Robert Smithson's Legal Ease - Canada Pension Plan Changes Coming in 2012

CANADA PENSION PLAN CHANGES COMING FOR 2012

One of the primary aspects of most Canadians’ planned retirement income is Canada Pension Plan (CPP) retirement benefits. Effective in 2012, the CPP will be implementing a series of changes to how those benefits are calculated.

Bill C-51, Parliament’s legislation implementing the federal budget, received royal assent on December 15th. The changes it proposes will, among other things, enable some Canadians to combine pensions and ongoing income from work.

There are four main changes headed Canadians’ way as a result of the passage of Bill C-51.

First, workers will no longer have to cease work or reduce their earnings in order to collect CPP retirement pension benefits before age 65. Currently, workers must either cease working, or not earn more than a prescribed amount, in order to qualify to collect benefits (this is called the “work cessation test”).

The impact of this change will be that workers will be able to combine their pension benefits and unreduced work income prior to age 65.

Second, the rate at which Canadians’ low earning years are excluded from the calculation of their benefits entitlements (this is called “low earnings dropout”) will be increased.

CPP uses Canadians’ average pensionable earnings levels for the purpose of calculating their CPP pension benefits entitlement. Increasing the rate at which our low earning years are excluded from the calculation can have the effect of increasing our average earnings and the resulting benefits figure.

Third, CPP retirement pension benefit recipients who continue to work will (along with their employers) continue making premium contributions, thus continuing to build their pension. After age 65, continuing contributions will be voluntary.

It seems that the effect of this change may be that some Canadians will have the opportunity to receive benefits payments exceeding the prescribed maximum.

Finally, the rates at which retirement pension benefits are adjusted for early and late commencement of receipt of benefits will be changed.

For those who begin receipt of benefits prior to age 65, the rate at which their retirement pension benefits are adjusted downward will be gradually increased. And, for those who begin receipt of benefits after age 65, the rate at which their retirement pension benefits are adjusted upward will also be gradually increased.

In effect, the penalty for early receipt of benefits will increase but so will the bonus for late commencement of benefits.

Some experts in the tax and finance sector suggest that, in all cases, it’s best to start collecting your CPP retirement pension benefits at the earliest possible moment. Nonetheless, whether you choose to begin to receive benefits as early as age 60 or as late as age 70 is a decision which must be made based on your personal circumstances. Canadians should consult with a financial advisor or accountant in this regard.

It is important to note that these changes will not affect existing CPP retirement pension beneficiaries or those who begin receiving their benefits before the changes come into effect.

All in all, these changes to the CPP seem likely to get a positive reception. They allow older workers more flexibility and have the potential for resulting in greater retirement pension benefits for some (if not necessarily all) Canadians.

Robert Smithson is a partner at Pushor Mitchell LLP in Kelowna practicing exclusively in the area of labour and employment law. For more information about his practice, or to view past “Legal Ease” columns, log onto www.pushormitchell.com. This subject matter is provided for general informational purposes only and is not intended to be relied upon as legal advice.