Pension plan

These are the best pension plans in Canada. They include the Canada Pension Plan (CPP), Old Age Security (OAS), and Guaranteed Income Supplement (GIS). Others include the Defined Contribution Pension Plan (DCPP), Registered Retirement Savings Plan (RRSP). There are also Tax-Free Savings Accounts (TFSA) and First Home Savings Accounts (FHSA).

Canada Pension Plan (CPP)

The Canada Pension Plan (CPP) is government-administered in Canada. It is a mandatory, contributory plan that provides retirement, disability, survivor, and death benefits to eligible contributors and their families.

In Quebec, the plan is called the QPP (Quebec Pension Plan) and has a slightly higher rate.

It requires all employed Canadians aged 18 and over to contribute a portion of their earnings. If you qualify for retirement age, you’ll get the CPP retirement pension for the rest of your life. Your CPP pension amount is based on how much you contributed and how long you paid CPP.

Canadians must work and contribute to CPP for at least 39 years. You will still receive the benefit if you haven’t worked for 39 years. However, it will be a partial amount and not the maximum.

To learn more, visit the Government of Canada’s Canada Pension Plan Overview

To qualify for CPP, you must apply for it. It does not start automatically.

  • You must have made valid contributions to the CPP.
  • You must be at least 60 years old to start your retirement pension. Alternatively, you can start it as late as 70.
  • You must have a valid Social Insurance Number (SIN).
  • You must have filed your income taxes for the last tax year.

How much do you get?
To determine the exact amount of CPP you’ll receive, you’ll need to consider several factors:

  • Your Contribution History: The more you’ve contributed to the CPP over your working years, the higher your potential benefit.
  • Your Age at Retirement: The age at which you start receiving your CPP benefits affects the amount you receive.
  • Current CPP Rules: The rules and calculations for CPP benefits can change over time.

Consider this example for your CPP contribution;
Annual income: $100,000 / year
CPP contribution for the First $3,500 income = $0
CPP contribution for Next, $65,000 income (5.95% as of 2023) = $3,867.5
CPP contribution for Next, $4,700 i.e. Second CPP (4%) = $188

Max CPP contribution/year = $4,055.50 (employer also contributes the same amount)
The self-employed rate is 11.9% as of 2023

Disability Benefits:

  • You must have filed your income taxes for the last tax year.
  • You must have a severe and prolonged physical or mental disability that prevents you from working at any job regularly.
  • You must have made valid contributions to the CPP in four of the last six years. Alternatively, contribute for at least 25 years, including three of the previous six years.
  • You must have a valid SIN.
  • You should not have reached the age of 65. If you are already 65 or older, you are not eligible for CPP disability benefits. Typically, you would transition to the retirement pension.

Survivor’s Benefits:

  • You must be a deceased CPP contributor’s spouse or common-law partner to qualify for survivor’s benefits.
  • You can qualify for a survivor’s pension if you are a surviving spouse or common-law partner. You must have been living with the deceased contributor at their death.
  • You can also qualify if you were separated for reasons other than a breakdown in the relationship.
  • Dependent children of the deceased contributor may also be eligible for survivor’s benefits.

Old Age Security (OAS)

Canada’s Old Age Security (OAS) program is a government-funded social assistance program. It provides financial assistance to seniors 65 and older. However, the amount of an OAS pension depends on the years lived in Canada after age 18. In addition, the pension is based on marital status and total income.

To learn more, visit the Old Age Security program

To qualify for OAS, you will be automatically enrolled. If not, then apply for an Old Age Security pension.

  • Be 65 years or older.
  • Be a legal resident at the time of your application approval process.
  • You have lived in Canada for at least 10 years after age 18.
  • You lived in Canada for at least 20 years after age 18 if you decided to stay outside Canada.

Guaranteed Income Supplement (GIS)

In addition to the OAS pension, low-income seniors are eligible for the Guaranteed Income Supplement (GIS). The GIS is a non-taxable monthly aid that provides extra financial assistance to those with little or no income. The eligibility and payment amount for GIS are determined based on your income and marital status.

To learn more, visit the Guaranteed Income Supplement program

To qualify for GIS, apply for GIS when you apply for an OAS pension.

  • Be 65 years or older.
  • You live in Canada.
  • You get an OAS pension.
  • Your total income is below the annual GIS threshold.

