CPP vs OAS: What are the differences?

As Canadians approach retirement age, it is helpful to consider what your income will be. There are two popular government benefits in Canada available to individuals aged 60 or older. They are the Canada Pension Plan and Old Age Security. But what exactly are these programs and what’s the difference between CPP vs OAS? You may also be wondering if you’re only eligible for one program, or both. Continue reading below to learn more about each program and how they differ.

What is the Canada Pension Plan (CPP)?

The Canada Pension Plan, or CPP for short, is a retirement pension available to Canadians. The plan pays out a monthly, taxable benefit meant to replace part of income upon retirement. Individuals who are eligible for CPP receive the payment for the rest of their life.

How does the Canada Pension Plan work?

Canadians make contributions to the Canada Pension Plan throughout their life. If you’re an employee, contributions go to the government automatically by your employer. You may notice a breakdown of CPP withholdings on your pay statement. If you are self-employed, you may not contribute to the CPP program. Unless you’re taking a salary from the company or paying towards CPP on your personal tax returns.

When you retire, the amount you contributed to CPP throughout your life is considered when determining your monthly pension payment. By this logic, the more you contribute to CPP throughout your life, the higher your pension payment will be. The idea is to reward Canadians in their retirement for their work service and career.

How to calculate your CPP benefit

Many factors contribute to the calculation of your Canada Pension Plan amount. For example, how many Canada Pension Plan contributions you made in your life, having periods of no or low salary and periods of disability can impact your monthly CPP payment. For this reason, the value can vary based on the individual. If you’re wondering how much is Canada Pension Plan, currently, the maximum CPP benefit starting at age 65 is $1,253.59 per month. The average amount paid to new retirees as of January 2022 is $779.32.

You can use the Canadian Pension Plan Calculator to estimate your CPP retirement benefits.

Is CPP taxable income?

Unfortunately, taxes don’t stop in retirement! The answer is yes, your monthly CPP pension payments are taxable income. This means you must report the amounts you received throughout the year on your income tax return. Fortunately, the Canada Revenue Agency (CRA) provides slips to make the process easier for you.

How to apply for CPP

Canada Pension Plan payments are not automatic which means you must apply. Common practice is to apply before you retire. Most individuals know their retirement date in advance. This way, you will receive payments as soon as you retire. Below is a step by step guide on how to apply for Canada Pension Plan:

• Step 1: Make sure you meet the Canada Pension Plan eligibility criteria. To qualify, you must:
  • Be at least 60 years of age
  • Have made one valid contribution to CPP in your lifetime.
• Step 2: Determine your desired start date. During the process, you will be asked to choose from the following options:
  • Start receiving pension once you qualify
  • Start receiving pension when you turn 65
  • Start receiving pension on a date of your choice (likely your retirement date)
• Step 3: Choose an application format. You can apply online or submit a paper application.
• Step 4: Submit your Canada Pension Plan application.
• Step 5: Check your application status to determine eligibility.

What is Old Age Security (OAS)?

The Old Age Security is a Canada monthly payment for Canadians 65 years of age and older. The idea behind the program is to provide a benefit to elder populations in Canada. The main Old Age Security eligibility criteria is age, but continue reading below.

How much is Old Age Security in Canada?

The maximum Old Age Security monthly payment amount is currently $648.67. To be eligible for OAS, your annual income must be $133,527 or less. The CRA reviews the payment amounts every year and are adjusted to the Consumer Price Index (CPI).

The exact Old Age Security amount depends on your personal circumstances. The main factor that affects your payment is how long you lived in Canada after the age of 18. You can find out more about what your payment will be on the Canada Revenue Agency website.

At age 75, the OAS payment increases by 10% automatically. This percentage increase is relatively new, it is starting in July 2022.

Is Old Age Security taxable?

Yes, OAS payments are taxable income. This means you must report the amounts you receive on your income tax return every year.

OAS payments are subject to a recovery tax if your individual net annual income was higher than $79,054. If this is you, it’s possible you will owe more tax back, unfortunately.

How to apply for OAS

In most cases, Canadians do not have to apply for Old Age Security payments. As soon as you turn 65, you should be automatically receiving the benefit. You will receive a notification from Service Canada when you are automatically enrolled.

