A few decades ago retirement, for most Canadians, was an event which marked the change from full-time work to not working at all. Usually, that transition took place at age 65, following which the new retiree would begin to receive Canada Pension Plan (CPP) and Old Age Security (OAS) benefits, and perhaps monthly payments from an employer-sponsored pension plan.
While that scenario is still possible, it no longer represents the retirement reality (or the retirement plan) of most Canadians, to such an extent that the word “retirement” no longer has a single meaning. Rather, it’s now the case that each individual’s retirement plans look a little different than anyone else’s. Some will take a traditional retirement of moving from a full-time job into not working at all, while others may stay working full-time past the traditional retirement age of 65. Still others will leave full-time employment at some point but will continue to work part-time, either out of financial necessity or simply from a desire to stay active and engaged in the work force.
The increasingly flexible nature of retirement plans is reflected in changes made over the past couple of decades to Canada’s government-sponsored retirement income programs, particularly the Canada Pension Plan. Every Canadian worker (employed or self-employed) contributes to the Canada Pension Plan starting at age 18 and continuing throughout his or her working life. The amount of contributions made is based on the individual’s income for the year, and total contributions made will determine the amount of CPP retirement benefit for which the individual will be eligible.
It’s possible to begin receiving Canada Pension Plan benefits as early as age 60 and as late as age 70, with the amount of benefit increasing with each month that receipt of benefits is deferred past age 60. Many Canadians now choose to begin receiving their CPP retirement benefit while continuing to participate, part-time or full-time, in the work force.
At one time, beginning to receive CPP retirement benefits meant that, even for those who chose to remain in the work force, no further CPP contributions were allowed. In 2012 that changed, with the introduction of the CPP Post-Retirement Benefit, or PRB. The availability of the PRB means that those who are aged 65 to 70 and continue to work while receiving CPP retirement benefits must decide whether or not to continue making CPP contributions. Such individuals who make the choice to continue to contribute to the Canada Pension Plan will see an increase, as the result of the PRB, in the amount of CPP retirement benefit they receive each month for the remainder of their lives.
The rules governing the availability of the PRB differ, depending on the age of the taxpayer. In a nutshell, an individual who is receiving the CPP retirement benefit and who continues to work will be subject to the following rules:
- Individuals who are 60 to 65 years of age and continue to work are required to continue making CPP contributions.
- Individuals who are 65 to 70 years of age and continue to work can choose not to make CPP contributions. To stop contributing, such an individual must fill out Form CPT30 (https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html). A copy of that form must be given to the individual’s employer and the original sent to the Canada Revenue Agency (CRA). An individual who has more than one employer must make the same choice (to continue to contribute or to cease contributions) for all employers and must provide a copy of Form CPT30 to each employer.
A decision to stop contributing can be changed and contributions resumed, but only one such change can be made per calendar year. To make that change, the individual must complete section D of CRA Form CPT30 https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/cpt30.html, give one copy of the form to their employer(s), and send the original to the CRA.
- Individuals who are over the age of 70 and are still working cannot contribute to the CPP.
For individuals aged 65 to 70 who are still working, a decision on whether to continue making CPP contributions is, essentially, a cost/benefit analysis – each individual must determine whether the cost of making such contributions is justified by the increase in CPP retirement benefits which will result. To make that calculation, it’s necessary to start by knowing how much continuing contributions will cost. And, beginning with the 2024 tax year, the decision on whether to continue contributions to the CPP will be made more complex for some individuals by the introduction of “second tier CPP contributions”.
The contribution structure and amounts for 2025 are as follows.
- In 2025, each employee contributes first tier contributions of 5.95% of income earned, to a maximum first tier CPP contribution amount of $4,034.10.
- In 2025, individuals who have employment or self-employment income of more than $71,300 will be required to pay additional CPP contribution amounts of 4% of income between $71,300 and $81,200, with the maximum second tier contribution amount (for employees) being $396.
- For self-employed individuals (who must pay both the employer and employee portions of CPP contributions), the maximum first tier CPP contribution in 2025 will be $8,068.20 and the maximum second tier contribution will be $792.
For individuals who are trying to decide whether to continue contributing to the CPP, there are some general rules of thumb which can be useful in making that determination. Generally speaking, continuing to contribute makes the most sense for younger individuals whose current CPP retirement pension is significantly less than the maximum allowable benefit (which, in 2025, is $1,433 per month), as making such contributions will mean an increase in the individual’s CPP retirement benefit each month for the rest of their life. Conversely, for individuals who are already receiving the maximum CPP retirement benefit, or even close to it, there is likely little or no benefit to be derived from continuing to contribute. Those individuals who are self-employed will need to factor in the reality that they will be required to pay both the employer and employee contribution amounts. Finally, those whose income is more than $71,300 in 2025 will need to consider the additional cost of making second tier CPP contributions.
More individualized information can be obtained from a very useful online tool provided by the CRA. That online tool – the Retirement Income Planner – includes an option which provides users with an estimate of how much PRB they can expect to receive in each subsequent year if they continue to contribute to the CPP. That Retirement Income Planner is available on the CRA website at General Information – Canada.ca.
Where an individual decides that continuing to make CPP contributions makes sense in their circumstances, and the required forms are completed and submitted, the amount of any CPP post-retirement benefit earned will automatically be calculated by the federal government (no application is required), and the individual will be advised of any increase in the monthly CPP retirement benefit each year. The PRB will be paid to that individual automatically the year after the contributions are made, effective January 1 of that second year. Since the federal government doesn’t have all of the information needed to make such calculations until T4s and T4 summaries are filed by the employer by the end of February, the first PRB payment is usually made in a lump-sum amount in the month of April. That lump-sum amount represents the PRB payable from January to April. Thereafter, the PRB is paid monthly and combined with the individual’s usual CPP retirement benefit in a single payment.
More information on the PRB generally is available on the same website at https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-post-retirement.html.
The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.
