If you or someone you know is between 60 and 65, you may not want to miss the CPP window of opportunity.

You may want to consider whether it is in your best interest to start your Canada Pension Plan payments now – before planned amendments kick in next year.

Amendments to CPP retirement benefits:
Bill C-51, which received Royal Assent on December 15, 2009, is slated to be put before Parliament this fall and passed into legislation. The changes have been promoted as offering increased flexibility” and “providing the opportunity to enhance benefits”. While this is correct in part, there are some aspects of the proposed changes that will have a meaningfully negative impact on those between the age of 60 and 65 who are looking at transitioning into retirement. It will be especially onerous on those who are self-employed or working by contract or consulting.

Proposed Changes to Receipt of Income:

1. There is a positive change in the calculation of career earnings. By increasing the dropout percentage for years of low or no earnings from the current 15% of average career earnings to 16% in 2012 and 17% in 2014, retirees should have a higher retirement benefit when they elect to receive it.
    
2. The removal of the Work Cessation Test is a welcome end to this unnecessary “annoyance”. Applicants will no longer be required to cease employment or have reduced income for a two month period in order to be eligible to apply for benefits.
    
3. Payments for those who start before 65 will be reduced and payments will be enhanced for those who start after 65. From a practical and actuarial perspective, these adjustments are appropriate given the longer life expectancy of today’s retirees compared to those who retired 20 years ago.
    
4. The most problematic amendment is that those who continue to work while in receipt of the CPP benefit will now be required to contribute into the plan (this is an option if they are working beyond age 65 but a requirement before that age). This means any pension payments to them between 60 and 65 will be offset by continuing yearly payments into the plan. Today, if you are earning the maximum pensionable earning ($47,200 in 2010). You must contribute $2,163.15 to CPP. If you are self-employed, the employee/employer total contribution is $4,326.30. Contributing this amount for one year would increase your annual CPP benefit by $280.

The changes will be staged in starting in 2011 for reduction in early receipt and will be fully implemented by 2016. The changes for delaying receipt will start next year and be fully in place by 2013. The problem area, involves those who are under the age of 65, in receipt of early CPP retirement pension and also are earning employment income. According to a spokesperson for Finance, all who meet the above criteria will be required to once again contribute to CPP as of January 2012.

Impact of the Changes
It is contended that the changes are being put in place to help retirees in many different scenarios more effectively transition into retirement, while the government points out the ability to increase their CPP benefit through additional contributions to the plan while they are in receipt of the retirement benefits, they are not allowed to contribute to the plan. The real problem is that many retirees are in fact using early CPP to transition into retirement. The new rules would require continued contributions to the plan. Not only does that encroach on the cash flow of the pensioner, but it also means that now employers have to contribute for such an individual. That is an advantage that current pensioners have. They can be employed and neither they nor the employer makes CPP contributions.

This does not mean that you should automatically wait until 65 to apply for your CPP benefits or apply at 60. You should get all the facts as they apply to your individual situation.

At the time of this newsletter, this bill is a proposal and not yet passed into legislation. We will keep you up to date as more information is available.

**Daryl Diamond, CFP, CLU, CHFC (Diamond Retirement Planning Ltd., Winnipeg, ON)
**Forum magazine
**Government of Canada website www.servicecanada.gc.ca


Theresa Wever and the Money Concepts Team.

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