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CPP vs. OAS: Understanding the Differences

It’s very important to understand pensions and other retirement benefits as you approach your retirement age. Retirees in Canada want to understand the differences between the OAS and CPP pensions.

How much can you get in pension or retirement benefits? When should you start getting these benefits? Or you should start to look for the best debt consolidation by NorthnLoans as an additional money source? CPP and OAS are the two main types of Canada’s retirement plans. Keep on reading to find out the difference and make your choice.

What Is a CPP?

Let’s start with the definition. The Canada Pension Plan, or CPP, is a retirement pension in the form of monthly payments that are given to retirees. These benefits are taxable and replace part of the person’s income.

The CPP retirement pension can be received for the entire life of the retiree if he or she qualifies. What should you do to qualify for this pension? You need to be over 60 years old and have made at least one valid contribution to this plan.
The contributions made from your work in Canada are considered valid. Besides, getting credits from a former common-law partner or former spouse can also qualify as valid contributions.

CPP Beneficiaries and Benefits

The Government of Canada issued an annual report of the Canada Pension Plan for the fiscal year 2019 to 2020. Due to the fact that the Canadian population is aging, the number of consumers getting CPP benefits has been boosted over the past decade.

Expenses on benefits have increased as well.

The beneficiaries were 5.9 million in the fiscal year 2018-2019. This number increased to 6.1 million in the fiscal year 2019 to 2020. The benefit expenditures for the fiscal year 2018 to 2019 were $46.5 billion compared to $48.9 billion for the fiscal year 2019 to 2020.

What Is Your CPP Benefit?

How can you calculate this benefit, and how much can you obtain? Several factors influence the calculation of the amount a person can receive in the form of CPP. It depends on the number of contributions you have made in your life.

Besides, the number of periods of disability, unemployment, and low income may influence the sum you qualify for. The value of monthly CPP payments is calculated individually. Nowadays, the average sum paid as CPP benefits is $779.32 as of 2022.
The maximum CPP payment for a 65-year-old retiree is $1,253.59 a month. You may use the Canadian Pension Plan Calculator to define your retirement benefits.

Steps to Apply for CPP

Keep in mind that these payments aren’t automatic, so you need to apply for them. It is better to apply for CPP before you retire so that you start receiving benefits once you retire.

Step 1: Ensure you are 60 or older and have made at least one valid contribution to CPP.
Step 2: Define the start date when you wish to start getting CPP benefits. You can choose to start getting these benefits once you turn 60, once you turn 65, or on any other date of your choice.
Step 3: Select your application format. You may submit a request on paper or on the web.
Step 4: Check and submit your request for CPP.
Step 5: Review the status of your request to define eligibility.

What Is an OAS?

The Old Age Security (OAS) is a type of pension with monthly payments for retirees who are 65 years of age and older. Service Canada may automatically enroll individuals for these retirement benefits.

In some cases, it is necessary to apply on your own. Service Canada will inform you if you have been enrolled. Generally, you don’t need to submit a request to obtain these payments.
These retirement benefits can be obtained automatically. If the government of Canada doesn’t have enough data for automatic enrollment, an individual may need to apply in person.

What Are Your OAS Benefits?

How much can you receive in OAS benefits? This sum depends on several factors, including how long a person lived in Canada and their income. Remember that OAS payments are taxable. You may also obtain other benefits apart from OAS.
For instance, a Guaranteed Income Supplement can be offered to 65 and older individuals living in Canada and receiving the OAS pension.

Should You Delay Getting CPP or OAS?

Sometimes, it may be wise to delay OAS or CPP. Are you ready to find out when and why? You may start getting CPP benefits when you turn 60 and as late as 70. Canadians claim CPP benefits when they are 65 on average though some people wish to start getting these benefits earlier.

A trick here is that the amount of CPP payments will grow together with your age. Hence, the later you claim for your CPP payments, the larger the monthly payments you will get. When you agree to start getting them at age 65, the benefits will increase by 0.7% every month.

The maximum boost will be 42 percent. Speaking of OAS payments, they can be delayed for up to 5 years after age 65. Similarly to CPP benefits, OAS payments will grow bigger if you start getting them later. However, you shouldn’t delay these benefits after the age of 70 as you will lose out on funds.

Will CPP and OAS Benefits Be Enough for Retirement?

We all want a comfortable retirement and enough money to finance our needs. However, relying on OAS and CPP benefits may not be enough to fund your life in your golden years. These pension plans offer supplemental financial assistance and a partial sum of income to help retirees fund their needs.

Moreover, the amount you need each month depends on your level of savings as well as your lifestyle. Combining your CPP and OAS payments might be enough if you have built a sufficient savings fund and have a low cost of living.

The Bottom Line

Summing up, you should decide for yourself when you want to start getting your CPP benefits and apply in advance. In most cases, there is no need to apply for OAS payments, as retirees are enrolled automatically. Deciding when you should get OAS or CPP depends on your current and future tax brackets, life expectancy, and current versus future income needs.