In May 2009 the federal and provincial governments proposed changes to the current Canada Pension Plan which are to be phased in starting in 2011.

Current Pension Plan Benefits:

Retirement pension: paid to all Canadians who have contributed to the Plan. The normal age to receive maximum benefits is age 65, but reduced pensions are available at age 60 and enhanced benefits if you delay receipt of the pensions up to age 70. In 2009 the maximum pension amount payable at age 65 was $908.75.

Disability benefit: paid to contributors under the age of 65 whose ability to work is affected by a prolonged physical or mental condition and who have made sufficient contributions to the Plan. In 2009, the maximum disability benefit is $1,105.99.

Survivors’ benefits: paid to the deceased contributor’s estate, surviving spouse or common-law partner and dependent children and include:

• Death benefit: a one-time payment of $2,500 to, or on behalf of the estate of the deceased CPP contributor.
• Survivors’ benefits: a monthly pension paid to the surviving spouse or common-law partner of the contributor. In 2009 the maximum benefit was $506.38 for beneficiaries under age 65 and $545.25 for those over 65. The monthly benefit for any dependent children of a deceased contributor in 2009 was a maximum of $213.99.

Among the major changes:

1. The current requirement that Canadians must stop working or significantly reduce their earnings to receive their CPP retirement benefit will be removed. If you opt to take CPP benefits and are still working you are still required to contribute to CPP at the same time up to the age 65.
2. The dropout provisions (which allow for a certain number of years with low or nil earnings to be excluded) will be increased. This would allow a maximum of eight years to be dropped from the current seven.
3. Those that opt to take CPP benefits before 65 will have their pension reduced by .06% (from the current.0.5%) per month that the pension is taken prior to age 65. This equates to a reduced benefit of 36% (up from 30%) for individuals who start drawing their benefits at age 60. Those who delay taking their benefits until after age 65 will see it increased by 0.7% per month (from the current 0.5%), an increase of 42% for an individual who waits to age 70 to start taking the benefit. These changes will not affect existing CPP retirement benefits or those taking their benefit before the changes come into effect.

The impact especially to those planning to start taking benefits prior to age 65 could affect their decision when to retire or how much additional savings they may require. You should meet with your financial professional to discuss the impact of these changes to your overall Financial Plan.

October 21, 2009