Collecting CPP But Still Working? Understand Your Post Retirement Benefits

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Thanks to drpensions.ca for most of this information

What are PRBs?

The Post-Retirement Benefit (PRB) program allows Canadians who are over 60, receiving the CPP but still working and contributing to the CPP, to receive additional benefits for their contributions.

The program started in 2012 and the first PRB payments were made in 2013.

Before the PRB program started, once you started receiving CPP retirement benefits, you could no longer contribute to the CPP. Now:

    •    If you are between 60 and 65 years old, receiving CPP and still working, you must contribute to the CPP.

    •    If you are between 65 and 70 years old, receiving CPP and still working, you can choose whether to contribute. (To stop contributing, you must fill out Canada Revenue Agency's Election to Stop Contributing to the Canada Pension Plan form.)

Between age 60 and 70, if you are receiving CPP, working, and contributing to the CPP, you will earn a PRB for each year of your contributions.

How do I get a PRB?

You don't need to apply for a PRB; you will automatically receive it the year following your year of contributions. Your PRB is effective in January but you may not receive the payment until April or May, with a retroactive payment to January.

The PRB will be added to your monthly CPP pension, even if you are already receiving the maximum CPP retirement amount. The PRB payments will continue for the rest of your life. They are indexed to the cost of living, the same as the CPP.

Each additional year that you continue working and contributing after you start collecting CPP will earn you a new PRB that will be added to your monthly CPP benefit the following year.

How much will I receive?

The amount of Post Retirement Benefit that you will receive depends on your earnings and your age.

If you are 65, the maximum monthly CPP pension that you can receive in 2018 is $1,134.17, and the maximum monthly PRB is about 1/40th of that, or $28.35. The maximum annual PRB is $340.25.

If you are any age other than 65, both CPP and PRB amounts are adjusted — reduced before 65 and increased past 65. Below age 65, both CPP and PRBs are reduced by a factor of 7.2 percent per year (.6 percent per month). Above age 65, they are increased by a factor of 8.4 percent per year (.7 percent per month).

How does it compare to my contributions?

Using a maximum contributor as an example, we can look at the numbers.

In 2018, a maximum contributor makes an annual contribution of $2593.80 to the CPP. (A maximum contributor is a person who earns more than the Year's Maximum Pensionable Earnings (YMPE). For 2018, the YMPE is $55,900.)

If this maximum contributor is 60 years old, and is collecting CPP retirement pension and still working, their CPP contributions will earn PRBs:

    •    Their first year of contributions earns a PRB of about $242 annually, indexed, for life.

    •    Their second year of contributions earns a PRB of about $266 annually, indexed, for life.

    •    Their third year of contributions earns a PRB of about $291 annually, indexed, for life.

    •    Their fourth year of contributions earns a PRB of about $316 annually, indexed, for life.

    •    Their fifth year of contributions earns a PRB of about $340 annually, indexed, for life.

At the end of the fifth year, their total PRBs will be about $1,455 annually, indexed, for life.

Their CPP contributions for the five years 60 to 65 would have been $12,969.

In return for these contributions, if they live for 20 years past age 65, they will receive approx. $29,100 in PRBs, plus what they received during the five years from 60 to 65 (approx. $2,664) for a total of $31,764.

All numbers are approximate, are for a maximum contributor, and are in 2018 dollars.

For a 65-year-old maximum contributor, the PRB payback is a return of about 13% per year, indexed, for life. (Maximum PRB of $340/maximum CPP contribution of $2,593.80 = 13.11 percent.)

To stop contributing

If you are over 65 and want to stop contributing to the CPP, you must complete the Election to Stop Contributing to the Canada Pension Plan 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 start contributing to the CPP again but you are allowed only one change per calendar year.

If you are self-employed you are responsible for both employer and employee contributions. If that is your case, it may not be beneficial. As with all advice, talk with your Accountant or Advisor to discuss your unique situation.

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