Pensions

Question 1

When can you take CPP?

Answer 1

Age 60 at a reduced rate.

Question 2

What happens when you take CPP early?

Answer 2

If you start before age 65, payments will decrease by 0.6% each month (or by 7.2% per year), up to a maximum reduction of 36% if you start at age 60.

Question 3

What happens when you take CPP late?

Answer 3

if you delay your CPP/QPP payments, you’ll receive an increase of 0.7% for each month you wait after your 65th birthday. This amounts to an increase of 8.4% per year and can be up to 42% if delayed until age 70.

Question 4

When can you start OAS?

Answer 4

Age 65.

Question 5

How is OAS clawback calculated?

Answer 5

For every $1 of net income above $90,997, the maximum OAS pension is reduced by 15 cents.

Fully clawed back at $148,065 for retirees aged 65 to 74 and $153,771 for people aged 75 and up.

OAS is taxable income.

Question 6

What is GIS?

Answer 6

The Guaranteed Income Supplement (GIS) is a monthly payment you can get if you are 65 or older.

The Supplement is based on income and is available to Old Age Security pensioners with low income.

It is not taxable.

Question 7

What is an IPP and who do IPPs make sense for?

Answer 7

Individual Pension Plans (IPPs) are employer-sponsored
Defined Benefit (DB) pension plans that usually have one
member.

An incorporated, self-employed business owner or
professional who needs to boost your retirement savings.

An employer looking to enhance retirement benefits for a key employee.

Generally, ages 40-65 earning T4 income.

Question 8

Are IPP contributions tax deductible?

Answer 8

Yes.

Contributions made to an IPP are tax deductible for
the employer, or for the participant, if he/she contributes
directly to the IPP. In addition, contributions made to an
IPP are not subject to payroll taxes.

IPPs cannot be unlocked.

Question 9

How does an IPP compare with an RRSP?

Answer 9

IPP has a greater contribution limit.

Contribution limits increase with age.

After age 50, contribution limits exceed RRSP contribution limits.

Question 10

What are some disadvantages to IPPs?

Answer 10

1. Reduced RRSP room.
2. Funds are locked-in.
3. Withdrawal Restrictions (spousal RRSPs cannot be used to make a past service contribution).
4. Strict compliance.
5. Reduces ability to contribute to a spousal RRSP.

Question 11

What is an RCA?

Answer 11

A plan or an arrangement under which an employer, former employer, and in some cases an employee makes contributions to a person or partnership, referred to as a custodian.

Question 12

What are the advantage’s of an RCA?

Answer 12

1. Plan features are flexible, making it easy to adapt to the specific needs of each participant’s objectives.
2. Contributions made to the RCA are not subject to payroll taxes and are tax-deductible.
3. Once a person retires, the access to funds is flexible. In particular, participants do not have to wait until age 65, they may take out lump sums, or income over time, whichever suits them best. Given that plan assets are separate from the company’s, they can create an element of asset protection.
4. Like an RRSP, payments from an RCA are taxed personally when withdrawn in retirement.

Question 13

What are the disadvantages of RCAs?

Answer 13

1. Only half of the contributions to an RCA can be invested. Plan contributions and investment income are subject to a 50 percent refundable tax. Plan contributions and investment income are subject to a 50 percent refundable tax. This tax is refunded to the RCA at the same rate as retirement benefits are paid out to individuals.
2. Neither the employer nor employee can directly control the investment assets while held in trust.

Question 14

What are some advantages to an IPP?

Answer 14

1. Contributions are tax deductible, allowing for efficient flow through of corporate savings / profit to business owner, bypassing new passive income rules and taxation.
   IPPs fall under pension legislation, so you can split income in retirement with spouse or significant other.
2. Contribution limits are higher than in RRSPs and you can top up your contributions if the IPP does not achieve a 7.5 percent annual growth rate.
3. Assets are secured from creditors.

Question 15

Can you receive OAS if you live outside of Canada?

Answer 15

You can qualify to receive Old Age Security pension payments while living outside of Canada if one if these reasons applies to you:

1) you lived in Canada for at least 20 years after turning 18.

2) you lived and worked in a country that has a social security agreement with Canada