Retirement age for Canadian residents
Despite experts' calls to increase Canada's retirement age to 67, it is still 65 at present. There is no difference in the retirement age for men and women. Everyone who has lived in the country for at least ten years and has reached the age of 65 is entitled to retire here. In that case, the person is entitled to Old Age Security benefits.
This is the standard retirement age, but it is possible to retire later or earlier. Each of these decisions will have a particular impact on the amount of your pension payments. The permitted retirement window in Canada is from age 60 to 70.
Does the retirement age affect the amount of pension payments?
Yes, it does. For example, if you decide to retire before age 65, the amount of your pension will decrease by 0.6% each month until you turn 65. In other words, if you start receiving a Canada Pension Plan pension (also known as a CPP pension) at age 60, you will find that its amount is 36% lower than if you had waited until age 65.
Meanwhile, if you decide to defer retirement, its amount will increase by 0.7% for each month you work after turning 65. This means that if you retire at age 70, your pension will be 42% higher than if you retire at 65.
That is why people who have worked in Canada for less than forty years often try to retire as late as possible.
Average pension payment amount in Canada
The amount of a pension in Canada varies depending on many different factors. Moreover, the amount may change as a result of government changes. In January 2021, the average was $1890.
What types of pensions exist in Canada?
There are three levels of pension payments in Canada, namely:
1. Old Age Security (OAS).
This is a pension paid to Canadians aged 65 and older who have lived or are living in Canada for a specified period of time.
2. Canada Pension Plan (CPP).
Under this plan, you can start receiving a pension every month as early as age 60 if you previously made contributions to the plan. Quebec has a local plan of this type.
3. Various employer pensions, as well as voluntary pension plans.
So, let us examine all the options in more detail, focusing on the requirements and criteria for each pension.
1. Old Age Security (OAS).
This is an official federal pension paid monthly. It is received by people who:
• are 65 years of age,
• are permanent residents or Canadian citizens when they apply for Old Age Security,
• have lived in Canada for at least ten years since turning 18.
There are several important factors affecting the status and amount of the pension of this type.
Let us examine each of them in detail.
• The first thing worth mentioning is, of course, age. At present, people in Canada who have reached age 65 and lived in the country for at least ten years can receive Old Age Security.
• Your immigration status also plays an extremely important role in receiving a pension in Canada. For example, if you lived here for some time with temporary status (were a student, held a work permit, or were a visitor), that period may still be counted when determining your pension status.
Service Canada decides whether you are entitled to receive a pension in Canada; you must submit an application to it.
• And, of course, the question of the length of your residence in Canada
To be entitled to receive a pension in this country, you must have lived here for at least ten years. However, there are nuances even if your period of residence falls short of the required term.
You may receive a pension in Canada if the country where you previously lived has an agreement with Canada. Among the post-Soviet countries, such agreements exist only with the Baltic countries. You may also apply for a pension here if you lived in one of the countries with which Canada has signed such an agreement.
How does this work in practice? Suppose you moved from a country that has no agreement with Canada, but managed to work for 5 years in the United States or another country with which Canada has signed such an agreement. You then lived in Canada for another 5 years. Thus, when you turn 65, you will be able to receive Old Age Security in Canada, but its amount will be lower than if you had lived here for all ten years.
How does the registration process for receiving a pension work?
One month after you turn 64, you may receive a notice of automatic enrolment. In that case, no application is required from you. It is worth noting that this letter is not always sent, so if the time has come and you still have not received it, you will have to apply for the pension yourself. It must be submitted 11 months before your 65th birthday or before completing the ten-year residence period in Canada. Applications submitted earlier are not accepted.
How do you apply for a pension?
To start receiving Old Age Security (OAS) in Canada, you must provide a number of documents six months before your 65th birthday, namely:
• A package of documents known in Canada as HRDC Forms.
• A birth certificate and (if you were born in a non-English-speaking country) a notarized translation of the document into English.
• Documentation confirming your citizenship and/or immigration documents, such as a permanent resident card.
What pension payment amounts can you expect?
One of the most important factors directly affecting the amount of your pension is the length of time you have lived in Canada.
The maximum pension, which is currently $615.37, can be expected only if you have lived in Canada for forty years.
In any other case, you will receive only a portion of this amount, depending on how long you have lived in the country. For example, if by age 65 you have lived in Canada for 10 years, you will receive a pension equal to 10/40 of the maximum, or $154.38.
The pension amount is established once and for all. It will not change, because years lived here after retirement are not counted.
At the same time, there is a possibility of pension indexation based on the government-set living allowance. This allowance, in turn, is reviewed four times a year. If the cost of living in the country rises, the pension also increases. The same applies when the cost of living decreases.
By the way, the government is currently planning to create a special index for determining pension payments.
Another point to consider is receiving a pension while incarcerated in a federal prison. Such a pensioner will not receive Old Age Security payments until they indicate their release date in writing.
Is it possible to receive a Canadian Old Age Security pension in another country?
Yes, this is possible, but you must also meet a specific criterion: you must have lived in Canada for 20 years after turning 18.
