How CPP payouts work when you already have a pension

Giselle is worried about how her CPP may be affected when she starts to receive her pension and withdraw from her RRSP

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Q: I am still working at age 63 and getting CPP. I will have a pension when I retire and I have an RRSP.

When I retire at age 70, I believe I will have to start withdraw from my RRSP.

Because I already have a pension, will my monthly CPP payout be reduced?


A: I find that a lot of Canadians are confused when it comes to their retirement income, Gisele. So you are definitely not alone. I’m going to try to clarify your concerns.

First, I’ll comment on receiving the Canada Pension Plan (CPP) before you retire, as this is an area that most people don’t understand. If you start your CPP retirement pension between age 60 and 65–as you did–you have to continue to contribute to the CPP while you are working. If you are between age 65 and 70, you have the option to opt out of contributing or you can continue to contribute. Contributions made after you begin your CPP will enhance your monthly pension through the Post-Retirement Benefit (PRB).

Continuing to contribute may provide a good “return on investment” in particular for conservative investors, those who expect a long life expectancy or married Canadians whose spouse is younger or who won’t receive the full CPP retirement pension themselves.

You asked about Registered Retirement Savings Plan (RRSP) withdrawals and to clarify, you don’t have to start taking withdrawals simply because you retire, Gisele. You may have no choice if you need the money, but RRSP withdrawals can happen as early as you want or as late as the year after you turn 71.

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By the end of the year you turn 71, you need to either convert your RRSP to a Registered Retirement Income Fund (RRIF) or purchase an annuity (a monthly payment from an insurance company in exchange for your RRSP savings). Payments must then start by the year you turn 72 at the latest. Most people convert their RRSP to a RRIF and then start to take at least the minimum required withdrawal mandated by the federal government (based on your age) or more if needed for cash flow.

CPP is not reduced because you have RRSP or pension income. CPP is what it is based on your entitlement from your historical contributions. I suppose you could say that it is indirectly reduced by income tax payable on your pension, so planning when to take CPP, RRSP/RRIF withdrawals and company pensions should be considered so you can pay the least tax possible. Nonetheless, Gisele, your gross, pre-tax CPP pension is predetermined and not impacted by other income sources thereafter.

On the other hand, the Old Age Security (OAS) pension may be reduced based on other sources of income. If your net income on line 236 of your 2015 income tax return exceeds $72,809, your OAS pension will be reduced by 15 cents on every excess dollar for the July 2016 through June 2017 payment period.

A common area of confusion with pensions is how CPP integrates with a company pension, Gisele. It’s important to understand that when you take your company pension has no impact on your CPP entitlement. And when you take your CPP has no impact on your company pension entitlement.

Pension plans may take into account a notional integration of the CPP if you retire before age 65. Some pensions calculate your monthly pension payment so that you get a higher pension until age 65 and then a lower pension after age 65. The higher payment before age 65 is based on the assumption that age 65 is the typical CPP/OAS date and that pensioners may need more pension income before age 65 and less afterwards. But your pension plan and CPP don’t talk to each other and modify your payments – they are independent.

Hopefully this provides some clarity for you, Giselle. It’s important to understand your various sources of retirement income, the way they work, how they are taxed, how much you need and so on. A lot of people are ostriches when it comes to retirement planning, but whether we like it or not, retirement will eventually be upon us all.

Ask a Planner: Leave your question for Jason Heath »

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

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6 comments on “How CPP payouts work when you already have a pension

  1. Can an canadian who has worked/lived in canada for 25 years, worked/lived UK for 15 years and now works/lives in France, collect pension from all three countries?


  2. I had a major shock when I was informed after-the-fact that Federal government employees don’t get the benefit of receiving CPP. At age of 65, a Fed govt employee’s regular pension is reduced by the amount of the CPP benefit, so no net increase. A Fed govt employee still has the option of taking the CPP earlier (e.g., 60 years old) or later, but at age 65 their regular pension will be reduced by the amount of eligible CPP. I was a mid-career Fed govt employee so not a full pension, but feel that Fed govt employees should not be paying into CPP and/or should get a refund!


  3. CPP does reduce a teacher’s pension – it’s blended with CPP and when CPP starts – it reduces the teacher’s pension – so this answer is not complete.


  4. Much like eeehhhaaa, I was very surprised to know that as a federal employee, I had what is called a “stacked” pension, unlike politicians and judges, who get their CPP intact on top of their pension. What I don’t understand is what happens to that part of the CPP I earned as a non-federal employee. I started working for the government late, as I embarked on a second career. Therefore the CPP contributions I made till then had nothing to do with my federal job. Will my federal pension get dinged by the entire amount of CPP when I start receiving it at 65, or will there be a portion they can’t “take away” because I earned it in another job?


  5. Hi I took the pick of those offered that paid highest before 65 and then it drops more than half. It was based on the amount the employer and employer put in. Once you pick they will not allow change. At first I had chose the one that paid a couple of hundred less per month but for life. It needs a lot of thought. Second guessing I think the pick that stayed constant over life would have been better. The present after tax is $2300.00 per month. I am finding its high when I talk to some but low compared to others. Government pensions pay well but becomes a burden on our future taxes. (I think) Since on pension at tax time I have paid more rather than less thus far since 2011. Tax man is out for anything he or she can get.


    • I’m not sure these comments are correct. My corporate pension had a convoluted formula that tried to duplicate an approximation of what CPP should pay- essentially max CPP. This approximation was the amount my pension was reduced at age 65 – I.e. Before age 65 the company paid what CPP was expected to pay after 65 so my to oral income was the same from retirement at 55 all the way. But the key point of the article- other pensions can make a guess but they do not get to know your CPP; they are forbidden from deducting that amount; typically the pension value is fixed except for inflation so if CPP goes up you get the extra it is not subtracted from your pension. I don’t know if there’s an exception for federal civil servants but thems the rules for everyone else; typical pension is something like “we will pay a pension of $X until age 65 an $(X-10,000) after that”


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