Raise your hand if you’ve spent any time thinking about what kind of money you’re likely to get from the government when you retire.
Now raise your hand if you don’t really know how much money that will be, or how to figure it out.
…twenty-seven…twenty-eight…twenty-nine…almost everyone, then.
A brief primer on the Canada Pension Plan, for those of you who – like so, so many Canadians – don’t spend hours at a time lurking around government websites for fun: created in 1966, the CPP is an earnings-based defined benefit plan that guarantees a fixed percentage of employment earnings (below a maximum cap) averaged over your working life and payable in retirement, starting as early as age 60 or as late as age 70.
Aside: it’s become quite fashionable to poo-poo the Canada Pension Plan as an unsustainable relic of Pearson-era governmental largesse, but ignoring it as a source of potential income in retirement – unless it spurs you on to save enough to replace it yourself without eating tunafish out of a can for the rest of your life – is foolish. So cut it out.
If you wait until after age 65 to apply for your pension, the annual amount you’re entitled to receive is increased. If you apply for CPP before age 65, the annual amount is decreased. That’s a gross oversimplification, and my apologies to those of you in the room for whom this is old news.
Your Unique CPP Calculation
I like to think of the CPP calculation as a recipe that never comes out the same way twice, because the ingredients – while similar – are always slightly different. The amount you make every year, the time you took away from work to raise young children, the age you stop working full time, when you decide you take your pension, and whether you take part time work for a while in retirement or sit on the porch reading books all day are all ingredients that go into your CPP mix.
The bad news is that you need a very (and I mean VERY) firm grasp on the various calculations that make up your entitlement in order to predict what amount of money will hit your bank account when you claim your pension.
The good news is that the government is doing that calculation for you on an ongoing basis (for some of you the fact that it’s all in the government’s hands is decidedly not good news, but we can’t all be survivalists, wrestling bears and growing great big bushy beards while living off the land in the wilds of Alberta). This means that – for good or ill – you can find out how much money the government would give you today, if you were already eligible to receive CPP.
Your Statement of Contributions
This information is available on your Canada Pension Plan Statement of Contribution (which those in the know refer to as “The SOC”, except whenever I say “The SOC”, I feel like I’m in a spy-themed episode of Sesame Street).
You can get your SOC (snigger) by logging into your My Service Canada Account, which – if you’ve had an active Employment Insurance claim recently, or bank online with BMO, TD Canada Trust, Scotiabank, or Choice Rewards MasterCard – is immediate. If you’re one of the poor chumps who bank with CIBC, or haven’t claimed EI in the past few years, you’ll have to register for a GCKey instead.
If you’re more into transmitting your personal information by mail instead of electrons, you can request a paper copy of your SOC (hee!) sent to you by calling 877.454.4051, or by printing out an Application for a Statement of Contributions from the Service Canada Website.
Now, a caveat: while the information available to you on your CPP Statement of Contributions is technically accurate, it isn’t practically accurate. The payment listed on the statement is from the standard recipe, right off of the box, and – while an accurate reflection of your actual pensionable earnings – doesn’t factor in any of the handful of variables that might affect the amount you’re entitled to receive.
The statement also assumes that you’re 65 today, which means that later years of higher or lower income that will affect the average lifetime earnings upon which your pension is based aren’t taken into consideration.
The Canadian Retirement Income Calculator is a great place to start if you want to explore how changes to your future earnings or the date you start receiving your pension might affect the amount of money you receive, but (another caveat), it hasn’t been updated to include the new Child Rearing Drop Out Provision.
To sum up: the Statement of Contributions is more accurate than just guessing, and less accurate than the real calculation. Helpful, eh?
Sandi Martin is an ex-banker who left the dark side to start Spring Personal Finance, a one woman fee only financial planning practice based in Gravenhurst, Ontario. She and her husband have three kids under five, none of whom are learning the words to “Fidelity Fiduciary Bank” quickly enough. She takes her clients seriously, but not much else.