Last January, I wrote about some of the changes to the CPP and their impact on timing the start of your CPP benefits. So when should I start receiving my CPP benefits? I recently looked more closely at one of the new provisions – the Post-Retirement Benefit (PRB). In my January article, here’s what I had to say about this feature:
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.
Service Canada’s website (slides 51 and 52) provides the following example and calculations to demonstrate this benefit.
So, does it make sense to continue to contribute between 65 and 70? To get a general idea, I ran an annuity quote using Manulife’s software. The minimum income number on their quote system is $100 and it would cost $20,801.75 to purchase a life annuity, for a 66 year old male, which would pay $100 per month for the rest of his life, increasing at 1.5% annually (CPP is indexed to inflation, so a 1.5% increase was included in the annuity quote to simulate inflation). Bear in mind that one of the factors in an annuity is the interest rate that is used in the calculations. The quote was prepared on November 25, 2011, so is based on rates in effect then. Given that quote, if we take 28% (since Mr. Lee’s benefit is about $28 per month and the quote was for $100 per month), it would cost $5,825. Compare this to the total premiums paid for the CPP benefit of $4,563.90 and the CPP benefit may not be such a bad deal after all.
This material is meant to provide some guidance. As with so many things, these are general comments and may not apply in all cases. Everyone is unique and decisions must be made with their personal circumstances in mind.