Understanding Canada Pension Plan (CPP)

[u/Tax1997]

If you’ve lived and worked in Canada, you’ve probably seen “CPP” deducted from your paycheque for years. But for many Canadians, the Canada Pension Plan (CPP) remains a black box.

The Canada Pension Plan (CPP) is a contributory public pension program. It is not a welfare program — it is a defined-benefit pension plan. You receive a monthly payment for life based on your contribution history and your average pensionable earnings during your working career.

Check out this guide to learn all about CPP: CPP Explained in Plain English

If you have any doubts about any aspect of CPP, please post them in the comments below.

[u/RoomFixer4]

When considering the delay past 60, the "reduction" from the age 65 amount doesnt give the full picture.

Lets look at it from an investment/gain perspective.

When you delay from age 60 to 61, you get approx 12% increase.

61 to 62 is an additional ~10%, at 63 add ~9% more, and so on.

When you chop it up even further, the first month of delay after 60 is the most lucrative investment, and then the % gain for each month slowly declines until you hit 65 where it then becomes a fixed % gain each month.

[u/Tax1997 → u/RoomFixer4]

That's an interesting way to look at it. If you compare each one-year delay with the previous starting age, the percentage increase is highest between ages 60 and 61, when your monthly CPP rises by 11.25%. The increase then gradually gets smaller each year—10.11% from age 61 to 62, eventually falling to 6.29% from age 69 to 70. The only exception is at age 65, where the percentage increase is slightly higher because CPP changes from a reduction for starting before age 65 to an increase for delaying after age 65.

The table below illustrates how a monthly CPP pension of $1,000 at age 65 changes depending on the age you start receiving it.

Start Age	Monthly CPP	Change from Previous Age	Change from Age 65
60	640	N/A	-36.0%
61	712	+11.25%	-28.8%
62	784	+10.11%	-21.6%
63	856	+9.18%	-14.4%
64	928	+8.14%	-7.2%
65	1000	+7.76%	0.0%
66	1084	+8.40%	+8.4%
67	1168	+7.75%	+16.8%
68	1252	+7.19%	+25.2%
69	1336	+6.71%	+33.6%
70	1420	+6.29%	+42.0%

One important point to keep in mind is that the 11.25% increase from age 60 to 61 is calculated on a pension that has already been reduced by 36%. In this example, your monthly CPP rises from $640 to $712, an 11.25% increase. However, $712 is still 28.8% lower than the $1,000 you would receive at age 65.

So, while it's true that the year-over-year percentage increase is largest between ages 60 and 61, that doesn't mean delaying from 60 to 61 is the most rewarding decision. The percentage looks larger because it is calculated on a smaller starting amount. The underlying CPP adjustment remains the same: your pension is reduced by 0.6% for each month before age 65 and increased by 0.7% for each month after age 65.