	9.4%
2003	4.95%	4.95%	9.9%
2004	4.95%	4.95%	9.9%
2005	4.95%	4.95%	9.9%
2006	4.95%	4.95%	9.9%
2007	4.95%	4.95%	9.9%
2008	4.95%	4.95%	9.9%

(Contribution Rate will now be maintained at this maximum rate of 9.9%)

Notes 4

CPP Contributors

• CPP acts as a social insurance plan for all qualified contributors, including the self-employed
• Types of benefits are same for all CPP contributors (retirement, disability and death)
• Almost all employed person over 18 must pay into CPP or QPP (in Quebec)
• Employee and employer each pay half of the contributions
• Contribute only on annual earnings between the minimum and maximum level (called ‘pensionable’ earnings)

Notes 5

• Do not contribute on any other type of income, such as investment income
• Self-employed contributor is considered both employee and employer. He/she pays both portions of the contribution
• Amount of contribution is based on net business income (after expenses)
• Self-employed should pay into the CPP both to build up future retirement pension and to provide basic long-term disability insurance coverage

Notes 6

Contributory Period

 

 

 

 

Contributions for Year 2008

Maximum Contributory Earnings:

$44,900 (Year’s Maximum Pensionable Earnings [YMPE])

- $3,500 (Year’s Basic Exemption [YBE]) = $41,400

Employee	Rate: Amount:	4.95% $2,049.30
Employer	Rate: Amount:	4.95% $2,049.30
Self-Employed	Rate: Amount:	9.9% $4,098.60

Notes 7

Working for Different Employers

• CPP contributions are not deducted on yearly earnings under $3,500 (about $70 a week)
• If the total yearly earnings is more than $3,500 and no CPP contributions were deducted, you may complete Form CPT 20 “Election to Pay Canada Pension Plan Contributions”

Notes 8

Canada Pension Plan

 

 

 

Notes 9

CPP Drop-Out Provisions - Definition

• Periods of time that can be excluded from the contributory period when calculating the amount of a retirement, disability or survivor benefit

CPP Drop Out Provisions

• Periods of CPP Disability
• Periods over age 65
• Periods during which children were raised up to age 7 (Child Rearing)
• 15% of the lowest earning years in the contributory period (calculated on remaining years)

Notes 10

Child Rearing Provision - Eligibility

 

 

 

 

 

Notes 11

 

Drop-Out Provisions Example

Notes 12

Canada Pension Plan Benefits

Retirement pension

Disability benefit

• Disabled Contributor Child’s benefit

Survivor benefits

• Death benefit
• Survivor’s pension
• Surviving Child’s benefit

Notes 13

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Notes

1. Administrative costs are 1.6% of expenditures (RPP 2005-2006, p.46) compared to an average of 5% for private pension plans.

   Changes in 1998 made us “one of the best designed public pension systems in the world” – Professor John Miles of Florida State University 2000.

2. Changes in 1998:
   
   • Increased Contributions
   • New Investment Board
   • New way of calculating benefits (new formula for combined and 5 Year Maximum Pensionable Earnings (YMPE) average instead of 3 years)

   Check out website for most recent information. (www.cppib.ca)

   Actuarial reports built on 4.1% real rate of return (return over and above inflation) for CPPIB

   DO NOT need investments to pay benefits for about 15 years (until 2021)

3. Check out website for most recent information. (www.cppib.ca)
   Actuarial reports built on 4.1% real rate of return (return over and above inflation) for CPPIB
   DO NOT need investments to pay benefits for about 15 years!
4. Adjusted Earnings:
   Protects pension by taking growth of wages into account
5. The CPP ensures a measure of protection to a contributor and his/her family against the loss of income due to retirement, disability and death.

   With very few exceptions, every person in Canada over 18 who has employment earnings must pay into the CPP. The employer and the employee each pay half of the contributions.

   Contributions are paid only on annual earnings between a minimum and a maximum level (these are called “pensionable” earnings).

   The minimum level is frozen at $3,500. The maximum is adjusted each January, based on increases in the average wage. In 2007, the maximum level is $43,700.

