This quarter’s financial planning corner features advice on one of life’s notable milestones. If you're planning for retirement, be sure to know what’s available for retirees through the Canada Pension Plan and Old Age Security.
OAS basic questions
Question:
Can you answer some basic Old Age Security (OAS) questions?
Answer:
1. What are the eligibility requirements for OAS?
You must:
• be 65 years of age or older;
• be a citizen or legal resident of Canada at the time your application is approved (or, if no longer living in Canada, on the day before you stopped living in Canada);
• have lived in Canada for a minimum of 10 years after reaching age 18 (or, if no longer living in Canada, a minimum of 20 years).
• Social security agreements with other countries may let you qualify if you do not meet these rules.
2. How do I get the maximum OAS?
To get a full OAS pension you must:
• meet the eligibility conditions above; and
• have lived in Canada for at least 40 years after the age of 18; and
• have income below the OAS clawback range.
• Other special rules may let you qualify for full OAS, if you were born on or before July 1, 1952.
Since July 1, 2013 you can also increase your OAS by deferring it for up to 5 years beyond your eligibility date (i.e. from age 65 to as late as age 70). For each month of deferral, your OAS increases by 0.6% (up to a maximum of 36% for a 5‑year deferral). There is no benefit to deferring later than age 70.
See more details on deferring your OAS pension.
Seniors aged 75 and over would get an automatic 10% increase of their OAS, since July 2022.
3. Can I receive less than the maximum OAS?
Yes, you may get less than full OAS if:
• you meet the eligibility conditions under question 1;
• and: will not be eligible for a full pension; and/or
○ have income within the clawback range
○
OAS is calculated based on the number of years living in Canada after age 18, divided by 40. So someone living in Canada for 25 years since age 18 could get 62.5% of full OAS (25 divided by 40 = 62.5%).
Once a partial pension is approved, further years of living in Canada will not increase your OAS payment.
Also, if only qualifying for partial OAS, you would not qualify for full OAS by deferring and be eligible for the 0.6% increase per month of deferral (i.e. no double‑dipping).
For example, if someone living in Canada for 25 years since age 18 wants to defer OAS for 5 years, they would get:
62.5% × (1 + 36%) = 85%
Try this new OAS Benefits Estimator to estimate your monthly OAS benefits. Enter your current information, or future information for planning purposes.
4. What is the OAS “clawback” and “recovery tax”?
• Pensioners with individual net world income* above $93,454 in 2025 ($90,997 in 2024) must repay part or all of the OAS pension received, when filing their income tax returns;
• The repayment or “claw back” rate is 15 cents of OAS received, per dollar of individual net world income* over $93,454 in 2025 ($90,997 in 2024);
• Your 2025 OAS pension is completely clawed back on your 2025 tax return, if you are age 65 to 74 and your 2025 individual net world income* is $151,668 or higher ($157,490 if age 75+);
• In addition: if your 2023 net income* exceeded $86,912, your OAS payments from July 2024 to June 2025 (which are referenced to your 2023 net income) will be reduced through the OAS Recovery Tax deducted from each payment at source;
○ if your 2024 net income* exceeded $90,997, your OAS payments from July 2025 to June 2026 (which are referenced to your 2024 net income) will be reduced through the OAS Recovery Tax deducted from each payment at source;
• If your 2025 income will be substantially lower than your 2024 income and the OAS Recovery Tax deductions at source would cause you financial hardship, you may request a waiver so that Canada Revenue Agency can reduce the OAS Recovery Tax.
5. Does the OAS program offer any other income benefits?
Yes. See the Guaranteed Income Supplement (GIS), Allowance, and Allowance for the Survivor.
6. Can I arrange Direct Deposit for my OAS?
Since April 2016, the Government of Canada only offers direct deposits (not cheques) for benefits such as OAS, Canada Pension Plan (CPP), Canada Child Benefit (CCB), etc.
To avoid any disruption in your government benefits, set up direct deposit online or with your financial institution.
More information here.
* Net Income appears on line 23400 of your tax return.
CPP basic questions
Question:
Can you answer basic questions on Canada Pension Plan?
Answer:
1. Canada Pension Plan offers what types of benefits?
Retirement Pension – available upon retirement of CPP contributor age 60 or older
Post‑Retirement Benefit (PRB) – available the year after a PRB contribution, as income for life
Survivor's Benefits – available upon death of CPP contributor:
• Death Benefit: $2,500 one time payment to the contributor's estate
• Survivor's Pension: monthly pension to common‑law partner or spouse (common‑law partner's claim takes precedence, in case of a person who's legally separated from their spouse but had been in a common‑law relationship for at least a year before death) of a deceased CPP contributor
• Children's Benefit: flat monthly benefit for dependant children of deceased contributor
Disability Benefits – available upon qualified disability of CPP contributor
• Disability Benefit: monthly pension for disabled contributor
• Children's Benefit: flat monthly benefit for dependant children of disabled contributor
