By Sheryl Smolkin
If you decide to start collecting CPP at age 60 but have to continue paying into the plan because you go back to work, your additional post-retirement contributions can significantly increase the amount of monthly pension you receive even while you are still working.
Since 2012, CPP recipients over age 60 who earn employment income must still contribute to the plan until age 65 and may voluntarily make contributions between ages 65-70 if they are earning an income.
Between age 60 and 70 your contributions will generate additional CPP benefits called post-retirement benefits. You don’t need to apply for these additional benefits. They will automatically be added to your monthly cheque following each year after age 60 you contribute.
A sample calculation prepared by Government Benefits Consultant Doug Runchey who worked for 32 years with Human Resources and Skills Development Canada illustrates how post-retirement contributions can add up.
His example is based on a person who in 2014 at age 60 starts collecting a maximum CPP pension of $702 ($1,038 minus the early retirement reduction of 32.4 per cent).
However in January 2015, this individual decides to go back to work. He subsequently earns the maximum pensionable amount of $52,500 (2014 figures) for the next five years before he stops working completely. Using the 2014 maximum CPP contribution level, between ages 60 and 65 he will be required to contribute $2,425.50 each year to the plan (a total of $12,127.50).
Beginning in 2015 at age 61, his pension will be increased each year by an annual, cumulative post-retirement benefit that adds up to $1,350 by age 65.
As a result, his pension of $702 per month at age 60 will increase in yearly increments to $814 monthly at age 65. Therefore, he will receive approximately $2,490 in CPP post-retirement benefits between age 60 and 65. If he lives for another 20 years until age 85, the post-retirement benefit will put an additional $27,000 in his pocket.
“By accruing additional CPP post-retirement benefits of $1,350 per year between age 60 and 65, the person in this example will earn an 11.13 per cent return on the $12,127 in contributions he made for the period,” Runchey says.
He also says that the notional return on post-retirement CPP contributions by a taxpayer earning the CPP maximum pensionable amount each year who chooses to work and contribute to CPP until age 70 will be even higher.
However, Runchey notes that if this taxpayer was self-employed and required to pay both the annual employer and employee contributions ($4,850) from age 60 to 65, the total return on his five years of post-retirement contributions will be cut in half, to 5.56 per cent.
Post-retirement benefits earned in one year are added to benefits beginning in January of the following year, but eligible contributors may not receive the payment until April or May with a retroactive payment to the beginning of the year.
The amount of CPP post-retirement benefits that you can earn between ages 60 and 70 depends on your earnings and the number of years you continue to work and contribute. A Service Canada PRB Calculator will help you calculate how contributing after you begin receiving CPP benefits but before you stop working will increase your CPP benefits at retirement.
If you are over 65 and want to stop contributing to the CPP, you must complete the CPT30 form and give a copy to your employer. If you are self-employed, you must complete the appropriate section of the CRA CPP contributions on Self-Employment and Other Earnings and file it with your income tax return.
You can change your mind and begin contributing to the CPP again but you are allowed only one change per calendar year.