The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) are operated by the federal and provincial governments, so why would a human resources or benefits professional need to explain them to employees?
Seasoned HR professionals know many employees seek them out for information on more than just their own company’s policies and benefits. The CPP/QPP, although government-operated, is actually an employee benefit for retired and disabled workers. The employer and employee each contribute 4.95% of the employee’s wages for this benefit.
The CPP operates in all provinces and territories except Quebec and is administered by Service Canada. The QPP is operated by Régie des rentes du Québec and is similar to the CPP. A worker might have contributions to both the CPP and QPP but will draw from either one or the other, not both.
To adequately prepare for retirement, employees need to understand what the CPP/QPP provides. Some workers overestimate what they will receive from CPP/QPP and therefore don’t appreciate the importance of private employer-sponsored pension plans and personal savings.
[Related: The Retirement Landscape E-Learning Course]
Here are some basic CPP/QPP questions and answers to help employees. The answers below are general and simplified; you can modify them to fit the specific situations of your employees.
What does the CPP/QPP do for me?
It pays you a monthly retirement benefit as long as you live. It could pay you disability benefits if you have a severe and prolonged disability prior to age 65.
When can I start collecting?
Start at the age of 65 to collect the full monthly amount. You could instead start collecting as early as the age of 60 for reduced benefits, or as late as the age of 70 for an increased amount.
If someone starts collecting prior to age 65, but continues working, contributions to the CPP are still required until age 65. Someone collecting CPP but still working from age 65 to 70 is allowed but not required to have CPP contributions for their work. Post-retirement benefits (PRBs) based on employment earnings after retirement are calculated annually and the retiree’s CPP amount is adjusted accordingly.
How much will I receive?
CPP is intended to provide around 25% of a worker’s average earnings, but your specific amount will depend on your earnings history and the age at which you retire. In January 2018, the average monthly CPP payment for new claimants was $691.93. The maximum monthly payment was $1,134.17. The CPP website shows how much you could receive. Use the Canadian Retirement Income Calculator to estimate your own CPP benefit and other retirement income. In Quebec, log on to Retraite Québec.
Will my CPP/QPP start automatically when I retire?
No. You must apply for it from Service Canada or Retraite Québec.
Does my CPP/QPP affect the pension amount I get from my employer?
It depends on the employer-sponsored plan. (Insert your plan-specific answer here.)
Will my CPP/QPP income be taxable?
Is the CPP/QPP the same thing as Old Age Security (OAS)?
No. If you qualify for OAS, as most Canadians do, you can collect both your CPP/QPP and your OAS. However, OAS is not payable until age 65.
What is the CPP/QPP expansion I’ve heard about, and how will it affect me?
Legislation to enhance the CPP is complete, and regulations are being written. The CPP contribution rate will increase gradually over seven years starting in 2019. By 2023, you and your employer will each contribute 5.95% of your wages instead of 4.95%, up to a certain limit. Starting in 2024, after reaching that first limit, employers and employees will each contribute 4% on additional earnings beyond that until a second, higher limit is reached.
In short, overall contributions to CPP and QPP will rise. As a result, retirement, disability and survivors benefits will gradually rise. Future workers whose contributions are at the 5.95% rate their entire careers should expect monthly CPP benefits to be about one-third of average monthly lifetime earnings.
In December 2017, Canada’s finance ministers proposed additional enhancements that could benefit parents of young children, people with disabilities, and survivors. These changes are not expected to require increases in CPP contribution rates.
In February 2018, Quebec approved legislation to enhance the QPP in a nearly identical manner to the CPP.
A Primer on the incoming CPP/QPP enhancements, Benefits Canada, November 27, 2018
Lois Gleason, CEBS
Senior Information/Research Specialist at the International Foundation
Developed by International Foundation of Employee Benefit Plans staff. This does not constitute legal advice. Consult your plan professionals for legal advice.