The Canada Pension Plan (CPP) is changing in gradual phases between 2011 and 2016, with the first big change beginning in 2011.
Does that mean you need to rethink when to begin receiving your CPP pension? Maybe. Here’s why:
• These days, "retirement" means many things — from ceasing employment to working part-time or even starting your own business — and the CPP changes are intended to provide more financial flexibility depending on the retirement "path" you choose. They are also meant to encourage Canadians to work longer before starting to draw a government pension.
• Your monthly CPP pension amount will increase (gradually from 2011 to 2013) by a larger percentage if you take it after age 65, but you’ll see a bigger decrease if you opt to take it between age 60 and 64. If you are age 65 in 2011, the maximum CPP benefit is $960 per month. If you wait until 2013 (and are age 70), your CPP cheque will be 42 per cent more than that.
Taking your CPP pension before age 65 makes sense when:
• Your life expectancy is below the average of age 80 to 85.
• You have an illness that does not qualify for CPP disability.
• You have little or no other income.
• You are permanently unemployed.
Delaying your CPP pension beyond age 65 makes sense when:
• Your health is good.
• Your life expectancy is above average.
• You have a reasonable income and/or intend to continue working after 65.
• The work cessation rule has been eliminated. Before the changes, you had to be at least 60 years of age and not working for at least two months in order to collect CPP. Now, starting at age 60, you can continue working and still receive CPP benefits.
Under the old rules, once you began collecting CPP you never again had to contribute to the plan. Now, however, if you are under 65 and working while receiving a CPP pension, you (and your employer) will have to continue making CPP contributions (that will increase your CPP benefits beginning in 2013).
If you are 65 to 70 and work while receiving CPP benefits, you have the choice of continuing to make CPP contributions (that will increase your CPP benefits beginning in 2013) or not.
• The earnings dropout provision, which allows you to exclude a portion of your pensionable earnings that can reduce your CPP benefit, has been changed.
Previously, if you retired at 65, you could "drop-out" seven of your lowest earning years from age 18 to 65 when you were eligible to contribute to CPP. Under the revised rules, that "drop-out" period increases to 7.5 years in 2012 and eight years in 2014.
Talk to your professional adviser about getting the most out of the new CPP changes — and every other aspect of your financial and retirement life.
J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.