Planit:CPP Eligibility
From Planipedia
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How Do I Estimate Eligibility for Canada Pension Plan Benefits in The Retirement Goal Need Analysis Calculator?
The first and most important thing to say is that it is very difficult to estimate CPP benefit eligibility for clients. If your client has worked all of their adult life in Canada and has earned at or above the yearly maximum pensionable earnings (YMPE) every year of that working history, then it’s fairly straightforward. They are eligible for 100% of the maximum benefit on retirement (less any reduction for early election from age 60 to 64). In any other situation, the calculations can get very complex.
In fact it’s recommended you have your client request a CPP Pension Estimate from the Canadian Government to identify a more accurate picture of your client’s eligibility.
However, this can take several weeks to get back from the government. To assist you until you receive this information, we have prepared a very simple illustration that will help you estimate eligibility based on your knowledge of the client’s work history and earnings.
Take a look at the table below. To make your estimate, you need to have a feel for what your client’s average earnings have been in today’s dollars and the number of years they will have worked by the time they retire. Using this information can allow you to make an educated guess at their eligibility.
Let’s use the above table and do some samples.
1. Your client worked as a teacher for about 10 years when they were young but then left the work force for 15 years while they raised children. There are some provisions under the CPP rules to drop out non-working periods while children are young, but to be very conservative with these estimates we are going to ignore these.
Your client then returned to the workforce last year, once again as a teacher. They plan to work another 9 years before retiring. Their current income is about $50,000 per annum and back when they were young, they earned enough to achieve the yearly maximum pensionable earnings (YMPE) minimum. Based on this scenario, they will have worked 20 years in total at or above the YMPE for all of those years. A very conservative estimate of eligibility for benefits in this case would be 50%.
2. You have another client who’s spouse worked for a couple of years part time before they got married but then stayed home for many years. She has now started working part time and earns about $15,000 per annum. She has been doing this for about 5 years and plans to work for another 5 years before retiring. In this case the estimated eligibility would be 9% (10 Years/$15,000). You might even elect in situations like this to use 0% to be even more conservative.
3. You have a 35-year-old client who is currently earning $30,000 per annum and has worked for about 15 years. They expect to work right through to age 65 and only expect their income to increase with inflation between now and retirement. In this case a conservative estimate of eligibility would be 74%.
Conclusion
As mentioned above, the method of doing calculations for Canada Pension Plan Retirement Benefits can be very complicated. When doing planning for a client’s retirement, it’s important to recognize that these benefits exist, but it’s not always possible to be 100% certain of a client’s eligibility. For this reason, getting your client to request a statement from the government is very important. Especially in situations where they are only 5 or 10 years away from retirement.
While this FAQ will help you to make a reasonably accurate estimate, it does not replace the need to get confirmation from the government on actual contributory earrings so that you strategy is not compromised by being too generous in your estimates.
