Pensions for Life
- With Annual Increases of Course
By ROBERT O'CONNOR
There are so many "Rules" when it comes to receiving Government Benefits, and so many ways in which one must qualify for these State Benefits, whether they are British or Canadian. Knowing the "Rules of the Game" can be very important, particularly when it comes to getting the maximums you are rightfully entitled to as a citizen of either country.
In this series of articles on State Benefits (Canada and Britain), I want to briefly touch on the fundamentals that you, as a citizen of either country, may be entitled to.
The series is not intended to cover the intricacies or legal ramifications, but rather touch on the fundamental issues of state benefits, and then for you to further explore with a financial advisor.
Let's first touch on the retirement aspects of the Canada Pension Plan (CPP). CPP is 100 percent funded by you and your employer and not the federal government. If you are self-employed then you pay 100 percent of the mandatory contributions.
The Canada Pension Plan was established 40 years ago. The premiums you pay to CPP are called contributions, and those contributions by law are remitted by the federal government to the "Plan."
If you were one of the original charter members back in the 1960s, and you are age 65 this year, and you have contributed the maximum each year to the Plan, then you can expect to receive $844 a month for the rest of your life, with annual increases of course!
If you are age 60 this year, and you had made the necessary contributions since the 1960s and would like to receive a regular monthly pension, then you have the right to a reduced CPP pension of $590 a month for the rest of your life, with annual increases of course!
Taking advantage of this option may be a very wise decision, particularly if you are self-employed. Canada Pension Plan contributions are very expensive today in relation to the 1970s, 1980s, and 1990s. If your annual earnings are in excess of $42,000 then you are required by law (The Rules) to pay in excess of $3,820 in contributions to the Plan each year.
However, if you elect to receive your CPP at age 60, you are then prohibited from paying any more premiums (contributions). Take a pen to paper and work it out for yourself and see if it's worthwhile. Talk to a trusted financial advisor and see if taking your Canada Pension Plan entitlement early is a prudent decision.
In addition to your CPP entitlements, you are also entitled to another pension and that is based on the taxes that you have paid throughout your working life as a citizen of Canada. The label the federal government gives to this pension plan is Old Age Security (OAS) pension.
This pension you will receive at age 65 (you must however, as with the CPP apply for it, it is not automatic!). The OAS pension at age 65 is today a little over $484 per month, and that pension is payable to you for life, with regular increases of course!
So, you turn 65 tomorrow and you have worked in Canada for some 40 years, what could you receive? A Canada Pension Plan Benefit of a little over $844 per month and an Old Age Security of a little over $484 per month, giving you a combined annual pension of almost $16,000 per year, with increases each year for life of course!
There are numerous other benefits under the Canada Pension Plan, which should not be overlooked. To mention a few, Survivor Benefits (Spouse and Children), Child Rearing Drop-out Provision, the 15 percent Drop-out Period, Credit Splitting, Pension Sharing, Disability Benefits, and Death Benefits.
In the next issue of The Celtic Connection, we will address U.K. State Pension Benefits, as they relate to pensions for ladies aged 60, and gentlemen aged 65.
Robert O'Connor is a British expatriate and a specialist in Canadian and U.K. state benefits. He can be reached via e-mail at roconnor@telus.net or by telephone at (604) 682-8087.
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