In the past few years, inflation has ran rampant in Canada and other parts of the world. As a result, the purchasing power of Canadians has decreased, including for seniors who rely on benefits like the Canada Pension Plan (CPP) and Old Age Security (OAS). Fortunately, these programs offer increases to keep up with inflation. Continue reading to determine how much will CPP and OAS increase in 2023!

A Brief Overview of CPP and OAS

CPP is short for the Canadian Pension Plan, while OAS means Old Age Security. These terms refer to senior and retirement benefits open to people of a certain age bracket and work status. But, they are often mistaken for each other. It is important to note they do not mean the same thing and do not apply interchangeably. A lack of understanding of these programs may lead to faulty decision making. Thankfully, we are here to set things straight. Let’s take a closer look at each program.

What Does CPP Mean?

The Canadian Pension Plan is a retirement package open to Canadian citizens only. Eligible Canadians are entitled to a monthly taxable payout. This is to make up for not having an income after retirement. Where eligible, a person will receive these funds for as long as they live. 

Furthermore, the CPP benefits consist of four types. These are the disability, retirement, survivor, and post-retirement benefits. But for the purposes of this article, we will pay attention only to the retirement pension package. 

So, how does the government raise the money to pay all of its citizens qualified to receive this benefit? These persons made regular contributions to the system throughout their working career in Canada. In other words, it’s a pension that Canadians pay into then claim as a benefit later in life.

If you don’t remember making these payments, don’t panic. Most employers deduct CPP payments from employee pay cheques. Then, remit them to the government as their employee contribution. A peek into your pay slip may show a breakdown of where your funds go and what your contributions are. If you are self-employed, or a business owner, you are not required to make CPP contributions. However, if you elect to pay into the program, you’ll reap the benefits later in life.

Upon retirement, the government calculates each person’s contributions to the program. The total sum and the duration of the contributions are key factors. They determine each person’s eligibility and monthly payment amounts. It’s fair to say that the more money you commit to this plan, the higher your monthly CPP pension payment will be. Overall, the idea is to reward Canadian citizens for their service to the labour force.  

As mentioned earlier, the CPP payment amount varies depending on the person. Calculating how much your entitlements are may be tricky since it’s determined by the government on the back end. Generally, the average entitlement is around $779. But you can use a CPP pension calculator to estimate your monthly payouts. Also, keep in mind the CPP benefit is not an automatic pension scheme, you must apply.

What Does OAS Mean?

The Old Age Security, or OAS for short, is a government benefit available to Canadians. It applies only to Canadians that have crossed the 65-year age mark. This creates a significant distinction from the CPP program, as we saw above. Unlike the CPP benefit, this plan has no relationship with a person’s employment history. Plus, the applicant doesn’t need to be retired to qualify. Thus, we can say the only criterion required to qualify for OAS is age and residency status.

The exact amount a person will receive depends on certain factors. One of these factors is how long the person has stayed in Canada since turning 18. Suppose a person has lived in Canada for 20 years after turning 18. This means they will receive the equivalent of twenty (20) divided by forty (40), or half of the full OAS pension. 

Currently, the maximum OAS payout is $691. This applies to persons between 65 to 74 years with an annual income below $129,757. Persons who are 75 years or older are entitled to a maximum of $760.10 monthly. This is provided their annual net income as of 2022 was less than $129,757 as well. 

Like CPP, OAS payouts are taxable. Recipients are expected to report their payouts on their income tax returns. Then, high-income retired Canadians experience what we call clawbacks. To demonstrate, let’s say your income as a retiree is higher than $70,954. In that case, the government will take back a portion of your OAS payments. This clawed-back portion is typically about 15 cents on every dollar.

A person can apply for OAS at least six months before turning 65. But, the rules are different for certain classes of persons. These include those not born in Canada or those who haven’t lived here long enough. These persons will have to provide supporting documents, including a statement showing all the dates they left the country and returned. 

