Can you collect Canada pension at 60 and still work? Navigating CPP and employment

According to Statistics Canada, an increasing number of Canadians are extending their working years, redefining traditional retirement. As more individuals choose to delay full retirement, a common question arises: can you collect Canada pension at 60 and still work? Understanding the rules is key to making an informed financial decision.

Quick Summary

Yes, you can collect a reduced Canada Pension Plan (CPP) at age 60 while still working, but mandatory contributions are required until age 65, which creates a Post-Retirement Benefit (PRB) to boost your pension.

Key Points

• Yes, you can collect and work: It is permissible to start collecting a reduced CPP pension at age 60 while continuing to be employed.

• Contributions are mandatory (60-65): Between the ages of 60 and 65, if you are working and receiving CPP, contributions to the plan are mandatory.

• Earn the Post-Retirement Benefit (PRB): Your continued contributions generate a new, permanent benefit called the PRB, which is added to your monthly CPP payment.

• Optional contributions at 65+: From age 65 to 70, you have the option to stop or continue making CPP contributions while still working.

• Benefits are reduced: Starting CPP at 60 results in a permanent 36% reduction in your monthly benefit compared to waiting until age 65.

• Timing matters: The best time to start depends on your health, financial needs, and life expectancy; there is no one-size-fits-all answer.

Understanding the CPP and Continuing to Work

The Canada Pension Plan (CPP) provides retirement income to millions of Canadians, but its rules regarding early collection and continued employment can be complex. The good news is that continuing to work while receiving your CPP is not only possible but can also be a valuable strategy for enhancing your long-term financial security.

Mandatory Contributions (Ages 60–65)

If you begin receiving your CPP retirement pension between the ages of 60 and 65, and you are still working, you are required to continue paying CPP contributions. This is not optional for employees in this age bracket. For every year you contribute, you earn a Post-Retirement Benefit (PRB), which is a lifetime benefit that is automatically added to your monthly pension payment. The PRB serves to offset the impact of starting your pension early and receiving a reduced amount.

Optional Contributions (Ages 65–70)

Upon turning 65, the rules change, and continued contributions become optional. If you are an employee between 65 and 70, you can choose to stop contributing to the CPP. To do so, you must file Form CPT30, 'Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election,' with the Canada Revenue Agency (CRA) and provide a copy to your employer. If you are self-employed, you must complete the appropriate section on your income tax return. You can also revoke this election and start contributing again once per year. This allows for a flexible approach to your finances, depending on your needs.

The Post-Retirement Benefit (PRB): A boost to your pension

The PRB is a powerful tool for those who choose to work while collecting their CPP. It's essentially a separate, lifetime benefit you earn for each year you contribute after starting your retirement pension. These contributions are added to your existing pension, providing an increased monthly income for the rest of your life. The value of your PRB is calculated based on your earnings and contributions for that year. Each year of contributions results in a new PRB, which is then added to your total monthly pension payment. Even if you were already receiving the maximum CPP retirement pension, contributions made from working can still generate a PRB, further boosting your income.

Comparing Your Options: Take CPP Early vs. Deferring

The decision of when to start your CPP is highly personal and depends on a number of factors. Here is a comparison of taking CPP at different ages while still working, as well as the pros and cons of taking the pension early versus deferring.

Feature	Take CPP at 60 (while working)	Take CPP at 65 (while working)	Take CPP at 70 (while working)
Benefit Level	Permanently reduced by 36% compared to age 65 start.	Full benefit.	Permanently increased by 42% compared to age 65 start.
CPP Contributions	Mandatory for ages 60-65. Optional for ages 65-70.	Optional for ages 65-70.	Contributions stop at age 70.
Post-Retirement Benefit (PRB)	Earned for each year of contributions between 60-70.	Earned for each year of optional contributions between 65-70.	No PRB earned after age 70.
Cash Flow	Immediate, but reduced, cash flow.	Full benefit starts.	Delayed cash flow, but significantly increased benefit.
Longevity Risk	Lower monthly payments, but you receive them for more years.	Standard payments for a shorter period.	Higher payments, which benefits those with longer life expectancies.

Factors to Consider Before You Apply

1. Longevity and Health: If you have a family history of long life or are in good health, deferring your CPP to receive a larger monthly payment might be beneficial in the long run. Conversely, if your health is a concern, taking the reduced payment earlier could be the better choice.

