Canada Pension Plan (CPP/QPP)
This article reviews the default settings for the Canadian Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits in your projections and how to make modifications.
- Default CPP/QPP Amount: Snap assumes your clients will receive the national average CPP/QPP benefits (currently 56.06%) as of the current year and indexed with inflation; however, this may not be the case for your particular scenario. You can adjust the percentage of the maximum benefit as shown below.
- Enhanced CPP/QPP: Your projections take into account the Enhanced CPP contributions and benefits based on Bill C-26. Contributions are automatically adjusted to the new contribution rates and earnings ceilings. CPP and QPP benefits automatically include the enhancement based on the number of years your client is eligible to make higher contributions to the CPP/QPP. Please click here for Canada Pension Plan Enhancement details. For clients residing in Quebec, enhancements to QPP are followed. Please click here for more details.
In this article:
Accessing the Gov't Benefits page
Select Scenario Setup -> Gov’t Benefits to view the CPP or QPP information for the individual. For the examples in this article, we will refer to CPP but note that for clients residing in Quebec you will see QPP instead of CPP on the Gov't Benefits page.
Modify the Percent of Maximum (at age 65)
The Percent of Maximum (at age 65) indicates the percent of the future maximum benefit (base and enhanced) in the year that the client turns 65 that you expect them to receive. The CPP enhancements that started in 2019 will increase the maximum CPP retirement pension by up to 50% for those who make enhanced contributions for 40 years. If you enter a percent of maximum (at age 65) of 100%, it means you expect the client will receive both the maximum base amount being paid today, and the maximum enhanced payments that they'd be eligible for based on their year of retirement.
As a default, the software provides each client and spouse with the national average for CPP. Our example client John Snapper will receive 56.06% (the default setting for a plan created in 2022) of the expected future maximum benefit (base and enhanced). You can adjust this value manually if the individual is expected to receive a different amount. Type in a new percentage and move the cursor away from this field with your mouse, or press the Tab key. The Annual Retirement Pension will adjust automatically.
In the above example, we've entered 80%, which increased the expected Annual Retirement Pension. There's also language that outlines the difference between your entered percentage and the national average. In this case, the 80% entered is 24 percentage points higher than the national average.
CPP Start Age
The standard age to start the pension is 65, but you can choose to start it as early as age 60 or delay it as late as age 70. If the CPP start age is lower than 65, the client will receive a smaller CPP benefit and if it is higher than age 65, the client will receive a larger CPP benefit. By adjusting the start age, the CPP amount will be automatically updated in the Annual Retirement Pension box. The Percent of Maximum (at age 65) may need to be manually adjusted based on the individual's enhanced CPP entitlement, as shown below.
In Snap, the CPP start age defaults to the retirement age of the individual as indicated in the initial data entry for the projections. If the individual's retirement age is before age 60, CPP will start at age 60 and if the retirement age is after age 70, CPP will start at age 70. You can modify the CPP Start Age.
Option 1: Start CPP early.
Enter an age lower than 65, in which case the client will receive a smaller CPP benefit. Here is an example of reducing the CPP start age to 60. The pension amount will be automatically updated in the Annual Retirement Pension box and the Percent of Maximum (at age 60) will also be updated.
Option 2: Delay CPP
Enter an age greater than 65 and the received benefit will be larger. In this example, we start CPP at age 68. The pension amount will be automatically updated in the Annual Retirement Pension box and the Percent of Maximum (at age 68) will also be updated to 125.2%.
Enter the known Annual Retirement Pension
If you know exactly how much your client receives in CPP benefits today, a useful option is to simply enter this amount. The Percent of Maximum fields will be automatically updated. (You can use the CPP Start Age as the current age of the client. This Annual Retirement Pension amount will be displayed on the Planning page in the year that the client is the same age as the CPP Start Age.)
Inflation Rate for CPP
To index the CPP values for all years, you can specify the desired percentage in the Inflation Rate for CPP text box at the bottom. Note that the CPP values will be indexed at this inflation rate until the year that the CPP benefit is received and going forward. The default inflation rate for CPP is 2%.
Prorate the first year of CPP
To provide a partial year's benefit for CPP in the first year that it is received, please make sure the checkbox Prorate first year of CPP is checked. The first payment will be issued in the month following the client's birth month.
Illustrate Survivor's Pension
By default, Snap will illustrate a survivor's CPP pension. In the surviving spouse's projections, you will see a new column for CPP Survivor's Pension. The amount received is based on the deceased spouse's CPP pension and the survivor's age. You may uncheck this box to disable this feature for a scenario.
We have implemented paragraph 58(2) of the Canada Pension Plan Act, which in some cases reduces the amount of CPP/QPP survivor’s pension. If you are interested in reading more about the CPP survivor's pension, you may find this blog post helpful from retirehappy.ca.
Between 2019 and 2023, contribution rates for employees will be gradually rising from 4.95% to 5.95% (5.4% to 6.4% for QPP). From 2024 onwards, a second ceiling of Yearly Maximum Pensionable Earnings (YMPE) will be added that is 14% higher than the first ceiling. The contribution rate on this second ceiling (also known as the Yearly Additional Maximum Pensionable Earnings, YAMPE) is 4% for employees.
Benefits can be projected to include these additional contributions. For example, a client that contributes the maximum of the second ceiling for 40 years will be able to receive 51.79% over the 2019 limit. To model this in Snap, you may enter 100% in the Percent of Maximum (at age 65) field.