When to start paying into CPP


January 11th, 2012

Reminder for employers:  if you are planning to hire a student or young person, remember that they are not required to pay into CPP until they turn 18.  If you are under the age of 18, you are exempt from contributing to the Canada Pension Plan.  You begin deducting CPP in the month after they turn 18.

So, if your employee turns 18 on January 15, 2012, you begin deducting CPP from their pay in February 2012.

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I recently talked about the CPP changes that are coming in 2012. I want to stress again that these are important changes.  Whether you are an employee or an employer, you need to take the time to read about these changes.

Canada Revenue Agency thinks they are important too…. so they are holding a webinar on December 7. ¬†Consider joining the webinar if you have any questions on this topic. ¬†If you can’t make it, you can view the slides here:

http://www1.webcastcanada.ca/2012cpp-rpc2012/pdf/cpp-eng.pdf

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This is an important reminder of the CPP changes coming on January 1st 2012. ¬†We’ve had over a year to prepare for them, but it’s a good idea to read about these changes again to make sure you’ve got it all covered.

Here’s a good place to start: ¬†www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/cpp-rpc/cppchng-wh-eng.html

Be sure to catch this:

Under the new rules, an employee who works and receives a CPP or QPP retirement pension will now have to contribute to the CPP if he or she is:

  • 60 to 65 years of age;
  • 65 to 70 years of age,¬†unless the employee has filed an election with you or another employer to¬†stop paying CPP contributions (the election will take effect on the first day of the month following the month the employee provides you with a completed and signed election form);
  • 65 to 70 years of age, if the employee revoked his or her election to stop paying CPP contributions in 2013 or later.

Employers, be proactive and check with your employees ahead of time.  If they are  65 or over, do they want to pay into the CPP or not?  Get the elections in place.

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Change is in the air. The Canada Pension Plan, that so-called pillar of Canada‚Äôs retirement income system, is in line for a major over-haul. Every three years the Canada Pension Plan gets reviewed by the collective wisdom of the federal, provincial and territorial finance ministers. On May 25, 2009 these Finance Ministers proposed to update the CPP to “better reflect the many different paths people take to retirement today.”

Note that these changes will not affect anybody already receiving their Canada Pension.

Currently, you can choose to take an early retirement pension at the age of 60.  In order to take an early retirement pension, you must currently either stop working for a month, or reduce their earnings for two months in a row.  Their is no need to stop working or reduce your  earnings if you wait until you are 65 to begin your Canada Pension.  Under the proposed changes, you will no longer need to reduce your earnings or stop work to take an early pension.  This is obviously good news.  Many people who wanted to take an early retirement pension found it rather difficult to take a whole month off work, or cut their earnings way back for two whole months.

Another positive change is to increase the ¬†low earnings drop out provision. ¬†Currently, when you initially apply for your Canada Pension, they will drop out 15 percent of the years when your income was low (e.g. you didn’t work that year, had low earnings, or whatever.) ¬†By dropping those low income years, your Canada Pension will be higher since it isn’t being dragged down by those ¬†low income years. ¬†Under the proposed ¬†changes, they will begin to drop out 17% of the low income years.

The next proposed change is quite radical.  At this point, when you begin receiving your Canada Pension, you also stop paying Canada Pension premiums.  That means that you simply stop into the system.  Under the proposed changes, if you take an early pension (between the age 60 Р64) you will be required to continue paying into CPP if you are still working.  And, if you are 65 or over, you have the option to continue paying into CPP.  By doing so you will increase your pension benefits.

The last proposed change is probably the least beneficial.  Currently, if you take an early retirement pension your pension is reduced by 0.5% per month that the pension is taken before your 65th birthday.  That will be changed to a reduction of 0.6% per month.  On the flip side, you are currently allowed to delay starting your Canada Pension until as late at age 70.  By delaying it, you will currently increase your pension by 0.5% per month.  That is proposed to be changed to an increase of 0.7% per month.

I’ve never yet heard of anybody delaying their Canada Pension past age 65. ¬†I’d be curious to see what the stats are, showing what the average age is of a Canada Pension applicant. If anybody has access to these stats please let me know.

Also, please be aware that these proposed changes will be rolled out gradually over a few years.  For full details and some interesting examples, go to http://www.fin.gc.ca/n08/data/09-051_1-eng.asp

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