2. Where can I find more information on CPP retirement benefits?
3. Where can I find more information on Post‑Retirement Benefit (PRB)?
4. Where can I find more information on CPP Survivor's pension?
Here're some interesting information about Survivor's pension:
To be eligible, the deceased contributor must have contributed to the CPP during the lesser of:
• 10 calendar years, or
• 1/3 of their contributory period (including partial years), but cannot be less than 3 years
• Deathbed marriages may not result in survivor's pension, if the deceased did not have a life expectancy of at least one year at the time of marriage and dies within a year of their marriage (including time spent as common‑law prior to the marriage);
• A survivor can only receive 1 survivor pension, but a person widowed a second time is entitled to the greater of the two survivor's pensions;
• Only the contributor can receive post‑retirement benefit thereby calculation of survivor benefit does not take into account of PRB
See here or this article for more information.
5. Where can I find more information on CPP Disability benefits?
Here.
6. What factors determine the amounts of Canada Pension Plan benefits you receive?
• contribution period;
• contribution amounts;
• in some cases, age when applying for benefits.
To estimate the amount of CPP benefit you may be eligible for, you can request a statement of contributions online, or contact Service Canada for a copy to be mailed to you, or try using the Canadian Retirement Income Calculator.
More information on payment amounts.
7. Is it common to receive the maximum CPP retirement pension?
Not generally. Reasons for not getting the highest possible CPP can include:
• electing to start CPP benefits before age 65 (benefits are reduced);
• having more years where "pensionable earnings" were below the Year's Maximum Pensionable Earnings (YMPE) than can be "dropped out" of the CPP formula.*
Starting in 2014, 17% of your lowest CPP contributory years can be "dropped out" when calculating your pension; plus, a "child rearing drop out" is allowed. Using either or both "drop‑outs" can increase your CPP pension, by boosting your average earnings in the pension formula.
8. What is the CPP child rearing drop out (CRDO) provision?
CPP considers that caring for young children can mean leaving the workforce or working fewer hours.
If your earnings stopped or dropped while you raised children born after 1958 and under the age of seven, CPP can calculate if excluding some or all of those years could increase your CPP entitlement.
As CPP will only exclude years if this works in your favour, it is a good idea to apply.
For more information see the CPP Retirement Pension Application (ISP1000) or ask CPP to consider the CRDO in your CPP calculation by completing section B4 of the CPP Retirement Pension Application.
9. What is the earliest age you may start collecting a CPP retirement pension?
While you can start CPP retirement benefits as early as age 60, benefits started before age 65 result in those benefits being permanently reduced, at a rate of 0.6% per month before your 65th birthday.
For example, if starting CPP immediately after your 60th birthday, your benefits are reduced by 36% (0.6% × 12 months × 5 years).
10. What is the latest age you can start to receive a CPP retirement pension?
There is no maximum age when you can apply for a CPP retirement pension.
Delaying your starting age until after age 65 will increase your CPP retirement pension by 0.7% per month over age 65, to a maximum of a 42% increase, at age 70.
But since no further increases are awarded once age 70, starting CPP later than age 70 is uncommon.
As an example, waiting until you turn age 66 before collecting CPP would make your monthly benefit 8.4% (12 × 0.7%) higher than starting it at age 65.
11. When should I start CPP? Before, after, or at age 65?
There is a good discussion of factors to consider before starting or delaying your CPP retirement benefits in this article.
12. What is CPP credit sharing?
It is a way for a couple to share their CPP benefits (other than Post‑Retirement Benefits) between them, to potentially lower their combined income tax.
See CPP Pension Sharing for more detail.
13. What is CPP credit splitting?
It is a way to divide CPP credits that one or both spouses acquired while living common‑law or married, when a couple break up (which basically divides their future CPP benefits).
See Divide CPP in separation or divorce for more detail.
14. I understand the federal government made changes to the CPP. What are the changes?
Starting in 2019, if you work and contribute to CPP, your CPP deductions will gradually increase in exchange for higher benefits: from 2019 to 2023, contribution rates increased gradually until it reached 5.95% in 2023 (from 4.95% in 2018) for employees and 11.9% (from 9.9%) for the self-employed, on earnings between $3,500 and the Year's Maximum Pensionable Earnings (YMPE); starting in 2024, in addition to contributions made up to the YMPE, for earnings between the YMPE and a new second earnings ceiling, contribution rates will be 4% for employees and 8% for the self-employed;
For more information, see CPP enhancement and Canada Revenue Agency.
15. I have started receiving CPP retirement pension already. What if I change my mind?
If you change your mind and want to cancel your CPP pension, you only have up to 12 months from the date you commence the CPP pension to cancel it in writing and you need to return all the benefits received.
16. Can I receive CPP through Direct Deposit?
Since April 2016 the Government of Canada only offers direct deposits (not cheques) for benefits such as Old Age Security (OAS), Canada Pension Plan (CPP), Canada Child Benefit (CCB), etc.
You can set up direct deposit online or with your financial institution.
See more information here.
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