CPP is a contributory plan, one that most Canadians pay into during
their working years. For that reason, if you contributed, you will
receive a benefit. There is no claw back for CPP benefits, unlike the
OAS program. The CPP benefit you receive is determined by the amount
you contribute. Estimates of your entitlement are available from Service
It is important to note that in 2019 a significant change to the
CPP program increased the percentage of covered income from 25% to
33%, this being phased in over several years. This means the
benefits from the Canada Pension Plan are increasing. Another
noteworthy point is the income is increased by 8.4% per year for
each year of deferral between 65-70.
Once you begin receiving CPP benefits, it is important to
understand that the income is fully indexed to inflation. That means
that each year the benefits are increased by the cost of living from
the previous year. In January 2022, CPP income increased by 2.7%.
Inflation is a big topic right now, so we are mindful of its erosion
to purchasing power. Both CPP and OAS are fully indexed to the cost of living.
There was a time when there were concerns that CPP would not have
enough collected to continue to provide pension payments to Canadians.
That is not the case anymore as wise investment and management
decisions have placed the pension fund in a very sustainable position.
With the long-term sustainability of the plan now intact, questions
that you should think about related to when you should apply for CPP
payments have changed. In the past, we focused only on the amounts
that one would receive from the plan, and now we have the opportunity
to look at this indexed income stream as providing a different benefit.
For those with good health and longer life expectancy, deciding to
defer the initial collection of CPP payments past the age of 65 could
provide significant benefits later in your lifetime. There are many
factors to consider, and each decision is a personal choice. Having
good information is imperative. There are long-term ripple effects for
all choices you make and understanding how one decision can affect
other decisions is an important step in your planning. That is where
your financial planner can help you to understand options, so you are
in a position to make the best decision for your own situation.