Canada Pension Plan Retirement Benefit

Mandated Basic Pension Plan (Updated for 2016)

Since 1966, Canadians between the ages of 18 and 70 and who earn more than $3,500 calendar year have participated in the Canada Pension Plan (CPP) or Quebec equivalent (QPP). The CPP is funded by employer and employee contributions and designed to provide a retirement pension is equivalent to 25% of a worker's average lifetime earnings, up to the Canadian average wage as adjusted each January.

Retirement pensions are calculated on the average of maximum pensionable earnings in the last 5 years and prorated for those who have worked few than 40 years with some adjustment for child-rearing and retiring earlier or later than age 65.

According to Service Canada, the average monthly retirement pension benefit during January of 2014 was $594.19.

Funding Method (Updated for 2016)

There is no government subsidy. The plan is funded with employee contributions and matching employer contributions. Those who are self-employed pay both the employee and employer contribution when they file their annual income tax return.

During 2016 the CPP/QPP employee contribution is 4.95% of pensionable earnings to a maximum of $2,544.30 ($54,900 Year's Maximum Pensionable Earnings less $3,500 Year's Basic Exemption multiplied by contribution rate).

Taxation

The employer's premiums are a tax deductible expense to the employer and are not added to the employee's taxable income. The employee's premiums are deductible from taxable income. C/QPP benefit payments are taxable income.