Your Money Matters






February 2012 Issue


CPP Changes effective Jan 2012


There are major changes to the CPP that became effective Jan 2012. They include some of the following:

1. There is a positive change in the calculation of career earnings. By increasing the dropout percentage for years of low or no earnings from the current 15% of average career earnings to 16% in 2012 and 17% in 2014, retirees should have a higher retirement benefit when they elect to receive it.
    

2. The removal of the Work Cessation Test is a welcome end to this unnecessary “annoyance”. Applicants will no longer be required to cease employment or have reduced income for a two month period in order to be eligible to apply for benefits.
    

3. Payments for those who start before 65 will be reduced and payments will be enhanced for those who start after 65. From a practical and actuarial perspective, these adjustments are appropriate given the longer life expectancy of today’s retirees compared to those who retired 20 years ago.
    

4. The most problematic amendment is that those who continue to work while in receipt of the CPP benefit will now be required to contribute into the “Post-Retirement Benefit Plan” (this is an option if they are working beyond age 65 but a requirement before that age). The Post-Retirement Benefit (PRB) is a new lifetime benefit that increases your retirement income and rises with increases in the cost of living, even if you already draw the maximum pension from the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP).
    

5. The contributions toward the PRB will be as follows:
   -Employees contribute 4.95% of pensionable earnings;
   -Employers contribute 4.95%; and
   -Self-employed workers contribute both portions for a total of 9.9%.
    

6. Canadians working outside of Quebec who receive a CPP or QPP retirement pension will begin making CPP contributions toward the PRB on January 1, 2012. The benefit will be paid to you the following year, starting in 2013. Starting at age 65 you can elect to stop making contributions. This is done by filling out the form from the Canada Revenue Agency(CRA) and providing it to your employer.

If you have any questions, or would like some help in calculating how these changes will affect you, please do give us a call.


Theresa Wever and the Money Concepts Team.

Commissions, trailing commissions, management fee and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.