Note that to receive a full pension payment, the applicant must have resided in Canada for at least 40 years. But persons who have lived in Canada for less than that time are entitled to a partial OAS payment.  Their pension sum would depend on how long they have lived in Canada. Thus, for a person who has lived in Canada for 30 years, their payout is calculated as 30/40 multiplied by the maximum payment.

What Differentiates CPP from OAS?

We have considered what each of these pension packages means. It is now time to outline the differences between them for easier understanding.

CPP	OAS
This pension plan requires applicants to have made contributions while in the workforce.	Retirees are eligible without making any contributions or payments.
Eligibility starts at 60 years of age.	Persons are eligible from 65 years of age.
This plan requires an application before payments start.	Retirement payments kick in automatically upon eligibility.
This pension plan is for persons who have held employment in their lifetime.	OAS benefits apply to all older citizens, whether they worked or not.

Related Reading: CPP vs OAS: What are the differences?

What Does GIS Mean?

If you have heard of OAS and CPP, then you may have come across GIS as well. GIS stands for Guaranteed Income Supplement. It is a monthly retirement payout available to persons 65 and older. These persons must live in Canada and already receive OAS, but are still low-income pensioners, regardless. A low-income pensioner, in this context, refers to a person with an income lower than $20,952. The Canadian government also publishes other eligibility criteria. This covers immigrants and other classes of low-income earners. 

What is considered low income for seniors in Canada?

For the purposes of calculating government retirement and senior benefits, these persons are regarded as low-income seniors:

• A single, widowed, or divorced person who is earning below $20,952.
• A person whose combined income with their spouse is below $27,648, and one person receives OAS. 
• Partners with combined income falling below $50,208, with none of them receiving OAS. 
• Partners with a combined income below $38,736. Here, one person has an existing government allowance package. 

How much will CPP and OAS increase in 2023?

In this next section, we will consider some current questions surrounding CPP and OAS. As mentioned, inflation has been volatile in recent years, seniors want to know if they’re getting a raise! Top of this list is, “How much will CPP and OAS increase in 2023?” Let’s start! 

How much will CPP pay in 2023?

The maximum amount CPP will pay in 2023 is $1,306.57 for new recipients starting at 65 years. In 2022, the maximum amount was $717.15. There was a substantial increase in the benefit to align with rising inflation. As of January 2023, the average monthly payout to a new recipient was $811.21.

How much will CPP inflation increase in January 2023?

In every fiscal policy, there is room for indexation. This is a strategy to cover the effect of inflation or deflation on certain payments. Without this, persons receiving certain benefits will suffer because their payments remain fixed. But through indexation, these payments can go up a bit, especially in times of high inflation. The CPP indexation rate against inflation in January 2023 was 6.5%.

How much will OAS be in 2023?

Like CPP, OAS is adjusted often to account for inflation and other circumstances. This review occurs four times a year, in January, April, July, and October. The government uses the Consumer Price Index (CPI) to determine how much increase to apply. So, these increments are determined by the figures from the last quarter. Based on current CPI figures, OAS payments are expected to go up by 0.5% in the April to June quarter. As the cost of living keeps rising, one can expect this percentage to further increase.

How much does OAS go up per year?

OAS payments have an estimated annual growth of 1.7%. In 2022, it grew an average of 1.04%. Although, 2020 saw a 2.02% growth from the 2.50% of the year before. In 2012, the percentage was as high as 3.02%.

Making the Most of CPP and OAS Benefits

How much will CPP and OAS increase in 2023? It’s hard to say exactly how much they will increase, but history shows us that these benefit programs will track alongside inflation. CPP already went up by 6.5% in January and OAS will likely experience an increase of 1%, possibly more, in the coming months.

Do you need help balancing your CPP and OAS benefits against your budget in these tumultuous times? A financial advisor can help. Complete this quick questionnaire to be matched with a professional today!