What do you need to know about the Old Age Security program and Canada Pension Plan? If your retirement is far ahead on the horizon, you may not be too concerned about it, but your employees may have questions. Here’s what you probably already know: The Old Age Security program and the Canada Pension Plan are two government-run programs that provide financial benefits for seniors in Canada. Both programs come into effect when you turn 65 — though you may claim CPP benefits earlier — and create a steady monthly income. Depending on your work and residence history, you may be eligible for one or both programs. But which program are you eligible for? What do you do if you’re eligible for both? Do you need to apply? How does it all work?
What is the Old Age Security Program?
The Old Age Security Program is a pension program that’s run by the Canadian government and available to residents aged 65 or older. OAS payments are adjusted every three months to account for cost-of-living increases.
To be eligible for the OAS, you must be a Canadian citizen or a legal resident. In addition, you must have lived in Canada for at least 10 years after you turned 18. If you’re living outside of Canada, you must have lived in the country for at least 20 years since the age of 18. In addition, OAS pensions may be awarded to citizens who have lived in a country that has a social security agreement with Canada.
Do you know if you’re automatically enrolled in the OAS or if you need to apply? Don’t worry — the government notifies you of your status by mail the month after you turn 64. To apply, fill out the Application for the Old Age Security Pension form, which asks for your residence history, citizenship information, and direct deposit details.
You can receive OAS benefits even if you have never held a job or if you are currently working. However, if your income — either from a job or retirement plan — rises above a specific dollar amount, the government reclaims part of each payment through the OAS recovery tax.
What About Low-income Residents?: The Guaranteed Income Supplement
If you’re a low-income resident, you may be eligible for the Guaranteed Income Supplement. To receive this additional benefit, your annual income must fall below Canada’s maximum annual threshold. If you are enrolled in OAS, you are also automatically enrolled in the GIS; otherwise, you must apply using the Application for the Guaranteed Income Supplement. The government reviews the eligibility for each senior annually.
How Does the Canada Pension Plan Work?
There’s yet another way you can receive benefits after retirement: the Canada Pension Plan. The CPP is based on your work history because it is funded by income taxes. As of 2018, all employed Canadians contribute 9.9 percent of any income between the $3,500 minimum and $54,900 maximum.
CPP payments usually start at age 65, but you can take it as early as 60 if you’re willing to take a reduction in your monthly check. If you wait until age 70, you can enjoy an increased pension payment. You are allowed to work after you start receiving CPP. No matter which option you choose, you must apply through Service Canada.
The amount of your CPP payment depends on how long you have worked in Canada and how much you have contributed. As of January 2018, the average CPP payment is $641.63, and the maximum payment is $1,134.17. To minimize the impact of unemployment on your average income, the government automatically drops your lowest-earning months when they calculate your benefits.
Both the OAS and the CPP provide financial security for seniors in Canada. By understanding the benefits of each program and applying on time, you can start receiving benefits as soon as you turn 65.