If you turn 65 and are not enrolled automatically, you may have to submit an Old Age Security application. This usually happens because the government did not have adequate information to determine your eligibility status. Below are the steps to apply for Old Age Security:

• Step 1: Decide when you want OAS to start. You will be asked to choose from the following options:
  • Start receiving a pension at the age of 65
  • Start receiving OAS at a specific date of your choosing
• Step 2: Submit your application. You can apply online or via a paper application.
• Step 3: Wait for a response from Service Canada. You will receive a letter that either provides a decision on your admittance into OAS or a request for information. Be sure to submit the additional details, if requested. You should also receive a decision letter which confirms your payment amount, when you’ll get your first payment and past payments that may be owed to you.
• Step 4: Review your application status by logging into your Service Canada account or by contacting Service Canada.
• Step 5: You have the option to dispute Service Canada’s decision, if you wish. You must submit a request for review in writing within 90 days of receiving your decision letter.

CPP vs OAS

CPP and OAS are similar in the sense that they’re both retirement and benefits for older populations. Both supplement income for Canadians as they age. In addition, both CPP and OAS are Canadian benefits administered by the government. However, there are some differences to consider. CPP is a retirement benefit awarded to individuals who have worked throughout their life. Whereas OAS is simply a benefit for older Canadians. When considering CPP vs OAS, there is a difference in payment amounts as well.

Is it better to delay taking CPP vs OAS?

In some cases, it can be beneficial to delay CPP and OAS. Continue reading to learn more about the optimization of delaying CPP vs OAS.

With CPP, you can begin claiming payments as early as 60 or as late as 70. The average age Canadians begin claiming CPP is at 65, also the most common retirement age. The longer you wait to begin CPP payments, the larger your payments will be. If you start payments before age 65, payments decrease by 0.6% each month, or 7.2% each year to a maximum of 36%. If you start after age 65, payments will increase by 0.7% each month (or by 8.4% per year) to a maximum increase of 42%. As you can see, there is a clear incentive to hold off on CPP payments!

You can delay Old Age Security payments for up to 5 years after you are 65. The longer you delay, the larger your monthly payments will be. Past the age of 70, there is no benefit to delaying payments. Rather, you are losing out on money by delaying further. It is recommended you apply for OAS if you’re currently age 70 or older.

With this in mind, your personal circumstances affect the decision to delay CPP vs OAS payments. If you are retired and have limited income, you may have no other option but to begin claiming CPP or OAS. However, if you can optimize OAS and CPP by waiting, definitely do so!

Are OAS and CPP enough for retirement?

In most cases, CPP and Old Age Security are not enough income for retirement. Both benefits are designed to be a supplement or partial amount of income. However, the amount of money you need in retirement depends on various factors, mainly your lifestyle and level of savings. If your cost of living is low and you’ve built a healthy nest egg in your life, OAS and CPP combined could be enough to live comfortably.

How much will CPP and OAS increase in 2022?

Each year, the Canada Revenue Agency (CRA) reviews CPP and OAS. In some years, this means there’s an increase in the payment amounts. Normally, the CRA considers the Consumer Price Index and adjusts CPP and OAS payments accordingly.

In January 2022, maximum CPP payments were increased by 2.7%. Old Age Security increase is set to raise by 1% in the second quarter of 2022.

When are CPP and OAS tax slips mailed?

All tax slips are due by the end of February, including CPP and OAS tax slips. You can expect to receive yours by the end of February or early March, depending on the delivery method. You have the option to receive your CPP and OAS tax slips online or by mail. If by mail, the tax slips can take a bit longer to reach you.

How do I contact CPP and OAS?

You can contact the Canada Pension Plan and Old Age Security administrators by submitting a request online, calling their phone number, through mail or by visiting a local location in person. The exact communication method depends on where you reside in Canada. Look up local information in your area and reach out to CPP or OAS accordingly.

2022 Canada Pension Plan payment dates

CPP pension payments for the remainder of 2022 are as follows:

• July 27, 2022
• August 29, 2022
• September 27, 2022
• October 27, 2022
• November 28, 2022
• December 21, 2022

2022 Old Age Security payment dates

CPP pension payments for the remainder of 2022 are as follows:

• July 27, 2022
• August 29, 2022
• September 27, 2022
• October 27, 2022
• November 28, 2022
• December 21, 2022