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Insights & advice

What are government retirement benefits?

May 2021 – 15 min read

Key Takeaways

  • The federal government offers 3 different benefits you might be able to claim when you stop working.

  • There’s the Canada Pension Plan (CPP), Guaranteed Income Supplement (GIS) and Old Age Security (OAS).

  • Even if you’re eligible to collect all 3 benefits, it still might not be enough to provide you with the income you need for the retirement you want.

  • Let’s take a closer look at what’s available, how much you might receive, and how to apply for it.

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Have you ever looked at your paycheque and wondered, where’s it all going?

For a start, you’ll notice there have been a few deductions made before your take-home pay. Some of this money pays your taxes, a bit more covers employment insurance (EI), but another portion has been going towards retirement income benefits. These benefits are one of the three main types of retirement income, the other two being workplace pensions and personal savings.

In this article, we take a closer look at retirement income benefits - what’s available to you from the Canadian government.

Canada Pension Plan (CPP)

The CPP is a federal government pension plan that provides you with a monthly income once you’ve retired.

You pay into the CPP during your working years, with payments automatically taken from your paycheque. If you’ve worked in Quebec, you’ll have paid into the Québec Pension Plan (QPP) instead.

These payments are known as contributions, which are managed by the Canada Pension Plan Investment Board (CPPIB). They invest these contributions with the aim of growing the money to make sure there’s enough for Canadians who are retired now, as well as workers who’ll retire in the future.

How do I get the CPP?

If you’re at least 60 years old and have made at least one contribution to the CPP, you’re eligible to receive the CPP. As these payments won't start automatically, you’ll need to apply to the government to start receiving them. Depending on your circumstances, you might also be eligible for other payments such as the CPP disability benefit or a Survivor’s Pension.

When can I get the CPP?

The average age to start receiving the pension is 65, but you can start as late as 70 depending on your retirement plan. If you take your CPP earlier, and receive monthly payments over a longer period, your monthly income will be smaller. The later you start, the higher your monthly payments will be.

How much do you get from the CPP?

  • As of January 2021, the maximum monthly benefit for a new recipient starting to receive their pension at age 65 is $1,203.75. Footnote 1
  • However, to receive the maximum amount, you must have paid in the maximum contribution.
  • In reality, the average amount Canadians receive a month is $619.75 – around half that figure. Footnote 2

The amount you receive each month however will depend on factors such as when you start receiving the CPP, and how much you’ve paid into it.

Old Age Security Program (OAS)

OAS is funded by the Canadian government, not by taxpayers. This means you don’t contribute to it through your paycheque as you would with the CPP. Instead, eligibility along with the amount you could receive each month will depend on how long you’ve lived in Canada. 

Who qualifies for OAS?

Unlike the CPP, you don’t have to have paid into the OAS pension to receive it. This means you can receive an OAS pension even if you’ve never worked, or if you’re still working past the age of 60. You will however need to be either a Canadian citizen, or a legal resident who has lived in Canada for at least 10 years. 

How do I get OAS? 

Some people receive automatic enrolment into the OAS pension, meaning you don’t have to apply to receive it. Instead, you’ll receive a letter after you turn 64 (the year before you’re eligible to receive it), letting you know that you’ve been automatically enrolled. You’ll then have the option of receiving or deferring your payments. If you don’t receive a letter, you may need to follow the government’s application process to get started.

When can I get OAS?

You qualify to receive OAS when you reach 65, or you can defer it for up to 5 years. Again, the later you leave it to start receiving this pension, the higher your monthly OAS payments will be.

How much does OAS pay per month? 

OAS monthly payments vary based on personal circumstances. For example, amounts are worked out based on factors such as how long you’ve lived in Canada after the age of 18, your household annual income at retirement, and your marital status. Currently, the maximum OAS payment is $618.45 a month. Footnote 3

  • A key thing to keep in mind about this government pension is the OAS clawback. If your income exceeds a certain limit, you may be asked to repay some or all of your OAS pension. There are some ways you can reduce clawback amounts, such as using your TFSA, or splitting your OAS with your spouse.

Guaranteed Income Supplement program (GIS)

Some seniors might qualify for the Guaranteed Income Supplement program, which tops up the OAS with a further non-taxable benefit. This is a monthly payment that supports low-income retirees living in Canada, and like the OAS, you don’t need to pay into it to receive it. 

Who qualifies for GIS?

If you’re 65 or over, living in Canada and you receive the OAS, you may qualify for GIS depending on your income. You’ll need to file your income tax return every year as proof of income.  

How do I get GIS?

You need to apply for this program through the government’s Guaranteed Income Supplement program website. 

When can I get GIS?

If you were automatically enrolled for OAS, you’ll be automatically enrolled for GIS as well – as long as you’ve filed your annual tax returns. If you weren’t automatically enrolled, you’ll need to apply for the pension through the government.

How much does GIS pay per month? 

This will depend on your income, how much you’re receiving through OAS, and whether you’re single or have a spouse/common-law partner also receiving OAS. Currently, the highest monthly payment – available to those with an income between $0 - $24 is $923.71 . Footnote 4

 

How else can I receive an income during retirement?

While government income benefits are available, these aren’t the only ways to receive an income after you retire. As you save for the future, you can look at other ways to help grow your pension value.

Workplace pension plans

You might be enrolled in your company’s registered pension plan (RPP). This means that for as long as you’re enrolled, you and your employer make regular contributions to the plan, which can be used to provide monthly income or a lump sum at retirement.

Personal savings

Products such as RRSPs and TFSAsOpens in a new window are designed to be tax-efficient ways of saving for retirement. You can combine these with other personal savings, as well as investments like stocks or bonds.

Property

For some people, their property is not only their home, but also their nest egg. There are several ways you might want to generate income for your retirement from your property, such as:

  • Downsizing– selling your current home and moving into a less expensive property. 
  • Flipping – your retirement strategy might involve buying and selling properties to make a profit. 
  • Investing – you might choose to rent out a property to generate a monthly income.
  • Using your mortgageOpens in a new window – some options like a reverse mortgage help you to access money from your home’s value without selling it. 

What next?

Government-sponsored pensions can help as you prepare to retire, but they shouldn’t be your only retirement plan

If possible, it’s a good idea to diversify – or have lots of eggs in different baskets - to create a retirement strategy that combines government pensions with other savings and investments. And of course, if you’re nearing retirement or the age of 65, it’s always wise to keep an eye on changing public pension provisions as the government responds to COVID-19.

  • The government may have 3 pillars, but these aren’t the only options available to you when it comes to retirement planning.

  • It’s good to have an idea of how government benefits will play a part of your wider retirement plan, taking into consideration how much you’ll need at retirement along with what other investments, plans and products you’ll use to help get there.

  • You can create your retirement plan on your own or speak to an advisor for expert help and advice.

Footnote 1
1 https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
Footnote 2
2 https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
Footnote 3
3 https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
Footnote 4
4 https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments/tab1-1.html