2. Other Income Sources: Assess your other sources of income, such as other pensions, investments, and savings. If your immediate income needs are not pressing, delaying CPP can be a powerful way to enhance your guaranteed, indexed income later in life.

3. Income Taxes: CPP payments are taxable income. The amount of tax you pay will depend on your total annual income. Taking a reduced CPP early could potentially keep you in a lower tax bracket compared to receiving a larger sum later when combined with other retirement income.

4. Old Age Security (OAS): Do not confuse CPP with OAS. You cannot receive OAS until age 65, and it is income-tested. Taking CPP at 60 does not impact your OAS eligibility or start date, but your total income later in life could affect your OAS payments through the clawback provision.

5. Investment Opportunities: Some argue that taking the smaller CPP payments at 60 and investing them could yield higher returns than the guaranteed increase from deferring. However, this involves market risk, whereas the deferred CPP increase is a guaranteed, inflation-indexed return. For most conservative investors, the guaranteed return of deferring is hard to beat.

How to Apply for CPP While Working

Applying for your CPP is a straightforward process, even if you plan to continue working. You can apply online through your My Service Canada Account for the fastest processing. Here are the basic steps:

1. Log in to or register for a My Service Canada Account.
2. Select the option to apply for your CPP retirement pension.
3. Indicate that you wish to start your pension at age 60.
4. Provide your employment information when prompted.
5. Once your application is submitted, you will receive a confirmation. Because you are working between 60 and 65, your employer will automatically deduct mandatory CPP contributions from your pay.

For more detailed information on the Canada Pension Plan, including the Post-Retirement Benefit, visit the official government website. Canada Pension Plan Post-Retirement Benefit

Conclusion: Finding the Right Path for You

The question of whether you can collect Canada pension at 60 and still work is just the start of a broader financial planning conversation. The ability to do so provides flexibility, allowing you to gradually transition into retirement while maintaining a source of income. However, it requires a careful consideration of your individual circumstances. The trade-off between immediate cash flow and a permanently reduced benefit versus a delayed but enhanced pension is a complex one. By understanding the Post-Retirement Benefit and evaluating your personal financial situation, health, and longevity, you can make the right decision for your unique retirement journey.

Frequently Asked Questions

Can I collect Canada pension at 60 and still work?

Yes, you can begin receiving a reduced CPP retirement pension at age 60 even if you are still working. The timing of your application and your continued employment will have specific implications for your pension amount and contributions.

Do I have to pay CPP contributions if I am 60, working, and collecting CPP?

Yes, if you are between the ages of 60 and 65, it is mandatory to continue paying CPP contributions on your work income. These contributions go towards earning a Post-Retirement Benefit (PRB).

What is the Post-Retirement Benefit (PRB)?

The Post-Retirement Benefit is a lifetime benefit you earn for each year you make CPP contributions while already receiving your retirement pension. Each year's PRB is automatically added to your monthly CPP payment, permanently increasing your retirement income.

How much is my CPP reduced if I take it at age 60?

If you begin your CPP retirement pension at age 60, your monthly payment will be permanently reduced by 0.6% for each month you receive it before your 65th birthday. This amounts to a total permanent reduction of up to 36%.

Can I stop contributing to CPP after age 65 if I am still working?

Yes, once you turn 65, you have the option to stop making CPP contributions. You must submit Form CPT30, 'Election to Stop Contributing to the Canada Pension Plan,' to the Canada Revenue Agency and your employer to exercise this option.

Does collecting CPP early affect my Old Age Security (OAS) pension?

No, starting CPP at age 60 does not directly affect your OAS eligibility, which starts at age 65. However, your total income (including your CPP) at age 65 and beyond could impact whether your OAS pension is reduced due to the OAS clawback.

Is it always better to wait until 65 or 70 to collect CPP?

Not necessarily. While deferring your CPP results in a larger monthly payment, the best option depends on your personal circumstances, including your health, financial needs, and expected lifespan. Taking it early can provide valuable income, especially if you have other financial obligations.

How does the PRB affect my CPP maximum?

The PRB is an additional benefit paid on top of your existing CPP retirement pension. You can still earn a PRB even if you are already receiving the maximum CPP retirement pension, effectively increasing your total monthly payment beyond the standard maximum.