When to Start CPP/QPP

What is the best age to take your pension (CPP/QPP)? This is a common question from many people approaching retirement. Recent changes may affect when you should take the pension to maximize the benefits payable to you.

So, before we answer that question, let’s first take a brief look at the changes that were made:

  • Previously, if you chose to take your CPP/QPP early or defer past age 65, the reduction or increase in your pension was 6% per year (or 0.5% per month) to a maximum of 30%.
  • Since 2016, the reduction for taking CPP/QPP early is 7.2% per year (or 0.6% per month) to a maximum of 36%.
  • The increase in pension from deferring is now 8.4% per year (or 0.7% per month) to a maximum of 42%.

Canada Pension Plan: Retirement Pension Comparison and Break-Even Points

 

From a purely mathematical perspective, the following are the break-even points for taking CPP/QPP under the new rules:

  • Before the time the pensioner reaches age 73, the total CPP/QPP received is greater by taking it at 60 instead of 65.
  • Similarly, by deferring CPP/QPP to age 70, the total CPP/QPP received is less just before the pensioner reaches age 81 than if taken at 65.
  • If inflation of 2% is factored into the calculation, then the break-even ages drop to just before 72 and 80, respectively.

For more information on CPP/QPP benefits, visit Canada and Quebec Pension Plans.

What Happens If I Keep Working After Starting my CPP/QPP Benefits?

If you are under the age of 65, CPP contributions on earned income are now mandatory. If you are receiving CPP, additional contributions will increase your retirement pension through the CPP Post-Retirement Benefit (PRB). If you are between the ages of 65-70, these contributions are optional.

The PRB does not affect payments to CPP disability or survivor pensions. These contributions are also not eligible for pension sharing or splitting.

 

Working Quebecers are required to make QPP contributions, even if they are receiving a QPP retirement pension, once their earnings exceed the $3,500 basic exemption. These contributions will go toward a retirement pension supplement, which will increase retirement benefits even for persons already receiving the maximum pension amounts. These increases take effect the year following the year the QPP contributions were made. 

What Are Some Other Personal Circumstances That May Impact This Decision?

  • It may be beneficial to defer CPP/QPP and OAS if the bulk of your assets are in an RRSP and you have no other income. During the years before you take the pension, you can withdraw from your RRSP at lower marginal tax rates.
  • Your health, lifestyle and family history of longevity should be considered in the decision to defer. All other things being equal, the longer you expect to live the more you should lean toward deferring. If you are expected to have a less than normal life expectancy, then the opposite would be true.
  • Will you still be employed and contributing? If a CPP contributor, you would get the Post-Retirement Benefit (PRB) and increase your retirement pension that way. However, the PRB portion of your pension is not eligible for pension sharing or splitting and does not affect payments to disability or survivor pensions.
  • If you expect to have higher lifestyle expenses now than in the future, it may be beneficial to take your pensions earlier rather than later.
  • If your spouse is much older than you, then you may benefit from taking the pension early to enjoy more retirement activities together. Your expenses may drop when the older spouse can no longer enjoy some or all of these activities or passes on.

Though the numbers lean toward deferring the pensions to later dates, you should always consider how this is going to affect your own personal situation. There isn’t a single answer that is right for everyone.

Additional personal factors and considerations are listed in the table below.

Personal Factors:

Consider

How long will you live?

  • Annual benefit goes up with age
  • Will you live long enough to break even?

Will you be working in retirement?

  • Given your marginal tax rate, does it make sense to take the discount?
  • Value of CPP Post Retirement Benefit / QPP Retirement Pension Supplement?

Other sources of retirement income?

  • Proportion of CPP/QPP to total retirement income? (How important is it?)
  • Impact of a larger or smaller benefit?

Number of years out of the workforce with no contribution?

  • Gaps in employment record, new immigrant, stay at home parent, illness with no CPP/QPP disability?
  • Compare benefits and break-even dates for different ages

Lost or received pension credits due to a divorce?

  • Compare benefits and break-even dates for different ages