Retirement Planning Flashcards
What is the CPP and how much do you contribute?
The CPP is a federally-administered social insurance program paid by the recipients, starting on their 18th birthday.
Employment earnings from the Yearly Basic Exemption (YBE, $3,500) to the Yearly Max Pensionable Earnings (YMPE, $64,900) contribute to the CPP at 5.70% (11.40% for self-employed).
Annually indexed by the CPI.
What are exempt workers and what are they exempt from?
Exempt workers provide services that are not considered pensionable employment for purposes of the CPP.
These include:
- Workers who earned less than the YBE
- Migratory workers who work fewer than 25 days a year and earn less than $250/yr from the same employer
- Casual workers (eg. babysitters)
- Non-government employee election workers working less than 35h/yr.
When do you stop contributing to the CPP?
You can contribute up to age 70, where you must start receiving the CPP.
If you elect to receive CPP and work between 65-70, you can opt to contribute for Post-Retirement Benefits (PRB) capped at at 1/40 (2.5%) the maximum annual pension amount which kicks in the following year.
What happens to the CPP amount when you decide to take it earlier? Later?
The CPP amount decreases by 0.6%/month (7.2%/yr) you decide to take it earlier. If taken at age 60, decreased by 36%.
The CPP amount increases by 0.7%/month (8.4%/yr) you decide to take it earlier. If taken at age 70, increased by 42%.
What happens to CPP credits during a divorce?
CPP credits which the couple built up during the time they lived together can be divided equally between them.
This is mandatory upon divorce or annulment of a marriage in most provinces.
What happens to the CPP if you die?
If you have a spouse, he/she will get the survivor’s pension if you’ve contributed at least 1/3 your contributory period or 10 years, as well as a monthly orphan’s benefit per dependent.
The estate will get a taxable death benefit of 6 months of retirement pension up to $2,500.
What is the CPP Disability Benefit?
You can receive a disability pension from the CPP of a flat-rate portion plus 75% your entitlement if you are deemed to have a severe and prolonged disability.
You must have contributed for at least 4 of the last 6 calendar years.
At age 65, this is converted into a retirement pension.
What is the OAS?
The OAS is a public assistance program commencing at age 65 and adjusted quarterly to match the changes in CPI.
How is the OAS benefit calculated?
You qualify for a full pension after 40 years of residency in Canada after age 18. If you don’t qualify for a full pension, you may get a prorated pension after a minimum of 10 years of residency in Canada after 18 years old.
Provided that you have lived in Canada for at least 20 years after turning 18, OAS payments will continue even if you leave Canada. If you don’t meet this requirement, payments stop until the month you return to Canada.
What is the OAS clawback?
Once your retirement income crosses the OAS threshold ($81,761), you will be required to repay the OAS you’ve received at 15% for your income above the threshold.
What is the Guaranteed Income Supplement?
The GIS is a tax-free monthly benefit for low-income seniors above the OAS benefits currently receiving.
OAS benefits (not CPP) are excluded from the earnings calculation (higher if couple, receiving OAS - full or partial).
Paid to residents only and stopped after 6 months of non-residency.
What is the Allowance?
The Allowance is payable to low-income seniors (60-64) whose spouse is eligible to receive the GIS and has lived in Canada for a minimum of 10 years.
What is the Allowance for the Survivor?
The Allowance for the Survivor meets all the same requirements as the Allowance with a deceased spouse.
Higher payments than the Allowance.
What are some examples of employer-sponsored pension plans?
- Defined Benefit Pension Plans
- Defined Contribution Pension Plans
- Deferred Profit Sharing Plan
What is a DCPP?
A Defined Contribution Pension Plan requires contributions from the employer and (sometimes, if elected) the employee.
These contributions are used to accumulate a pension for the employee during retirement, but the employee will not know how much the actual payouts will be until near retirement.
Explain CPP/QPP integration in relation to pension plans’ contributions.
Employers and employees both contribute to the employee’s CPP/QPP, so some plans reduce the contribution rate to account for the doubling of pension contributions.
In DCPPs, they reduce the contribution rate.
In DBPPs, they “step” contributions to provide relief for earnings subject to CPP/QPP premiums.
