Canada Pension Plan

Overview

The Canada Pension Plan (CPP) is a contributory, earnings-related social insurance program. It forms one of the two major components of Canada's retirement income system, with the other component being the Old Age Security (OAS). The intention is to make it mandatory for all Canadians with any form of employment income to contribute a prescribed portion of their gross income into a pension plan to be administered on behalf of all participating provinces by the federal government. Historical contribution rates can be found here. As of August 2005, the prescribed contribution rate is 4.95% of gross income. The employer matches the employee contribution as well, effectively doubling the contributions of the employee. Then, when the contributor reaches 65, the CPP would provide a certain level of pension benefit payments to the contributor, based on how much that person contributed and whether that person receives income from a Registered Retirement Income Fund. CPP benefit payments to the contributor would occur monthly until the death of the contributor. CPP benefit payments are taxable. The CPP contributions also goes towards funding disability pensions, and survivor benefits. The CPP was structured as a "pay-as-you-go" plan, as opposed to a "fully funded" plan. In other words, sustainability of the CPP relied on overall CPP contributions from all Canadians being greater than total CPP benefit payments paid out.

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