Guaranteed Annual Income System (GAINS)

The Guaranteed Annual Income System (GAINS) is a provincial program in Ontario, Canada. GAINS provides extra financial support to low-income seniors. These seniors get the Old Age Security (OAS) pension and the Guaranteed Income Supplement (GIS) from the federal government. GAINS is specific to Ontario and operates alongside the federal OAS and GIS programs.

To learn more, visit the Guaranteed Annual Income System program

To qualify for GAINS; You don’t have to apply if you get an OAS pension & GIS payment.

  • Be 65 years or older.
  • You have lived in Ontario for the past 12 years, a full 20 years since you were 18.
  • A Canadian resident for 10 years or more
  • You get an OAS pension and GIS payments.
  • Total private income (Private Pension, Canada Pension Plan, Bank Interest, etc.) for a single senior $1992 and senior couple $3984.

Defined Contribution Pension Plan (DCPP)

A Defined Contribution Pension Plan (DCPP) is a retirement savings plan. It is unsecured and employer-sponsored. It is commonly used to help employees save for retirement. In a DCPP, the employer and the employee contribute to the plan. The plan’s investment performance determines the ultimate retirement advantage.

Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan (RRSP) is Canada’s tax-advantaged, government-sponsored retirement savings and investment account. RRSPS are designed to encourage individuals to save for retirement by offering tax benefits. Financial institutions manage these plans and can hold various investments, like stocks, bonds, mutual funds, and other assets. Here are the key features and aspects of RRSPS:

Contributions: Individuals can contribute to an RRSP with pre-tax income. This means that the contributions are tax-deductible. This can reduce their annual taxable income. The annual contribution limit is prone to change and is set by the Canadian government.

Investment Options: RRSPS are not savings accounts; they are investment accounts. You can hold various investments within your RRSP. These include cash, stocks, bonds, mutual funds, exchange-traded funds (ETFs), and GICs (Guaranteed Investment Certificates).

Tax-Deferred Growth: Income earned within an RRSP, such as interest, dividends, and capital gains, is not taxed. This tax deferral applies while the income remains in the plan.

Tax Deduction: Contributions made to an RRSP are tax-deductible. This means they can reduce your taxable income for the year they are made. The tax deduction can result in a tax refund when you file your annual tax return.

Spousal RRSP: Higher-earning spouses or common-law partners can contribute to an RRSP in the name of their lower-earning spouse. This can equalize retirement income and reduce the tax burden on the higher-earning spouse.

Withdrawals: While RRSPS are primarily intended for retirement savings, you can withdraw from your RRSP anytime. However, withdrawals are generally taxable and reduce your future contribution room. Specific programs like the Home Buyers’ Plan (HBP) and the Lifelong Learning Plan (LLP) allow you to make tax-free withdrawals.

Maturity: You must convert your RRSP into a retirement income choice. This must be done by the end of the calendar year you turn 71.

Contribution Deadline: The deadline to contribute to your RRSP for a specific tax year is usually within the first 60 days of the following year. You have until this time to contribute. This period is often called the “RRSP season.” The deadline is typically within the first 60 days of the following year.

Tax-Free Savings Account (TFSA)

TFSA is a tax shelter account for individuals who are 18 and older. They must have a valid Social Insurance Number (SIN). This account allows them to set aside money tax-free for life. There are limitations on TFSA deposits. They can’t exceed a certain annual limit. There is no tax deduction advantage like an RRSP.

As a general rule, TFSAs are great for short-term savings, and they’re flexible. When you’re investing in a TFSA, any interest, gains, and dividends are tax-free. That means that when you decide to withdraw money from your TFSA, at any point, you are not taxed.

December is the Best time to withdraw from the TFSA account, and January is the worst. This helps to reclaim the contribution room quickly without a longer wait time.

Employment-Based pension plan

An employer-sponsored pension plan is a registered plan that provides income during your retirement. Under this plan, your employer or you and your employer regularly contribute money.

Two main types of employer pension plans:

  • In a defined-contribution pension plan, you know how much you will pay into the plan. However, you do not know how much you will receive upon retirement.
  • In a defined advantage pension plan, your employer promises to pay you a regular income after you retire.

Other Investment

Other investments include accounts, savings, and assets, such as housing, that can help you prepare for retirement.