One of the most frequently asked questions put to us by the clients of Cooper Schneider Financial is: please help me understand the distinctions and differences between OAS and CPP.
What follows is Part 2 of a two-part blog about those important distinctions and differences, including when to apply for them, how much do they pay out, and what are the implications of taking CPP early, or deferring OAS?
Part 2: CPP
What is CPP?
The Canada Pension Plan is a form of retirement income open to all Canadians who have worked and paid into the system through deductions from their pay cheques. The amount you receive depends on how much, and for how long, you have contributed, together with the age at which you started receiving payments.
Who is eligible?
Anyone who has made at least one payment into CPP is eligible for benefits once they reach the age of 65. Again, the size of the benefits depends on how much, and for how long, you contributed into the plan and at what age you start receiving benefits.
When should I apply?
This is really up to you and whether you want to receive a smaller or larger CPP benefit. The government recommends applying six months before you want your pension to begin. You can begin receiving CPP anytime after age 60, although you incur a financial penalty by doing so.
How age affects monthly payments
If you take CPP early it is reduced by 0.6% for each month you receive it before age 65. This means that by 2016, an individual who starts receiving their CPP pension at 60 will receive 36% less than if they had taken it at 65. If you take CPP late, your monthly pension amount will increase by 0.7% for each month after 65 that you delay receiving it up to age 70.
Conclusion: OAS and CPP
How these two complementary pension programs – which likely supplement your RRSP and other retirement savings-related investments – can be integrated into what we at Cooper Schneider Financial call your Wealth Blueprint requires careful discussion.