The Canada Pension Plan

The Canada pension plan, also known as CPP, is a contributory program whose main function is to ensure that all persons employed and aged of at least 18 years old are making contributions based on their income and get them under the form of pension payments when they retire. The Canada pension plan, along with the Old Age Security, forms the Canadian public retirement income system.

With the CPP program, once the workers are sixty five years old, they become eligible to receive one quarter of their earnings on a monthly basis. However it is also possible for a worker to start getting benefits through the Canada pension plan even though the 65-year old requirement is not met. Indeed 60-year old employees who have stopped working during the month preceding the beginning of the Canada pension plan or who earns less than the monthly maximum to be paid to the CPP program in both the month before and the one when the first pension payment is made by the CPP.

The Canada pension plan was introduced in 1966 by the liberal government of Prime Minister Lester B. Pearson. At that time, workers were required to make contributions equaling 1.8 per cent of their annual gross income with a maximum contribution limit. Such a contribution rate was then determined to be too low to cover the Canadian aging population and went up yearly at a very slow pace. Indeed, during the 1990s, several reports demonstrated that with such low rates, the program would not be able to stay afloat by 2015.

Those studies evoked the Canada’s changing demographics, the increased in life expectancy,, the changing economy, benefit improvements and increased usage of disability benefits as potential explanations to their gloomy forecasts about the longevity of the Canada pension plan. All this led to a series of adjustments of the CPP, which started to be enforced in 1997. Those adjustments included: a rise in the rate of Canada pension plan to 6 per cent in 1997; attempts to lower the costs related to the administration and functioning of the Canada pension plan program; the integration of the earnings recorded from investments in the funding of the Canada pension plan; the establishment of the Canada pension plan investment board; and the review of both the Canada pension plan and Canada pension plan investment board every three years.

The CPP has many benefits and provisions for its contributors: retirement pension available from the age of 60; survivor benefits including a lump sum death benefit to be paid either to the contributor or to their relatives, a monthly survivor’s benefit for which the spouse is eligible, and the monthly benefit for the children; disability benefits divided in monthly disability benefit and monthly contributor’s child’s benefits; pension sharing for married couples; credit splitting in case events such as divorce and separation occur; and social security agreements that allow Canadian workers to have access to social benefits in all countries having related agreements with Canada.

Early this year, Prime Minister Stephen Harper quickly brushed over six possible changes to the Canada pension plan: those who decide to start requesting monthly payments from the CPP before they turn 65 will be charged a penalty, which can amount to up to a 31.2 per cent reduction compared to what a 65-year old worker would get during their retirement; those who opt for a beginning of their benefits’ claim when they are 70 years old will experience a 30 per cent increase in the monthly pension payments; the drop-out years will increase, which means that from 2012 the average earnings of an individual during their contributory period will not account 16 per cent of such earnings; the removal of the work cessation test; and the post-retirement benefits.

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