Thursday, October 17, 2013

Making Sense of Your CPP Statement of Contributions

You’ve looked at your Canada Pension Plan statement of contributions and it says you could receive a certain monthly pension amount when you turn 65. What does this mean? What about inflation? Is this the amount I get if I never work again? The truth is that it is hard to understand future CPP payments in terms of dollar amounts. It’s much easier to understand it all when you think in percentages.

Doug Runchey, who worked as a specialist in CPP for many years, definitely understands CPP better than I do. The challenge is to explain it clearly to others. Doug’s most recent post on understanding CPP statements of contributions and a much more detailed post on the math of calculating your CPP benefits have certainly helped me. After wading through the details, I find it easiest to think in terms of what percentage of the maximum CPP benefits I will get.

Because CPP benefits are indexed (they rise with inflation), talking about dollar amounts gets confusing because the number of dollars you get is a moving target. The “maximum payment amount” is $1012.50 per month in 2013, but it will be higher in future years. What stays constant (absent any rule changes or extraordinary events) is your percentage of this maximum amount. Adding to the confusion is that it is possible to get more than this so-called maximum amount.

What your CPP statement of contributions tells you is what percentage of the maximum pension amount you will receive if you continue the same pattern of work that you’ve shown in the past. Suppose that your statement says you could get $800 per month. This is 79% of the maximum payment of $1012.50 per month. If your work pattern continues to stay about the same until you get to age 65, you can expect to receive 79% of whatever the maximum payment happens to be when you start to collect.

We should even think of the dollar amounts shown on CPP statements in terms of percentages. In each year your CPP deductions added up to some percentage of the maximum contribution. If you pay 100% every year, you can reasonably expect to receive a 100% CPP pension. If your CPP deductions are less than 100% of the maximum each year, you can likely expect a pension of less than 100% of the maximum.

There are a number of factors that can increase your pension percentage. You’re allowed to drop out a certain number of lower-percentage years before averaging the remaining years’ percentages. Allowances are also made for years spent caring for young children.

Another important factor is your age when you start collecting CPP. Under rules that will be fully in effect in 2016, the maximum CPP pension amount actually scales with your age when you start collecting. The $1012.50 figure for 2013 is based on collecting starting at age 65. If you wait until age 70, your maximum amount is 42% higher, and if you start at age 60, it is 36% lower.

In the example of a 79% CPP pension that we had earlier, the 79% gets applied to the maximum pension payment amount after it is adjusted for your age when you start collecting.

Got it? Should be clear as mud now.


  1. If I retire at 60 and my CPP is 36% lower, does it increase (percentage) when I reach 65, or does retiring early lock in my lower percentage for life?

    1. @Anonymous: Good question. Unfortunately, if you start collecting CPP at age 60 your benefits are locked in at 36% lower for life.

  2. I have a worse situation - worked most of my career in the US, and part in Canada. I have no idea what I am going to receive at retirement and don't know how to find out. I am sure they will find a way to pay me the smallest amount possible.....

    1. @Tara: It sounds like you need to speak to an expert who understands retirement benefits in both Canada and the U.S. I'm afraid I can't help much.