LFS REPORT

Are you receiving as much CPP as you should?

Are you receiving as much CPP as you should? Canadians should review the amounts they’re receiving from the Canada Pension Plan to ensure they’re collecting as much they’re entitled to.

Despite a long history of steady employment, you may be disappointed to discover that your CPP benefit isn’t quite as much as you had been expecting, largely because extra time in school, travelling, or perhaps those last few low-income part time years, have clipped your entitlement.

The actual amount you'll eventually receive from CPP depends on your time in the plan and your earnings going back to Jan. 1, 1966, or when you reached age 18, whichever was later.

The good news is that you don't actually need to contribute to the CPP every year from age 18 to age 65 to get a full CPP pension. That’s because some of your lowest earning years are ignored when the calculation is made.

That “general drop-out provision,” as it's called, used to be 15 per cent of your contributory period, but it increased to 16 per cent last year and will be increasing again in 2014 to 17 per cent.

As of next year, that means that you’ll be able to drop out your lowest 7.14 years if you apply for your CPP retirement pension to begin at age 60, or your lowest eight years if you apply at age 65.

But, in some cases, that meant there are just too many low-income years to work with, suggesting that they would possibly be better off starting to collect once leaving their regular full time job, rather than adding those low-earning part time employment years to the end of their contributory period.

What’s worse, some people may not get credited with those final couple of years to begin with. That’s because CPP’s record of a person’s pensionable earnings originates from the Canada Revenue Agency, and there’s always a time lag until tax returns are submitted and processed.

At one time, through an annual review process, all benefits approved the previous year would be recalculated once the appropriate earnings and contributions were processed by CRA using the updated tax records from that year. It seems this recalculation doesn't always happen unless you request it — and even then it might not happen.

Although the dollar amounts may not be that large — the average adjustment is about $10 to $15 a month — any subsequent boost will compound over time since CPP pensions are indexed to inflation.

Adding in the last year or two of earnings and contributions might not increase your benefit calculation — if you’re already at the maximum, for instance, there’s nowhere to go — but it certainly makes sense to check.

If you started receiving CPP in 2011 or earlier and were working in the year that your benefit started or the previous year but haven't received a retroactive adjustment to your benefit amount since it first started, now may be a good time to reassess your circumstances.

To do so, call Service Canada at 1-800-277-9914 to ask them to verify that your benefit calculation includes those last two years of earnings and contributions.

The only downside to calling without knowing for sure whether you’re entitled to any adjustment and how much that adjustment should be is that you might be stonewalled.

Callers may be told: “Of course you’re receiving what you’re entitled to. The computer doesn’t make mistakes.” It sometimes requires persistence and a second or third attempt before the agency representative agrees that a retroactive adjustment is due.

Langlois Financial Services works with some of the best tax professionals in the field to ensure that your retirement plan is set up to provide you with the maximum after tax income when you stop working. Whenever you go through a major life change, whether changing jobs, having a child, getting married or retiring be sure to meet with one of our experts to ensure you make the right financial decisions for you.