Government Benefits

This week, I will be looking at the Government Benefits available to Canadians at or nearing retirement.  There remains a bit of a mystery as to who qualifies, if the pension income is taxable and where to apply. 

Canada Pension Plan (CPP) and Quebec Pension Plan (QPP)

The CPP and QPP are plans based on work experience in Canada.  If you have made at least one contribution to the programs you will be eligible for a pension.  Currently the maximum CPP pension is approximately $960 per month and is considered taxable income.  This is based on someone retiring at age 65.  As well, CPP is adjusted each year to keep pace with inflation.

The standard CPP benefit is designed to start at age 65 but you can choose to start receiving benefits as early as age 60. In that case your pension will be reduced by 30% since the pension is reduced by .5% for each month that you choose to take the pension early. 

There are definite benefits to taking your CPP early but I recommend you speak to your advisor about whether this is an appropriate strategy for your personal circumstances.  You can also choose to delay receiving your CPP pension to age 70 where you will receive 30% more.

If you and your spouse are both eligible to receive a CPP you can split your pensions.  Pension splitting makes good tax sense since you and your spouse could end up reducing the overall taxes you pay.

When you apply you can either obtain a paper application from Service Canada or you can apply on-line.  If you elect to apply on-line you are still required to mail in the signature page. 

To apply you will need the following information:

• Your Social Insurance Number (SIN)
• Your spouse’s SIN if applying for pension splitting
• Bank information if requesting direct deposit

 

Old Age Security (OAS)

OAS is not a pension in the traditional sense but rather a social benefits program operated by the Federal government.  It is directed at Canadians that have reached the age of 65.

Eligibility for OAS depends on how long you have lived in Canada.  Generally speaking, if you have lived in Canada for 40 years you will receive the maximum OAS benefit.  If you have lived in Canada for between 10 and 40 years you will be eligible for a partial pension.  The maximum OAS pension as of April 1, 2011 is $526.85 per month and is considered taxable income.  This amount is increased quarterly to account for inflation.

The benefit amount you receive is determined by how much income you receive from other sources.  If you receive other income over approximately $66,000, the OAS benefit will be reduced (clawed-back).

You should apply for your OAS benefits six months before you turn 65.  You cannot apply for OAS on-line but you can complete the form on-line and then mail a printed copy.

When you apply you will need the following:

• Proof of age – This does not need to be submitted with the application but you must be able to produce this if requested
• Proof of Residency – If you have lived in Canada all your life there is no documentation required. However, if you were born elsewhere you will need to provide proof of residency status (a passport will suffice) and proof of residence history (passports, visa)

 

Guaranteed Income Supplement (GIS)

An addition to the OAS program is the Guaranteed Income Supplement or GIS.   As with OAS, this program is income tested and is directed at low income recipients.

To be eligible for GIS an applicant must be eligible to receive OAS benefits and not exceed specified income maximums.  Income will include items such as private and government pensions, RRSP payments, employment income and investment income but will not include OAS benefits.  The amount of the benefit will depend on factors such as marital status, individual or combined family income and whether a spouse is a recipient of OAS benefits. 

For example, from April to June 2011, the maximum benefit for a single person is $665 per month and is not considered taxable income.  This would be based on income of less than $15,960. GIS must be applied for annually.

CPP and OAS Estimates

Service Canada can provide you with estimates of your current CPP and OAS Entitlements.  There are two ways to access this information:

• Contact a Service Canada agent at 1-800-277-9914
• Go online and view your account.  If you do not have an access code go to Service Canada’s website, click on ‘Online Service and Forms’ and select ‘Personal Access Code’ from the ‘Apply For’ menu.

These are the most common government benefits available to Canadians, however there are additional benefits that you may also qualify for depending on your personal circumstances.  If you would like more information on this topic or would like a review of your current financial plan, please call 778-478-9759, or e-mail [email protected]

 

This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, or life insurance, and should not be taken as providing, investment, financial, legal, accounting or tax advice.  All services provided through NorthBay Financial Services.  Mutual funds are provided through Sterling Mutuals Inc. Insurance is provided through multiple carriers. The opinions expressed are those of the authors and do not necessarily reflect the views or opinions of Sterling Mutuals Inc.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.