2- Quebec pension plan Canada pension plan

Contributions

Employer and employee QPP/CPP contributions are as follows:⁴

Cessation of QPP contributions

A worker will cease to contribute to the QPP as of January 1 of the year in which they reach age 73 , and workers will be allowed to choose to cease contributing to the plan as of age 65, if they continue to work and withdraw their retirement pension.

Benefits (pension benefits)

Generally, Canadian taxpayers are eligible for normal QPP and CPP pensions at age 65.

Calculation of and adjustments to Retirement Benefits

The QPP pension is calculated based on the average contributions to the plan from age 18 to the year the individual applies for the pension, whether or not the individual worked during that period. This calculation excludes the equivalent of seven years (in months) of the lowest contributions.⁷ So, for example, for an individual who receives his/her pension at age 65, the contribution period is 47 years (65 – 18). Excluding the seven years with the lowest earnings, the pension will be calculated on the average of the contributions made over the 40 years. The individual will be entitled to the maximum pension if, during those 40 years, he/she earned income at least equal to the maximum pensionable earnings. If not, the amount of the pension will be reduced accordingly.

Moreover, when retirement benefits begin before age 65, the benefit amount is reduced by 0.6%⁷ for each month between the beginning of the payments and the 65^th birthday. Accordingly, a pensioner who is entitled to the maximum benefit will have the benefit amount reduced by 36% if he or she decides to retire at 60 years of age.⁹

Similarly, for the purposes of both plans, the benefit that begins to be paid after age 65 is increased by 0.7% for each month following the 65^th birthday, up to a maximum increase of 58.8% for a deferment period of seven years.

The Canadian Retirement Income Calculator helps you estimate your retirement income including QPP/CPP benefits and the OAS benefit.

A QPP benefit simulator developed by the Université de Sherbrooke Research Chair in Taxation and Public Finance also allows taxpayers to evaluate the impact of their QPP contributions as retirement approaches, based on the predicted returns of additional contributions.

These adjustments determine the benefit amount that will be paid for the entire retirement period¹⁰ (subject to the potential supplement, as described below). Therefore, they have an impact on the decision regarding the time to claim the benefit because, by requesting the amount at age 65 instead of 60, you avoid the reduction but also lose out on generating this income during five years. Also, delaying the benefit until age 72 increases the amount.

Aside from the economic factors, opting for an early, normal or late pension must take account of personal factors such as your health, marital status, age of your spouse and your income from other sources. Make sure that you have all the necessary information before making a decision.

The following table presents QPP and CPP benefit amounts for Canadian taxpayers based on the different applicable situations:¹¹

Combined pension

When an individual receives a retirement or disability pension in addition to the surviving spouse’s pension, the amounts are paid in a single payment (combined pension). Generally, the combined pension is subject to the maximum amount determined by law, which is not necessarily equal to the sum of both pensions. The amount of the surviving spouse’s pension could therefore be reduced.

Individuals who benefit from QPP retirement benefits combined with a disability benefit can receive the full QPP retirement benefit at age 65. Therefore, once the individual becomes ineligible for the disability pension, their retirement benefit increases as if they had retired at that age. QPP Retirement Pension Supplement and CPP Post-retirement Benefit

QPP Retirement Pension Supplement and CPP Post-retirement Benefit

The QPP and CPP allow workers who are already receiving benefits to continue to contribute to obtain a supplement, i.e., the QPP retirement pension supplement and the CPP post-retirement pension. Each year of work can therefore provide a contributing beneficiary with an additional benefit, payable for life. Like the basic pension, the amount of this supplement is indexed annually according to the cost of life.

It is not necessary to register for this benefit as it is paid automatically in the year following the contribution payments. Beneficiaries working in Quebec must contribute to the QPP when their employment income exceeds the general exemption of $3,500. Beneficiaries aged 60 to 65 who work outside Quebec must still contribute to the CPP to finance the post-retirement benefit, whereas those aged 65 or more but less than 70, may choose to contribute or not. Worker and employer contributions are based on the same rates as those applicable in the regular plan.

Continuing to work after you have begun receiving your QPP and CPP pension can allow you to increase your pension amount for subsequent years. Incentives, including Tax credit for career extension, are also offered to encourage individuals to stay or return to work (see Section V).

⁴ For additional information, go to the following pages: CPP Retirement Pension – Overview and Your retirement pension under the Quebec Pension Plan.

⁵ Contributions apply to both the employer and the employee. Self-employed workers are required to pay both the employer contribution and the employee’s contribution so that their contribution rate is equivalent to double the indicated rate.

⁶ CPP contributions stop at age 70.

⁷ Some other years, for example when a parent stays home to care for a preschool child may also be excluded from the calculation. Low working income earned as of age 65 will no longer be able to reduce the average earnings used to calculate the retirement benefits.

⁸ For QPP purposes, the reduction factor varies according to the amount of the pension benefit; it is 0.5% if the benefit amount is very low and reaches 0.6% when the pensioner is entitled to the maximum benefit.

⁹ I.e., 0.6% X 60 months.

¹⁰ Amounts indexed annually.

¹¹ Benefits are indexed annually as of January 1. The QPP monthly orphan’s benefit and the monthly benefit of a disabled pensioner’s child are payable until age 18. The CPP pays such benefits to a child under age 18, or under age 25, if they are studying. Part-time students are entitled to half of the benefit.

¹² The succession of a contributor who died before receiving a CPP retirement or disability pension and has no surviving spouse is eligible for a top-up of $2,500.

¹³ A separated legal spouse who applied for CPP credit splitting as of January may no longer receive this pension.

¹⁴ As of age 65, if an individual receives the maximum pension benefit for a year, the surviving spouse’s pension will be permanently discontinued (QPP).

¹⁵ A child remains eligible for this sum where the disabled parent reaches 65 years of age and receives a CPP retirement pension.

¹⁶ This amount is composed of a basic amount of $598.46 ($598.49 for CPP), which is identical for all beneficiaries (for pension benefit recipients, the amount is added to this benefit) and a variable amount depending on the age and work income registered in the name of the QPP contributor.

¹⁷ The maximum monthly CPP disability benefit applies to a disability benefit that begins in January. The maximum CPP amounts increase each month.

¹⁸ A child remains eligible for this sum when the disabled parent turns 65 and receives a CPP retirement pension.