   If net earnings for the year are less than $3,500, no contributions to CPP are made for that year.

   If, during a year, the person contributes too much or earned less than a set minimum amount, excess contributions will be calculated and returned when income tax form is filed.

   The amount of the benefit the contributor is eligible to receive is based on how much, and for how long they have contributed to the Plan. The age at which they choose to retire also affects the amount they will receive.

6. The amount of contribution is based on current employment earnings. For the self-employed person, it is based on net business income (after expenses). Contributions are not made on any other type of income, such as investment earnings.

   A fact sheet has been developed specifically for self-employed persons that answers questions about CPP benefits. Many self-employed people do not understand what benefits are available to them through CPP. We encourage you to help educate these entrepreneurs.

7. Should have 5 years’ worth of benefits by 2017. The balance of assets in the CPP will be equal to 5 years of benefit payouts by 2017. Assets are expected to be about $260 billion by 2017 with expenditures of $60 billion for that year.

   For rates of contributions and other matters, go to SC website at www.servicecanada.gc.ca

   For more information call: 1 800 O-Canada (1 800 622-6232).

8. The form CPT 20 “Election to Pay Canada Pension Plan Contributions” can be found at:
   http://www.cra-arc.gc.ca/E/pbg/tf/cpt20/README.html
9. Approximately 1 million SOCs sent each year to targeted groups (e.g., new contributors, people over the age of 70 who are not receiving RTR, etc.)
   
   • Since its implementation in 1966, CPP has kept a record of each person who pays into the Plan (information is supplied through the Canada Revenue Agency and Revenu Québec).
   • Your CPP record is called a ‘Statement of Contributions’ . The Statement of Contributions can be viewed on-line and requested anytime. To use this new secure service, you’ll need to get your own Personal Access Code. You can apply for a Personal Access Code online by going to www.hrsdc.gc.ca and selecting “E-Services” from the menu bar on the left.
10. These provisions are taken into account (or dropped out) when calculating RTR or determining eligibility for a disability benefit. However, you must apply for the Child Rearing Provision. The other provisions are automatically considered when the department does the calculation.
    • Periods when earnings were lower or stopped while raising children under age 7 may be excluded from CPP benefit calculations
    • The Child Rearing Provision (CRP) may increase the amount of a CPP benefit
    • The CRP may also help applicants meet eligibility requirements for disability and survivor benefits

    Because many clients are not aware of the CRP and that it must be applied for – I want to focus on this for a moment. You may have constituents who are eligible but not receiving the advantage.

    e.g. In dealing with a low income constituent, you may become aware that in addition to working outside the home, she also raised a large family. It would be advantageous to ask if when he/she applied for the CPP retirement or disability pension he/she applied for the CRP. If the response is ‘I don’t know’ it is worth a call to the department to check. An application for the CRP can then be submitted.

11. Always we encourage clients to apply and let us determine if they will benefit from this provision. Don’t self screen!
12. Note – Birth evidence is required to confirm the age of a child(ren) for the Child Rearing Provision
13. CPP is NOT just a Retirement Plan.

    Cannot compare to an investment only plan as CPP offers insurance protection against loss of wages due to death and disability as well as retirement.

    Number of beneficiaries and benefits paid (November 2006)

    Canada Pension Plan

    CPP Retirement pension	3.3 M pensioners (0.6M aged 60-64, 2.7M aged 65+)	$17.7B
    CPP Disability benefit	304,000 persons with disabilities	$3.1B
    	87,000 children of disability beneficiaries	$263M
    CPP Survivors and Death benefit
    	982,000 Survivors of deceased contributors	$3.5B
    	77,000 Orphans of deceased contributors	$216M
    	113,000 payments to estates	$239M
    Total: CPP	4.7 million people	$24.9B

    Gross Average Monthly Amount paid (2005-2006)

    Retirement	$472.90	Disability	$772.54
    Child	$200.47	Survivor’s	$307.09
    Orphan	$200.47	Death	$2,237.40

    All CPP benefits are taxable (with very few exceptions)

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Date Modified:

2008-02-11