A while back, I wrote an article on how much money you might get from government benefits.
In the article I stated, “The most you will receive from the government is $24,346.44 if you have no other sources of income and only $16,684.92 if you have other sources of income. Clawback and contribution rules may reduce these amounts.”
I’ve been asked by many readers where these numbers came from so here it is.
First, let’s address the $16,684.92. Most Canadians will qualify for some level of Canada Pension Plan (CPP) and Old Age Security (OAS).
At the time the article was written, the most you could collect from CPP was $10,614.96 per year. For Old Age security the most you can get was $6,069.96 per year. Add those numbers together and you get $16,684.92.
While it would be nice to get the maximum from the government, not everyone does. As I said in the article that amount represents the most anyone can get from the government. Here are a few examples of why people might get less than the maximum:
1. Canada Pension Plan is a contributory plan. Basically that means how much you get when you retire depends on how much you contributed while you worked. If you have made at least one payment into the CPP plan, you qualify to collect a benefit.
As of October 2007, the average CPP retirement pension paid out was only $481.46 per month. That’s a lot lower than $884.58 per month because not everybody qualifies for the maximum. Some of the reasons you might not get maximum CPP includes lower contributions because of lower income levels or not contributing for enough years because of starting late into the workforce or maybe you retire early which also means you contribute less into CPP.
It’s a little more complicated than this but basically, you have to contribute the maximum amount for at least 40 years over the age of 18 to qualify for the maximum benefit. For more details, you can visit the Service Canada website (www.hrsdc.gc.ca).
2. The maximum CPP amount is based on a normal pension at age 65. You can collect the CPP as early as age 60 but at a reduced amount. You will lose 0.5% for every month you take CPP before your 65th birthday. For example, at age 60, you will lose 30% (0.5% x 60months) of your eligible amount at age 65. To collect CPP early, you must show that you have substantially or completely stopped working. Taking CPP early means makes good sense for most people but it means you will not get the maximum.
The best way to find out how much you will get from CPP is to check your Statement of Contributions, or call 1 800 277-9914. The closer you are to the date on which you want to begin your pension, the more accurate the estimate will be.
3. Old Age Security is a monthly benefit available to anyone 65 years of age or over (unlike CPP, you cannot collect earlier). Eligibility for OAS is all based on residency and has nothing to do with employment history. It also does not matter if the applicant is working or retired. If you were resident of Canada for less than 40 years after the age of 18, you will get a reduced amount of OAS.
In addition to the basic OAS pension, low-income seniors may qualify for other retirement benefits such as the Guaranteed Income Supplement (GIS) and the Allowance. The threshold for low income depends on whether you are single, married or widowed. That’s where the $24,346.44 figure came from. The difference between this number and $16,584.92 is the maximum benefit for GIS as a single person. Again, few people qualify for the maximum GIS.
The rules for government benefits are not easy to understand. For more information, contact Service Canada.
Other Relevant Articles
Will Canada Pension Plan (CPP) be there when you retire?
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I was forced to retire prior to turning 65 due to ill-health. So, I retired and am fast approaching my 65th birthday, at which point, as everyone has told me, I will lose whatever CPP has been sending me each month.
I was a provincial employee and paid into our pension plan. I receive a cheque from this fund. I applied for early CPP and receive a cheque from CPP. According to all, once I turn 65, the pension amount from CPP will be “deducted” from my provincial pension cheque.
For example, say I receive $2000 a month from my provincial pension and $600 from CPP; according to retired friends, once I’m 65, the provincial pension will be dropped to $1400 a month and I will receive $600 from CPP — essentially, a big drop in income regardless of which cheque is affected.
Can you tell me why this will happen and if there is any way to minimize the loss?
