At Kerr & Company, Kelowna tax accountants, we help various clients with retirement planning whether they’re in their 30s and planning long-term or quickly approaching retirement with questions on when to start retirement benefits such as the Canada Pension Plan (CPP) and Old Age Security (OAS). With the right systems in place, as early as possible, the transition to retirement can be smooth and uncomplicated regarding taxes and benefits. Unfortunately, for many, the transition can be a confusing time.
The traditional idea of working full-time until age 65, leaving the workforce completely to live the rest of one’s life solely on government-sponsored and private income has changed in the last couple of decades due to changes in the Canadian retirement benefits system.
These changes have affected both the Canada Pension Plan (CPP) and Old Age Security (OAS) by increasing the flexibility of those programs by giving Canadians more options as to when they’d like to receive their CPP and OAS.
As a result of this flexibility, the system has become more complex with more options including the relatively new CPP Post-Retirement Benefit (PRB). As Kelowna tax accountants, Kerr & Company are experienced in dealing with all retirement benefits and will explain every option available to you.
Canadians and their employers contribute to the CPP system annually based on your yearly income. The contributions made between age 18 and the time CPP benefits kick in are used to calculate the monthly CPP payment. You may choose age 60 for the payments to start or defer them any time until 70 years of age. If the payments are deferred, the total amount of the benefit increases per month.
Until 2012, Canadians who had started receiving CPP retirement benefits were not allowed to continue contributing to the CPP system even if they were still in the workforce. Meaning that there was no way to increase the total benefit amount. However, a rule was altered to allow individuals who continued to work while receiving the CPP retirement benefit could also continue to contribute to the CPP. This would increase the monthly CPP retirement benefit received and was named the CPP post-retirement benefit or the PRB.
If you continue to work but choose to begin CPP retirement benefits, you will be subject to these rules:
- Individuals who are 60 to 65 years of age and continue to work must continue making CPP contributions.
- Those who are 65 to 70 years of age and continue to work can choose not to make CPP contributions. In order to stop contributing, Form CPT30 (Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election) and send a copy to their employer, or multiple employers, and the original to Canada Revenue Agency.
You can change your mind and resume contributions but only once per calendar year. To make the change, section D of Form CPT30 must be filled out and sent to the employer(s) as well as the original sent to the CRA.
- If you are over the age of 70 and are still working, you cannot contribute to the CPP.
With this system, CPP recipients 65 years of age and under who are still working, and those between 65 and 70 who choose to defer receipt of their payments will continue to earn credits which will increase with each year’s contributions.
If you continue to work and make CPP contributions while also receiving CPP retirement benefits, the amount of any CPP post-retirement benefit earned will automatically be calculated by CRA. They will inform you of any increase in the monthly CPP retirement benefit each year.
The PRB will be paid automatically the year after the contributions are made, effective January 1st of every year. The CRA requires information regarding your employer’s contributions, so the first annual payment of the PRB is typically made in April. This first payment will include anything owed from January. After this initial payment, the PRB will be paid monthly. The amount of the PRB is added to the individual’s CPP retirement pension and issued as a single monthly payment.
For CPP retirement benefit recipients, the options are limited. Those who are under the age of 65, contributions will be automatically deducted from your paycheques. If you are over age 70, no such contributions are allowed.
Those individuals in the middle group (age 65-70) may require the most help from Kerr & Company, Kelowna tax accountants. Do you fall into this age category? You will need to decide whether it makes sense, in your specific and personal circumstances, to continue making contributions to the CPP.
Please don’t hesitate to contact us at Kerr & Company for a free consultation. The rules governing the PRB can be complex. Use our expertise as Kelowna tax accountants so you don’t have to worry about the technical details. Together, we will come up with a strategy that benefits you and allows you to enjoy this exciting time in your life.
Visit us today at www.kerrtaxcpa.com