Changes to Canada Pension Plan CPP
Summary of changes
The Federal Finance Minster Jim Flaherty announced, after meetings with his provincial counterparts, proposals to make some changes to the Canadian Pension Plan (CPP). The changes are designed to increase the flexibility of the CPP and to adjust the rates for early and postponed retirement:
- Allow individuals to draw on CPP benefits early and continue working and contributing to the CPP (along with the required CPP contributions from their employer). This implies the removal of the current Work Cessation Test.
- Individuals who are 65 and older that draw on CPP, but continue to work can continue to make contributions to the CPP (along with the required CPP contributions from their employer).
- Early retirement reductions will change from 0.5% per month to 0.6% per month (phased in over 5 years, commencing in 2012).
- Individuals who wait until age 70 to commence CPP benefits would see their benefits boosted by up to 42% (from 5% per month to 7% per month), compared to the current maximum increase of 30% (phased in over 3 years, commencing in 2011).
- Increase the amount of low / no earnings years that can be dropped off of the career average earnings used to determine benefit payout (from the current 15% to 16% in 2012 and 17% in 2014).
These changes will need to be approved by both the Federal Parliament and the Provinces that belong to the CPP. Stay tuned, as we will keep you posted on the progress of the proposed changes.