What would be your guess about the typical amount of an immigrant retiree’s pension in Canada? C$500 per month? C$1,000? Or maybe more?
Canada Pension Plan (CPP) is a social insurance program that provides payments to people making contributions to a special fund, depending on their income. This is one of the three cornerstones of Canadian public retirement system along with the Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) — an additional benefit for small-income retirees.
It is important to note that the government-backed part of the pension constitutes 25–30% of retirement income. The rest (70–75%) should be provided by private pensions, either employer-sponsored or from tax-deferred individual savings.
The maximum you can hope to receive from the Canadian government is C$24,346.44 per annum. In fact, almost no one ever accesses this amount of money as it requires to meet a number of criteria. The real amount is about 2 times lower — C$1,000 per month on average. That is why it is not recommended to rely entirely on the public pension.
Let’s see in more details how much you can get from CPP and OAS when you retire.
In 2019, Canadian retirees receive up to C$1,154.58 per month or C$13,854.96 annually. Keep in mind that the actual CPP payment averages around C$640 per month, which is a long way from the maximum.
CPP payment depends on how much you put into CPP. The best way to estimate the due amount of CPP payment is to get your CPP statement of contributions.
How to get the maximum? This depends on how you meet the two following criteria:
- The fact of contributions. You can participate in CPP from the age of 18 to 65, which is 47 years in total. 83% of 47 years (39 years) is the minimum period during which you need to contribute to the CPP. If you have not contributed to the CPP for 39 years, you won’t get the maximum. However, there is one more thing to take into consideration.
- The amount of contributions. While you’re still working and contributing to the CPP fund between the age of 18 and 65, you increase your benefit each year. You should make “enough” contributions to be eligible to receive the maximum. The CPP specifies the Year’s Maximum Pensionable Earnings (YMPE) to determine whether your contributions are sufficient. In 2018, the minimum annual income stood at C$55,900, and in 2019 it rose to C$57,400.
As you can see, getting the maximum CPP is not easy, especially considering that many people start working later in life because of education, maternity leaves or earlier retirement.
Once you have your CPP statement of contributions, you will see the list of years during which you were eligible to contribute from age 18 to 65, and how much you contributed each year. If you reached the maximum for a given year, you will see the letter “M” next to it. If you have 39 M, you get the maximum. And if you have 20 M, you will get about half the maximum.
Old Age Security (OAS) includes a basic pension that is paid to all people over 65 who have lived in Canada for at least 10 years since reaching 18 years of age.
OAS does not depend on your income, but on the number of years you have lived in Canada since you turned 18:
- If you have lived in Canada for 40 or more years, you will receive a full pension (C$7,217.40 in 2019).
- If you have lived in Canada for less than 40 years, you may be eligible for a partial pension. For instance, if this country has been your home for 10 years, you will get 1/40th of the full pension for each year you have lived in Canada after you turned 18.
- If you have lived in Canada for less than 10 years, you are not eligible for the OAS.