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Government Benefits



Clay Gillespie

Managing Director, Financial Advisor & Portfolio Manager


Government Benefits

There are two main types of government pensions that most Canadians can expect to receive during their retirement years: Old Age Security (OAS) and the Canada Pension Plan (CPP).

Old Age Security (OAS)

The current maximum OAS payment is $635.26/month. To receive the maximum OAS pension, you must be at least age 65 and have resided in Canada for periods totaling 40 years after reaching the age of 18.

Unlike CPP, OAS is an income-tested benefit. For the 2021 tax year, OAS begins to be clawed back (Old Age Security pension recovery tax) when your taxable income reaches $79,845 and is fully clawed back when your taxable income reaches $129,757. In addition, OAS payments cannot be split with your spouse.

You can defer receiving OAS pension until you are 70 years of age. For every month you defer your OAS pension, the benefit will increase by 0.6% (7.2% per year) up to a maximum of 36% at age 70.

Individuals age 75 and over will see an automatic 10% increase of their Old Age Security pension, as of July 2022.

Canada Pension Plan (CPP)

Currently, the maximum CPP benefit is $1,203.75/month. CPP can be taken as early as age 60 or delayed until age 70.

If you take CPP before age 65, it will be reduced by 0.6% per month (7.2% per year). Thus, if you start your CPP pension at age 60 it will be 36% lower than if you started it at age 65. If you take CPP after age 65, it will be increased by 0.7% per month (8.4% per year). Thus, if you delay your CPP pension until age 70, it will be 42% higher than if you had taken it at age 65.

You can both collect and contribute to CPP if you are under the age of 70. Any contributions made to CPP when you are collecting CPP will go toward post-retirement benefits that will increase your retirement benefits.

In addition, CPP benefits can be split with your spouse. For example, if you are receiving $800/month and your spouse is receiving $100/month, together you can split the CPP benefits so that you would both receive $450/month (800 +100 = 900/2 = $450 each). You are only able to split CPP benefits that have accrued while you were together.  This example is based on the assumption that you’ve lived with your spouse since the first time you’ve paid CPP.

The average CPP benefit for new beneficiaries is currently $714.21 a month.

Note that CPP benefits are based upon your contributions over time and are not affected by other income you may receive. Both OAS (quarterly) and CPP (annually) benefits are indexed to inflation as measured by the year-over-year change in the Consumer Price Index (CPI).

When to start my CPP payments?

There’s been much discussion on the best time to start your CPP under the new rules. Currently, the analysis indicates that there is no benefit to either starting your CPP early or delaying it, as long as you live to your approximate life expectancy (slightly longer than life expectancy for males and slightly less than life expectancy for females).

Thus, if you die before your life expectancy you should have taken your CPP early and if you live beyond life expectancy it would’ve been better to have delayed the start of your CPP. Of course, it is impossible to predict how long you’re going to live.

It is also important to realize that life expectancy is one of the most misunderstood aspects of retirement income planning – yet it is one of the most important factors.

Most people assume that life expectancy is the same as lifespan. This is not correct. Instead, life expectancy is a median number of years – such that 50% of a particular age group will die before this number of years, and the other 50% will die after this period.

For example, a male who is 60 years of age today has a life expectancy of 24 years; this means that he is expected to live until age 84.

There is, however, a 50% chance that he will live longer than 24 years. (Interestingly, there is also a 30% chance that he will see his 90th birthday.) A female who is 60 years of age today is expected to live for another 27 years (age 87). But she has a 50% chance of living longer than 27 years (and a 40% chance that she will see her 90th birthday).

Therefore, the main reasons you would want to take your CPP early are that you are in poor health and do not expect to reach your life expectancy, and, more importantly, you just need the income now rather than later.

Psychologically, it is difficult to delay your CPP as you may be concerned that you will not get a benefit that you paid into during your working life. The thought of paying into a pension program and not getting any benefit for the money you put in is a difficult concept to overcome.

But let’s look at this from another point of view. When you retire, one of the greatest risks that you have is running out of money. If you can maintain your lifestyle on your personal investment assets and pension entitlements, then delaying the start of your CPP pension can be viewed as a version of longevity insurance.

If you live beyond life expectancy, then you will benefit from delaying your CPP, and thus if you live longer you will be better off. What this really means is that if you live longer than life expectancy you will receive more from your CPP and will reduce the possibility of running out of money.

There is no perfect answer in terms of when to take your CPP, as it depends very much on your personal circumstances, but you should examine your greatest risks and concerns and choose the option that reduces these risks.

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