If you do not meet this requirement but nevertheless leave the country, you will receive your pension for the month in which you left Canada, as well as for the following six months. After that, if you have not returned by then, the payments will stop. They will resume only after you return to Canada.
If you intend to leave the country for more than six months, you must notify the Social Department (Service Canada).
Is it possible to defer receiving your pension, and who would benefit from doing so?
Yes, you can defer your Old Age Security pension for no more than 60 months. This decision is often made to receive larger pension payments later; however, this option is not suitable for everyone.
There are certain categories of people for whom deferring their pension is disadvantageous, namely:
• people who do not live in Canada when they retire,
• people who have lived in Canada for less than 20 years,
• people whose original country of residence does not have a pension agreement with Canada.
In addition, deferring a pension has several other disadvantages:
• no guaranteed pension supplement (more details in the next section),
• no benefit for your spouse during the pension deferral period.
Guaranteed Income Supplement
In addition to the standard Old Age Security pension, a certain category of Canadians is eligible for the Guaranteed Income Supplement (Guaranteed Income Supplement – GIS). Pensioners who meet three requirements are eligible to receive this supplement:
1. they live in Canada,
2. they receive a full or partial Old Age Security pension,
3. their annual income is below the maximum threshold (for couples, it is important to note that combined income is taken into account).
How do you apply for the Guaranteed Income Supplement?
If you meet all the criteria listed above and the Social Department has confirmed this, you must submit an application to receive the supplement.
What affects the amount of the Guaranteed Income Supplement?
There are two main factors that determine the amount of your supplement:
1. Your income.
Every year by April 30, you must complete a tax return or submit an application to reinstate the supplement. If you do not do so, the supplement will not be paid.
2. Your marital status.
If your marital status changes (marriage, divorce, or the death of a spouse), you must complete a special form. Upon marriage—ISP1809OAS; upon divorce—ISP1811OAS; upon the death of a spouse—ISP1201OAS.
There are situations in which partners live separately, although the reason is beyond their control. For example, one spouse may currently be required to live in a medical facility. In such a case, the other partner may receive a pension as a single person. To arrange this option, you will need to submit an application known as the ISP 3040 Statement.
Amount of the Guaranteed Income Supplement
It is important to understand that if a pensioner has income, the amount of the supplement will be lower, and the higher the income, the lower the supplement. Moreover, if a single pensioner's income rises to $18,600, all supplement payments will stop altogether. For a retired couple, the maximum allowable income for receiving the supplement is $24,576.
If a single pensioner has no income, their Old Age Security pension including the supplement will be $1,529.91. For a retired couple with no income, the pension including the supplement will be $1,168.65 for each spouse.
It is important to note that pension payments from your original country of residence are considered income, even if you do not receive them in Canada. You are required to report them on your tax return in any case.
How is the supplement calculated?
The Guaranteed Income Supplement is calculated based on a pensioner's income information from the previous year, but there are some nuances.
For example, if you had a fairly high income before retiring but no longer work and know that you will not have income going forward, you can contact the Social Department for assistance. By completing the Statement of Estimated Income after Retirement form provided there, you may have your supplement reassessed based on your estimated income rather than your past income.
If a pensioner is incarcerated in a federal prison for at least two years, the supplement is not paid.
Can you receive the supplement in another country?
No, this is not possible. The Guaranteed Income Supplement is paid only while you reside in Canada. After leaving the country, you will receive the supplement only for the following six months. Once you return, you will have to apply to have the payments reinstated.
2. Canada Pension Plan (Canada Pension Plan – CPP)
To receive payments under this plan, you must work and make contributions to it before retirement. You can begin doing so as early as age 18. The standard age for starting CPP payments is 65, but you can adjust the start date in certain ways and receive payments earlier or later.
The distinctive feature of this plan is that it also provides insurance coverage. Through CPP, you can receive payments in the event of the loss of a family breadwinner, as well as unemployment benefits.
How is CPP calculated?
To calculate the amount of CPP payments, your average salary over your entire working period up to retirement is indexed.
Some periods are excluded from the calculations:
• periods during which disability benefits were paid,
• 15% of the period worked with the lowest wages,
• periods when the pensioner had children under seven years of age—this provision is used when payments may be increased.
As a rule, after forty years of work, a Canadian can reach the maximum pension amount, which is 25% of the average salary.
For example, this year the maximum monthly CPP amount when retiring at age 65 is $1203,75.
3. Voluntary pension payment programs
There are also various employer pensions and different individual savings options in Canada.
What is a Retirement Saving Plan (RRSP)?
An RRSP is a registered retirement savings plan that serves as an individual retirement program.
It allows taxpayers not only to reduce their taxes, but also to earn a certain amount of tax-free income on them.
You can use these funds to purchase a home or pay for education. This is possible even before retirement.
What are employer pension funds?
Some employers fund workplace pension plans. Unions also provide partial funding. These plans are mainly controlled by various private companies, but sometimes funding is also provided by local or government authorities.
