Effective January 1, 2012 changes affecting Canada Pension Plan premiums and recipients go into effect. While everyone has known that this has been coming, it is now here and decision already made will need to be reviewed, as well as plans for the future.
Individuals currently collecting CPP retirement benefits will fall into one of three categories.
Under 65, collecting CPP and working
These individuals, effective January 1, 2012 will once again see CPP premiums deducted from their pay cheques or, if self-employed will once again be required to remit CPP on self-employed earnings. The CPP you are currently receiving will increase each year based on the CPP contributions you make during the calendar year.
Over 65, collecting CPP and working
Individuals over 65 and still working will automatically be subject to CPP premiums on employment earnings, UNLESS you decide to opt-out. Individuals over 65 may complete form CPT30 available on the CRA website, complete the form and then no longer be subject to CPP premiums. The employer, who is required to match the CPP premiums, is bound by the decision of the employee.
Collecting CPP and not working
If you collect CPP retirement benefits and are no longer earning employment income, then nothing will change for you.
Not yet receiving CPP
Individuals who have reached the age of 60 but not yet 65 have decisions to make. Prior to the changes, and you were able to stop work for two months, the common opinion was to take the money as soon as possible. This may no longer be the smart move.
Changes include the removal of the work cessation period meaning you no longer have to stop work in order to collect CPP – only reach 60 years of age. The downside is that the “penalty” for taking CPP benefits earlier than age 65 has increased form .5% per month to .6%.
Additionally, continuing to contribute past age 65 will now increase the amount of your monthly benefit so that you can actually receive more than the maximum CPP retirement benefit.
What’s the right way to go? Depends on how long you plan to live.