Your options for collecting CPP while employed
If you're nearing 60 and still working, you might be considering your options for collecting your Canada Pension Plan (CPP). The good news is that receiving your CPP retirement pension doesn't require you to stop working. The rules and benefits, however, vary depending on your age and are essential to understand for effective retirement planning.
Mandatory contributions for ages 60–65
Between the ages of 60 and 65, collecting your CPP pension while still employed means that you and your employer must continue to make mandatory CPP contributions. This is not optional for employees in this age bracket. These ongoing contributions do not increase your base CPP amount, but instead go towards earning you a Post-Retirement Benefit (PRB).
The PRB is a lifetime monthly benefit that will be added to your regular CPP retirement pension. Each year you work and contribute, a new PRB is earned, further increasing your total pension income for the rest of your life. This is a significant consideration, as it offers a guaranteed, indexed increase to your retirement cash flow.
Optional contributions for ages 65–70
Once you reach age 65, your options change. If you continue working while receiving your CPP pension, contributing is no longer mandatory. You can choose whether or not to continue contributing. To stop, you must complete Canada Revenue Agency (CRA) Form CPT30, 'Election to stop contributing to the Canada Pension Plan,' and provide a copy to your employer.
If you choose to continue contributing past 65, you will continue to earn additional PRBs. This can be a financially rewarding decision, as the rate of increase for delaying your benefits past age 65 is higher than the reduction for taking them early. At age 70, all CPP contributions cease, even if you are still working.
Calculating the reduced early pension
It's important to be aware of the trade-offs when starting CPP early. Taking your pension at age 60 results in a permanent reduction of your monthly benefit amount. The reduction is 0.6% for each month before your 65th birthday, for a total of 36% if you start at age 60. For example, a person with a $1,000 benefit at age 65 would see their payment reduced to $640 if they start at 60.
On the other hand, delaying your pension past age 65 and up to age 70 can significantly increase your monthly payment. The increase is 0.7% for each month you delay past 65, or 8.4% annually, up to a maximum of 42% more at age 70.
Comparing early collection scenarios
Deciding when to take your CPP while still working involves balancing your immediate need for income against a larger future payout. The following table provides a simplified comparison of three different scenarios, assuming a base pension amount at age 65.
| Scenario | Age 60 (Still Working) | Age 65 (Still Working) | Age 70 (Delayed) |
|---|---|---|---|
| Pension Start Date | Age 60 | Age 65 | Age 70 |
| Mandatory Contributions | Yes (until 65) | No (optional) | No |
| Initial Pension Amount | Reduced by 36% | Full Amount | Increased by 42% |
| Additional PRB | Yes, from contributions | Yes, from optional contributions | N/A |
| Key Consideration | Trade-off between immediate income and lower starting base. | Full base pension with potential for additional PRB growth. | Maximum possible monthly payment for longevity protection. |
Tax implications of collecting early
Your CPP pension is considered taxable income. When you collect while still working, your combined income from your employment and your CPP pension may place you in a higher tax bracket. It is wise to have income tax deducted from your CPP payments to avoid a large tax bill at the end of the year.
Additionally, high net income could trigger the Old Age Security (OAS) clawback, a repayment of OAS benefits if your income exceeds a certain threshold. Taking a smaller CPP payment at age 60 could help keep your total income below this threshold, protecting your OAS benefit.
The Post-Retirement Benefit (PRB) explained
The PRB is the main incentive for continuing to contribute to the CPP after you start collecting your pension. It's a key feature that has made working while receiving CPP more appealing since its introduction in 2012. Each year you contribute, you earn a PRB that is automatically added to your monthly pension payment the following year. This happens even if you are already receiving the maximum CPP retirement pension.
For example, a maximum CPP contributor who works for five years between 60 and 65 will earn five separate PRBs that are added to their pension. The amount of each PRB depends on your earnings for that year. These benefits are also indexed to inflation, protecting your purchasing power over time.
For more detailed information on the Post-Retirement Benefit, you can visit the official Government of Canada website: Canada Pension Plan Post-Retirement Benefit (PRB).
Making the right choice for you
Deciding when to take your CPP is a personal financial decision. Collecting at 60 and continuing to work provides immediate income while also building a larger, guaranteed lifetime pension through the PRB. The downside is a permanently reduced base amount and the mandatory contributions while under 65. Waiting until 65 or even 70, if financially possible, can result in a significantly larger monthly payment later in life.
Your individual circumstances, including your financial needs, health, life expectancy, and other retirement savings, should guide your decision. Consulting with a financial advisor can help clarify which approach best aligns with your goals.
