Canadian Pension Plan

1. What benefits does the Canada Pension Plan provide?

The Canada Pension Plan is a contributory, earnings-related social insurance program. It ensures a measure of protection to a contributor and his or her family against the loss of income due to retirement, disability and death.

There are three kinds of Canada Pension Plan benefits:

* disability benefits (which include benefits for disabled contributors and benefits for their dependent children);

* retirement pension; and

* survivor benefits (which include the death benefit, the survivor's pension and the children's benefit).

The Canada Pension Plan operates throughout Canada, although the province of Quebec has its own similar program, the Quebec Pension Plan. The Canada Pension Plan and the Quebec Pension Plan work together to ensure that all contributors are protected.

2. Who pays into the Canada Pension Plan?

With very few exceptions, every person in Canada over the age of 18 who earns a salary must pay into the Canada Pension Plan. You and your employer each pay half of the contributions. If you are self-employed, you pay both portions.

You do not make contributions if you are receiving a Canada Pension Plan disability or retirement pension. At age 70, you stop contributing even if you have not stopped working.

3. How much do I pay into the Canada Pension Plan?

The amount you pay is based on your salary. If you are self-employed, it is based on your net business income (after expenses). You do not contribute on any other source of income, such as investment earnings.

If, during a year, you contributed too much or earned less than a set minimum amount, you will receive a refund of contributions when you complete your income tax return.

You only pay contributions on your annual earnings between the minimum and a set maximum level (these are called your "pensionable" earnings).

The minimum level is frozen at $3,500. The maximum level is adjusted each January, based on increases in the average wage.

For more information, go to Canada Pension Plan Contribution Rates

4. Why are my contributions important?

Your contributions are used to determine if you or your family are eligible for a benefit, and to calculate the monthly amount. Both the length of time and the amount of earnings on which you contribute (up to the maximum each year) are factors. Normally, the more you earn and contribute to the Canada Pension Plan over the years, the higher the benefit will be (when you become entitled) because you will have built up a lot of Canada Pension Plan pension credits. Your Canada Pension Plan credits can also be affected by "credit splitting".

5. What is my "contributory period" and how is it used?

The total span of time during your life when you may contribute to the Canada Pension Plan is called your contributory period. It is used in calculating the amount of any Canada Pension Plan benefit to which you become entitled. Your contributory period begins when you reach age 18 or January, 1966 (the start of the CPP) and continues until you begin receiving your retirement pension, reach age 70 or die (whichever is the earliest).

6. If I had some low-earning years, will that reduce my pension?

Remember that Canada Pension Plan calculations include both how much and how long you have contributed.

However, to protect you, some parts of your contributory period can be dropped out of the calculation, such as:

* periods when you stop working or your earnings become lower while you are raising your children under the age of seven;

* low earning months after the age of 65;

* any month when you were eligible for a Canada Pension Plan disability pension;