Gloria
It is unclear to me whether the CPP that you are currently receiving is the disability pension or the early retirement pension. If it is an early retirementy pension, that amount will continue to be paid to you until death (with annual increases for cost of living). If it is a disability benefit, that will convert at age 65 to a retirement pension at a lower rate. The basic formula for the conversion from disability to retirement benefit is to subtract the flat-rate benefit (approx $440) and divide the answer by 75%. Thus if your current CPP disability were $600/mthly, your converted retirement pension would be about $213.33 ($600-$440)/75%.
As to your provincial pension, you probably should check with your personnel office, but the common approach if you worked for the province for your entire CPP contributory period is that your pension from them would be reduced at age 65, by your estimated age-65 CPP retirement pension (which may be more than your actual CPP if you’re receiving the early retirement benefit.
The good news (assuming you’ve lived in Canada for at least 40 years after age 18) is that you should also be eligible for Old Age Security (OAS) at age 65. The approximate amount of OAS is $530 mthly.
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Very worthwhile blog post. Your web property is swiftly starting to be among my top picks.
You Canadians have it made. I wish our government could get it together for retirees. My parents are suffering bad and I help all I can.
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Does the calculation of the benefit (before the penalty) at 60 count the years 60-65 as no income for the average? In other words, can they bring down the average?
I am thinking of someone who turns 60 and can choose to stop working early but has less than 40 years of contributions. Is the difference just the 30% or must they also look at any potential increase in their benefit from 5 more years of higher contributions?
Mike
If someone applies for a CPP retirement pension at age 60, their contributory period ends then, thus they will not have those 5 years of zero income reducing their average earnings for benefit calculation purposes.
Jim I believe that the $24K in maximum benefits may be overstated. If you receive the maximum in CPP benefits of $10.6K and OAS of $6K, you can’t receive the full amount of GIS payments of $7.7K because your CPP income is included in the income that is taken into consideration for GIS clawback. So based on 2012 clawbacks they would only receive $2.9K in GIS payments. This would total $19.5K. Please correct me if I’m wrong. Please clarify. Thanks.
Jeff
I agree with you 100%, but if we want to use the 2012 figures for the GIS, perhaps it would be useful to update the CPP & OAS figures also.
I get max CPP for 2012 as $986.67 mthly x 12 = $11,840 annually and max OAS for Jan/2012 as $540.12 mthly x 12 = $6,481 annually. Using the $11,840 to calculate GIS for a single pensioner would be $188.76 mthly x 12 = $2,265.
Using these numbers, the max gov’t payout for 2012 would be $20,586 ($11,840 CPP + $6,481 OAS + $2,265 GIS).
Jeff
I agree with you that you can’t count the max GIS if you’re receiving max (or any) CPP. Updating all of the data for Jan/2012, I get:
- max CPP mthly of $986.67 x 12 = $11,840;
- max OAS mthly of $540.12 x 12 = $6,481;
- GIS of $188.76 mthly (based on max CPP of $11,840) x 12 = $2,265.
- combined total of CPP/OAS/GIS = $1,715.55 mthly x 12 = $20,586.
Does one qualify for GIS if one owns a house or condo and is receiving only $400 in CPP?
Denyse
Owning a house or condo (or any other assets) does not affect GIS eligibility. The only 3 factors are:
- receiving OAS;
- marital status;
- income (combined income if married or C/L).
In your example, if the person is receiving “full OAS” (based on having lived in Canada for 40 years after age 18), is single and has income only of $400/mth CPP, they would be eligible for GIS in the amount of $481.76/mth.
I already receive a pension from my workplace of 33 years. When I reach the age to get old age and cpp do i lose this amount from my workplace pension?
Tony
You would have to get that answer from whoever administers your workplace pension. Some plans are “integrated” with the government benefits (OAS and/or CPP), whereby they pay higher amounts until you become eligible for benefits from the government. Other workplace plans are independent from government benefits and may not be reduced at age 65 or when those government benefits start.
I just wanted to thank you so much for such great information. I still have a few years to go but it still helps to be informed. By the time I retire things will totally be different because the Canadian Government likes to change things without our input.