What Is Canada's Pension Plan?


Quick Answer

Canada's Pension Plan provides monthly income to Canadian seniors after they turn 65, disability payments and benefits to eligible children. Most people between the ages of 18 and 65 who work and earn at least $3,500 per year must contribute. Only those living in Quebec are exempt.

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What Is Canada's Pension Plan?
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Full Answer

Canadians must contribute to the plan after turning 18 and getting a job. They can stop contributing after they start receiving a pension, turn 70 or die. After turning 65, a person can opt to stop contributing to the pension plan, even if he continues to work. To qualify to receive pension payments, eligible seniors must have made at least one valid payment to the plan. Though most people begin receiving a pension after turning 65, Canada offers eligible seniors the option of taking a permanently reduced pension after they turn 60.

In 2015, the maximum pension retirement benefit is $1,065 per month for new recipients. Canada bases how much a person can receive on how much he contributed to the pension plan and how old he is when he begins taking a pension. This maximum benefit amount changes each year. The country bases it on how much Canadians contributed to the plan in the preceding five-year period and also on changes to the country's cost of living. CPP benefits in 2015 also increased by 1.8 percent for people already getting a pension.

How much a person contributes to the pension plan depends on his annual pensionable earnings, which is how much he earns between a preset minimum of $3,500 and a maximum that the country determines each year. In 2013, employees made pension plan payments on how much they earned up to $51,100. The contribution rate is 9.9%, with an employee and his employer each contributing half, or about $2,356.20 each. The maximum contribution for a self-employed worker is $4712.40.

The CPP also provides disability benefits to a person who has made enough contributions to the plan and who becomes disabled and no longer able to work on a regular basis. The CPP also provides a disabled contributor's child benefit for a child of someone getting this disability benefit, and it also provides a surviving child's benefit to a child of a deceased contributor. To qualify, a child must be younger than 18 or between 18 and 25 and enrolled at a recognized school or university full-time.

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