With changes to the Canada Pension Plan being phased-in between 2011 and 2016, there is no easy answer to this question. New rules mean new factors must come into play:
If payments begin between age 60 and 65, the actuarial reduction will change. The reduction is made because payments are expected to be paid for more years. Before the changes, the maximum reduction was 30% (0.5% per month before age 65) if a pensioner started receiving benefits at age 60. The new phase-in amounts start in 2012 and are as follows:
The maximum reduction if pension is started at age 60 in 2015, would be 36% (0.60% x 60 months).
Assuming a maximum CPP benefit, and based simply on a cumulative total amount received, the “crossover” under the new rules would be reached at age 73 or 74. In other words, if you live past age 74, the cumulative benefit will be better if you start CPP at age 65 than at age 60. Here’s the chart:
If payments begin after age 65, monthly payments will be higher, since payments are anticipated to be paid for fewer years. Beginning in 2011 (note the different starting date than the reduction for before age 65) payments will increase by:
The maximum increase if pension is started at age 70 in 2013 would be 42% (0.7% x 60 months)
In this scenario, the crossover age is around 81.
The drop-out provision in calculating benefits will change. This provision allows the exclusion of a portion of zero or low earnings from the contributory period (from age 18 until retirement). Starting in 2012, the number of years of low or zero earnings that are automatically dropped from the calculation of CPP pension will increase from the existing 15% (up to seven years) to 16% (up to 7.5 years) and in 2014 this will increase again to 17% (up to 8 years).
Under current rules, if CPP is taken before age 65, the pensioner must have substantially ceased working in order to collect. This Work Cessation Test will no longer apply, starting in 2012.
A new Post-Retirement Benefit is being introduced, starting in 2012. Under current rules, once CPP payments start, they will not change if the pensioner returns to work – new earnings would be exempt from CPP contributions.
Beginning in 2012, those pensioners who are under age 65 and who return to the workforce will be required to contribute to this new benefit, as will their employer. If return to work is between 65 and 70, additional contributions will be voluntary. Other factors:
This provision will become another factor to be considered when looking at starting CPP early. If CPP starts at age 60 and the pensioner subsequently returns to work (or continues to work, since no cessation test will apply), it may be preferable to receive an increased pension at 65 than to supplement the reduced pension with the Post-Retirement Benefit.
As with many areas of retirement planning, there is no easy rule of thumb. Each case should be evaluated to determine the best solution for the individuals involved.