So, if your income is high for 2020 and is expected to be lower in 2021, you may want to delay applying for your OAS pension. As mentioned, it will increase while you wait, by 0.6% per month of deferral plus a quarterly inflation adjustment.
If you are already entitled to the maximum CPP retirement pension, based on your contribution history, you may want to consider applying for the CPP. The reason is: Your salary continuance will continue to have CPP contributions deducted from it, but you will not receive any additional pension entitlement for making those contributions.
However, if you begin your CPP retirement pension, your additional contributions will result in a post-retirement benefit (PRB), and that will increase your pension in subsequent years. You can confirm your CPP entitlement by contacting Service Canada.
Starting your OAS and CPP needs to be weighed with other considerations, like whether you need additional cash flow, or how much lower your income and resulting tax rate will be in 2021 and future years.
What about EI and your termination package?
Furthermore, pension income from employment is considered earnings for EI benefit purposes and may reduce your EI entitlement. Employer defined benefit (DB) or defined contribution (DC) pensions and CPP retirement pensions will reduce EI regular benefits payable if they exceed an earnings threshold of 90% of the weekly insurable earnings used to calculate your EI benefit.
OAS is an age-based pension, not tied to employment. So, receiving your OAS pension will not impact your EI entitlement. Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) withdrawals, although they originated from employment earnings and contributions, are not considered “earnings” against EI. Other income sources or investment account withdrawals like from a Tax-Free Savings Account (TFSA) or non-registered investment account are not considered earnings for EI purposes either.
Retirement, pensions and taxes
All that said, when you file your 2021 tax return, if your net income on line 23400 exceeds a certain threshold – $67,750 for 2020 and likely to be adjusted for inflation for 2021 – you may also be subject to a reduction in your EI. An EI recipient may have to repay 30% of their income in excess of the threshold up to a maximum of 100% of their benefits paid.
In summary, there are income tax, pension enhancement, and benefit entitlement considerations to consider before you decide to apply for a pension. Other important factors for you are determining if you need to look for a new job and continue to work in order to ensure your money outlasts you in retirement. If you are financially able to retire, determining the right pension and asset drawdown strategy can minimize your lifetime tax, maximize your retirement spending, and result in a larger estate for your beneficiaries.