Canadian Government Sponsored Retirement Plans

As discussed in our previous blog post,'The Canadian Retirement Landscape’ , the three levels of retirement plans in Canada include: government sponsored public plans, privately sponsored employer plans and individual plans. This article will discuss, in detail, Old Age Security (OAS) and the Canadian Pension Plan/Quebec Pension Plan (CPP/QPP), both government sponsored plans.

Old Age Security:

The OAS program is one of the cornerstones of Canada's retirement income system. Benefits include the basic Old Age Security pension, the Guaranteed Income Supplement and the Allowance. The OAS program is financed from federal general tax revenues and is administered by Service Canada (formerly HRDC). Benefits payable are adjusted quarterly to changes in the Consumer Price Index.

The OAS pension is available to most Canadians 65 years of age and over. Employment history is not a factor in determining eligibility; an applicant does not even have to be retired. A person who has lived in Canada, after reaching age 18, for periods that total at least 40 years, may qualify for a full OAS pension. Pensioners with an individual net income above $70,954 must repay part or all of the maximum OAS pension amount. The full OAS pension is eliminated when a pensioner's net income is $114,640.

The Guaranteed Income Supplement (GIS) is a monthly benefit paid to pensioners who receive a basic, full or partial OAS pension and who have little or no other income. The pension amount is adjusted annually based on changes in yearly income.

The Allowance is designed to assist surviving persons and couples living on the pension of only one spouse. To qualify, an applicant must be between the ages of 60 and 64. The Allowance stops when the recipient becomes eligible for an OAS pension at age 65.

CPP/QPP:

The Canada Pension Plan (CPP), which was established in 1966, is designed to provide basic benefits when a contributor retires. Quebec runs a parallel retirement plan called the Quebec Pension Plan (QPP). The CPP/QPP is designed to replace about 25 per cent of the earnings on which a person's contributions were based. In 2006, the CPP provided an average monthly retirement pension of $473.09 to a maximum of $863.75.

Your CPP/QPP retirement pension is based on how much, and for how long, you contributed to the Plan (or to both the CPP and the QPP), as well as the age at which you choose to retire. Generally, one’s retirement pension starts the month after their 65th birthday, but this "flexible" pension can start as early as age 60 or as late as age 70. Your monthly payment is adjusted, smaller if you begin receiving it before 65, and larger if you start receiving it after. The CPP/QPP adjusts the amount of one’s pension by 0.5% for each month before or after their 65th birthday from the time they begin to receive their pension. The adjustment is permanent. This means that if you choose to start your pension early, the payment does not increase when you reach 65.

The CPP/QPP protects your pension by making certain adjustments before calculating 25 per cent of the earnings on which you contributed over your working life. For example, some low-earning periods during your career are "dropped out", so they do not reduce the amount of your pension. Indexed to the Consumer Price Index (CPI) annually, the CPP/QPP rates are adjusted each January to offset increased costs of living.

For more information on your personal CPP benefits visit servicecanada.gc.ca . You can view and print your Canada Pension Plan (CPP) Statement of Contributions, which contains a history of your earnings and contributions to the CPP, as well as estimates for any CPP benefits you may be eligible to receive.

There are many more defined contribution (DC) plans than there are defined benefit (DB) plans in Canada, but they are typically much smaller. Of all pension members, approximately 15 per cent belong to DC plans. This is distorted somewhat by the large number of members in large public sector plans, which are predominantly DB. However, this is not surprising, since about half of the members of defined benefit plans work in the public sector, where large plans are the norm. By contrast, most DC plans are found in the private sector, and 84 per cent of them have fewer than 100 members.