A Rethink on Government Retirement Income – CPP

July 15, 2022 / Insight from Dawn Hawley, CFP ®, TEP, CDFS, Financial Planner

Piggy bank with CPP (Canadian Pension Plan) written on it.

When most Canadians think of their retirement income, it includes RRSPs, pensions, investments, and government benefits; namely Canada Pension Plan (CPP) and Old Age Security pension (OAS). 

In this post we will discuss some of the positive changes to CPP which have necessitated more consideration when looking at when to draw benefits from CPP. With the improvements to the program, people living longer, and fewer defined benefit pension plans, CPP may have some additional solutions to improve your overall financial well-being through retirement.

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 Canada.

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.

Dawn Hawley, CFP®, TEP, CDFS

Financial Planner


The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. The opinions expressed do not necessarily reflect those of NBF.

Contact us

Get contact information for our team members and find out where our offices are.