How many years do you have to work in Canada to receive a pension?

After a career full of ups and downs, hard work and perseverance, and battling traffic Monday through Friday, it's a comforting thought that the Canadian Pension Plan (CPP) is available to help you enjoy your golden years. The CPP, or Quebec Pension Plan for the Quebecois, along with a Registered Retirement Savings Plan (RRSP) can help you meet your goals after you hang up your spurs and relax.

But how long do you need to stay in the saddle? Well, it depends. There are pros and cons to CPP benefits depending on when you decide to start taking them. We’ll run through a few options here and talk about some things you need to know.

Retirement accounts 101

Retirement accounts can be confusing so let’s run through some of the options very quickly.

First is the public pension plan in Canada, known as the Canadian Pension Plan (CPP). We’ll be heavily discussing this option, along with its Quebecois analog, the Quebec Pension Plan (QPP).

The second and most common type of “pension” is the Registered Retirement Savings Plan (RRSP). RRSPs aren’t pensions in the true sense of the word but they are often lumped together. Here, you set aside some of your income in a tax-deferred account, invest it, and allow it to grow. Employers will often offer matching opportunities for RRSPs. For example, if you allocate 5% of each paycheque to your RRSP, they may offer an additional 5%, which is a great benefit you should take advantage of if you have the opportunity. There are several other types of savings accounts too, including those that guarantee a certain income each month in retirement and those from which you can freely withdraw.

Finally, there are a number of assistance programs that can be a source of retirement income as well. These include old age supplements, for those that are taking their CCP/QPP but still have a relatively low income, and disability benefits.

What is the Canada Pension Plan?

Established in 1966, the Canadian Pension Plan is one of the retirement vehicles open to Canadian citizens that provides a guaranteed income amount each month during retirement. Nearly everyone who works in Canada contributes to the system during their working years. In 2021, the contribution rate for the pension plan stands at 10.9%. If you have an employer, they will pay half of the amount and you are responsible for the other half. If you

are self-employed, you get the short end of the stick here — you are responsible for the whole 10.9%. These amounts are capped each year, however, between $3,500-$4,500 CAD depending on who’s employed you and how.

How long do I need to work to get benefits?

Not very long at all. If you have contributed once to the CPP system, you are eligible to withdraw from it when you retire or meet other eligibility requirements. The key issue here, however, is the amount that you’re able to withdraw. The longer you work, the more “credits” you receive toward your pension. This means that the more deposits you make, the more you’ll be able to earn for your pension payments. A recent study found that in order for Canadians to realize full CPP benefits, which amount to about 25% of their income during their lifetime, they would need to work for 39 years. This is easier said than done, considering the fact that only 6% of Canadians actually met this criterion in 2019. Imagine you started contributing at age 20; you’ll conceivably have to work until you’re nearly 60, without stopping, to take the full amount.

Ok, but where do my contributions go?

Great question. The CPP Investment Board is a government-appointed group that administers the investment of CPP funds. Its motto is to “maximize returns without undue risk of loss.” The large pool of deposits from workers nationwide is invested and allowed to continue to grow. When a Canadian reaches the age of retirement, or if someone needs to take CPP (more on that below), the CPP starts sending out the cheques.

Who is eligible to take CPP?

More people than you think! There are several groups that are eligible to begin taking CPP funds:

• Retirees: If you’re 60 or 65, you can apply to receive your CPP benefits. The amount you receive is based upon your income and contributions made during your working life

• Survivors: Your spouse or partner can also receive your benefits if you pass away

• Disabled individuals: If you are permanently disabled, you may be eligible to take your CPP benefits early

• Children’s Benefit: Your children may be eligible to take your CPP disbursements if you decease

If you’re a retiree, the math concerning when you should take your benefits can be a bit confusing. You could begin to take your benefits at age 60. That benefit, however, will be lower than if you waited to take it until age 65. If you have other retirement income, such as an RRSP or a company-sponsored pension, you may want to consider holding off on applying for CPP until later in life.

But, what if I don’t want to stop working?

Good news! CPP benefits are not automatic. If you want to receive them, you need to apply for them in the first place. This means that you can plan accordingly for how you’ll receive them and the tax implications of doing so.

Moreover, you can continue to work after you begin receiving your CPP benefits by way of the Post-Retirement Benefit. Because you’re still paying into the system, the government will award you additional benefits as you continue working. You’ll receive those funds at the end of the year and again as you continue to take CPP funds. You can take advantage of the post-retirement benefit until age 70.

American Social Security versus the CPP

The United States and Canada have a long history of sharing workforces across the border. The pandemic has caused more individuals than ever before to live in one country but work in the other. The governments understand this and have developed a system to address how this affects government-sponsored retirement plans. The system is complicated but, in essence, if you work in one country but reside in another, you are able to apply, one for one, for the benefit of the country in which you live.

Are there other benefits I should be aware of?

Yes! Aside from the CPP and the post-retirement benefits outlined above, there are also a number of other things the government has available to help you during and while you get to your retirement years.

The Old Age Security Pension is available to any Canadian who has lived in the country for at least ten years and is over the age of 65, even if they did not work. Many payees can get as much as $625 a month depending on age and income status.

If you get the Old Age Security Pension and are also low income, you may also qualify for the Guaranteed Income Supplement. The amount you receive depends on the amount of income you and your partner, if married, have.

The gap between age 60 and 65 can be a difficult one, especially if you do not plan to work, don’t have other retirement savings to draw on but do not want to take CPP yet, and are low income. That is what the 60 to 65 Allowance is for — bridging that gap and helping individuals realize full CPP benefits based upon their income can go a long way to helping make ends meet.

What about non-retirement?

Absolutely! The Canadian government offers benefits for everything from housing to childcare. These include stipends to assist with rent, down payment assistance to help with the purchase of a new home, and tax credits to build green. The government also offers maternity and paternity assistance when your workplace may not, helps with daycare and school costs, and a straight tax credit to defray the cost of raising children in the first place.

You don’t need to work your entire life to realize CPP benefits in Canada. However, you will need to work for quite a while to realize the full benefits. This should lead you to the obvious conclusion that diversifying your retirement portfolio can keep you from relying on the CPP alone. There are a number of other great benefits available to Canadians and tax-free accounts to help save for retirement outside of the public pension system. Be sure you have a full understanding of the benefits available to you as you begin to prepare for your golden years.