Over the past few years, there have been a lot of changes to the Canada Pension Plan, both in terms of contributions made to the plan, and with respect to the receipt of CPP retirement benefits. One of the least well-known and least understood of those changes is the CPP Post-Retirement Benefit, or PRB.
The PRB exists because, for the first time, Canadians who are already receiving CPP retirement benefits can (or in some cases are obliged to) continue making CPP contributions through their employment or self-employment income. Before 2012, once an individual began receiving CPP retirement benefits, no further contributions to the CPP were possible.
Under the new rules which took effect in 2012, individuals between the ages of 60 and 64 who are receiving CPP retirement benefits but who continue to work are obliged to make CPP contributions. Such individuals who are aged 65 to 70 can elect to make such contributions, but are not required to do so. After age 70, it is not possible to make contributions to the CPP, no matter what one’s employment status.
The benefit of continuing to make CPP contributions is that such contributions allow one to increase the amount of CPP retirement benefits receivable on a going-forward basis. Specifically, where a recipient of CPP retirement benefits makes CPP contributions in 2014, the amount of his or her CPP retirement benefits will increase beginning January 1, 2015.
The amount of any PRB which accrues to an individual depends on the amount of contributions made during the previous year, which in turn depends on the amount of income earned by the individual during that year. The following, adapted from an example on the Service Canada website, shows how the PRB works.
Jane is a CPP retirement pension recipient who, in 2013, is 65 years of age. She will receive gross earnings of $57,000 annually until she reaches age 70. Jane elects to make voluntary CPP contributions until the age of 70 and the amount of those contributions will average about $2,450 per year.
Each year between the ages of 66 and 70, Jane’s CPP retirement benefit would be increased by the amount of PRB earned in the previous year. That PRB would range from $337 at age 66 to $481 at age 70. Each year, her new PRB would be added to the previous PRBs she had collected. If she passes away at age 87, between the ages of 66 and 87, she would collect a total of $40,493.61 in PRB payments.
While every individual who makes CPP contributions while receiving CPP retirement benefits will see that benefit increase as a result, the total PRB benefits received will depend on the amount of contributions made and, especially, the number of years that the individual receives CPP retirement benefits.
For those who are between ages 60 and 64, there is no decision to be made, as CPP contributions during those years are mandatory for all working Canadians. For those aged 65 to 70 however, the choice is theirs whether they wish to continue to be a part of the workforce, and that choice is a very individual one. Some practical assistance in making the decision can be obtained from the Service Canada website, where an online calculator can be used to determine the amount of any PRB available to individuals of different ages, at different income levels. That calculator, along with general information on the PRB can be found athttp://www.servicecanada.gc.ca/eng/services/pensions/cpp/prb/index.shtml.
A final practical note: CPP contributions will be deducted from the income of all Canadian employees, regardless of age, and remitted to the federal government on their behalf. Individuals aged 65 to 70 who do not wish to make voluntary CPP contributions must complete Form CPT30, Election to stop contributing to the Canada Pension Plan (available on the Service Canada website at http://www.cra-arc.gc.ca/E/pbg/tf/cpt30/). A copy of the form is given to the employer and the original sent to the Canada Revenue Agency.
An election to cease making CPP contributions is not, however, irrevocable. It is possible to reverse that election by once again filing Form CPT30. Such a change can, however, be done only once per calendar year.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.