Q: Can you work and still collect OAS and CPP? I make around $49,000 with my salary and pension from a previous employer.
A: By the time you’re in your late 50s, Barbara, you should be starting to think about your government pensions. Canada has two—the Canada Pension Plan (CPP) and the Old Age Security (OAS). The CPP is based on past contributions to the plan, while OAS is simply based on your years of residency in Canada.
You can start your CPP retirement pension as early as age 60, but the earlier you apply, the lower the pension you will receive. Early application before 65 will decrease your benefit by 0.58% per month in 2015 and 0.6% per month starting in 2016. You can wait as late as age 70 and receive a higher pension for every month after the age of 65 that you wait. Your pension increases by 0.7% per month after 65.
If you apply to begin your CPP when you are between the age of 60 and 65 and you are still working, you must continue to contribute to the CPP. Your contributions will increase your pension entitlement based on the Post-Retirement Benefit (PRB). The PRB can increase your CPP even if you are already receiving the maximum, by an amount equal to 1/40th of the maximum CPP per year of contributions. For 2015, this means up to $2,480 in contributions for an additional PRB benefit of up to $320 per year for life, indexed to inflation.
So you can have your cake and eat it too, Barbara, by starting your CPP while you are working. This might be appropriate if you need the cash flow to make ends meet or if your income is lower than it’s likely to be later when you start company pensions or RRSP withdrawals.
Once you’re 65, if you’re still working and receiving CPP, you may opt to stop contributing. This might make sense if you’re self-employed and making both the employee and employer contributions to the CPP, if you think you are likely to have a short life expectancy or if you have a high risk tolerance and expected return on other investments you could make instead.
If you’re over the age of 65, you can actually request a payment of up to 11 months of retroactive CPP going back to the month after your 65th birthday at the earliest.
Until 2013, the OAS pension began at age 65 and delaying application meant lost entitlement, though Service Canada allows you to get back up to 11 months of previous payments.
Starting in July 2013, Canadians have been given the choice to delay their OAS pension start date without losing benefits, Barbara. Benefits will increase by 0.6% per month that you delay receipt. OAS is a non-contributory pension, meaning no payroll deductions if you’re still working like with CPP.
If you are still working and your income exceeds $72,809, which yours doesn’t, your OAS is subject to a clawback recovery tax of 15%. If you’re still working, your income is high, or at least higher than it will be in retirement and you don’t need the pension for cash flow, it may make sense to delay receipt to as late as age 70.
Beginning in April 2023, the starting age for OAS pensions will gradually increase from age 65 to age 67. The period during which you can defer and increase your pension will also be extended gradually from age 70 to 72.
Starting your CPP or OAS pensions earlier rather than later may help with cash flow, debt repayment or RRSP contributions. It might be appropriate if your income will be higher in later years or if you expect a short life expectancy. The math behind early application is complex and more art than science, Barbara. Suffice to say that applying for CPP or OAS while you’re still working is possible, but clearly a personal decision with no one-size-fits-all answer.
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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.