Two of our most common client questions are: "How much will I get from the Canada Pension Plan (CPP)?" and "When should I start taking it?" The truth is, there isn’t a one-size-fits-all answer. The complexities of CPP entitlements highlights the need for a tailored approach to retirement and disability planning.

The Danger of "Typical CPP"

In client discussions, we often encounter the term "Typical CPP”. Truth be told, typical varies widely depending on individual circumstances, such as earnings history, contribution years, and retirement age. Many Canadians make assumptions when using “Typical CPP” which results in inflated expectations about CPP benefit payments. This detail is particularly important for employees considering early retirement—such as at age 55. Without contributions for a decade or more, the impact on CPP entitlements can be substantial.

Understanding CPP Benefits

1. What is CPP/QPP? 

The Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) are foundational components of retirement income for Canadians. 

Every Canadian worker, (excluding those in Quebec, which has its own pension system) who earns above the basic exemption threshold, is required to contribute up to age 65, and can voluntarily contribute if working between ages 65 and 70. 

2. CPP/QPP eligibility

To be eligible to receive payments from the Canada Pension Plan/ Quebec Pension Plan, employee’s must:

• be at least one month past their 59th birthday;
• have worked in Canada and have made at least one qualifying contribution to the CPP/QPP;
• would like their CPP/QPP payments to begin within 12 months (e.g. they apply after their 64th birthday if they plan to retire right after their 65th birthday).

3. Calculating CPP:

• The CPP is designed to replace about 25% of pre-retirement income, up to a maximum amount based on contributions over the years;
• while Service Canada’s calculator offers a basic estimate, it may be inaccurate. We recommend using the Canadian Retirement Income Calculator General Information - Canada.ca, which allows employees to take into account nuanced factors, such as  retiring early.

In a nutshell, retirement is a really big deal. Employers can assist employees by recommending that they review their CPP contributions and realistically calculate what they are likely to receive -- especially if they are retiring before the age of 65. That way when retirement does arrive, their new income streams arrive as expected rather than as a disappointment.

Our advice is quite similar when it comes to CPP and Disability Benefits. It also starts with:

Understanding CPP Disability Benefits:

1. What is CPP Disability?

• The CPP also provides vital disability benefits for individuals who can no longer work due to severe and prolonged disabilities.
• To qualify, contributors must have made enough contributions and have a medical condition that meets the program’s criteria.
• This benefit can provide a critical safety net, ensuring financial stability during challenging times.

The truth is CPP Disability determinations are much harder to meet than that of insurance disability claims and the burden of proof lies with the claimant not the Minister.

2. CPP Disability eligibility 

To be eligible to receive payments from the Canada Pension Plan/ Quebec Pension Plan, employees must meet all of the following criteria:

• Be under the age of 65 and not in receipt of a retirement pension;
• made the minimum amount of valid CPP contributions;
• have a mental or physical disability that regularly stops them from doing any type of substantially gainful work;
• the disability is long-term and of indefinite duration or is likely to result in death;   
• be determined to be disabled according to Section 42(2)a and Regulation 68 as defined in the CPP and Old Age Security Act and remain disabled up to and until the final determination of the disability claim.

Here are glimpses into how the Pension Appeals Board deals with some aspects of CPP Disability definitions:

• Severe and Prolonged:
• Employability is to be assessed considering the circumstances, in particular: the individual’s age, education, language skills and past work/life experience and  medical condition.
• To meet the definition of “severe” disability, the claimant must show that they have a serious health problem, but also have made efforts to obtain employment and have been unsuccessful due to the medical condition.
• Capacity and ability to “Regularly” work:
• The issue is of capacity that the claimant can perform some alternative employment;
• the focus is on the capacity to regularly work in any substantial gainful employment regardless of whether the work is full-time or part-time. Part-time work is considered substantially gainful work, even if it is not at a level comparable with the individual’s previous occupation

The Role of Employers

Retirement

It’s crucial to understand how pension modelling tools—whether defined benefit (DB) or defined contribution (DC)— may use overly optimistic assumptions about CPP entitlements. This can mislead employees about their retirement readiness and the support available in case of disability.

Disability

Employers can also play a key role in educating employees about the CPP disability benefits:

• Awareness: Provide information about eligibility and how to apply for these benefits.
• Resources: Encourage a culture that supports employees accurately calculating their eligible CPP benefits payments.

Conclusion

By understanding how the CPP really works, pension professionals can better support plan members so that they are fully informed and prepared for retirement and/or a potential disability.

In both retirement and disability cases, understanding how the CPP fits into an anticipated income stream, requires a deep dive into both determination criteria and their individual calculations. Remember, when it comes to retirement or disability planning, "The Devil is in the Details."

Resources:

CPP Disability Tool Kit: https://publications.gc.ca/collections/collection_2023/servcan/SG5-101-2022-eng.pdf

Should a CPP disability benefit claim be denied, and an employee wishes to appeal for reconsideration, the Social Security Tribunal of Canada provides information on the appeal process.

https://sst-tss.gc.ca/en/your-appeal/canada-pension-plan-cpp-disability-appeals.

Reference:

Annotated Canada Pension Plan and Old Age Security Act, 19th Edition

Authors: Killeen, Gordon; James, Andrew

Chau Pham, Senior Manager, CWB Wealth

Chau helps people learn how use money as a tool to attain safety, flexibility, and security. His experience, education, and background help his clients achieve their goals. Chau has a B.A. in Commerce from the University of Toronto and is a CERTIFIED FINANCIAL PLANNER® (CFP®). He also holds the Trust and Estate Practitioner (TEP), and certificates in Retirement Strategy and Advanced Investment Advice from the Canadian Securities Institute. He also has a U.S. Tax Specialization certificate from the University of Illinois Gies College of Business.

Jojo Mitchell, Financial Planner, CWB Wealth

Jojo enriches the financial well-being of corporate executives and their employees through seminars, online webinars and targeted counselling sessions that address important financial planning topics. Her career spans more than 15 years and includes a variety of positions, with almost a decade in wealth management. She holds several industry designations, including PFP, CERTIFIED FINANCIAL PLANNER® (CFP®), FCSI and RIS.