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What Is the Canada Pension Plan (CPP)?

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The Canada Pension Plan is one of three levels of the Canadian government‘s retirement income system, which is responsible for paying retirement or disability benefits. The Canada Pension Plan was established in 1965 to provide a basic benefits package for retirees and disabled contributors. If the recipient dies, survivors receive the plan’s provided benefits.

Understanding the Canada Pension Plan

Nearly all individuals who work inside of Canada are eligible to contribute toward and receive benefits from the Canada Pension Plan, or CPP. The CPP is a deferred income retirement vehicle that has been in place since 1965, when it was introduced as a complement to Old Age Security.

Standard benefits are reserved for those who reach the full retirement age of 65. However, there are provisions for people between the ages of 60 to 65, those with a chronic disability, and survivor benefits for those who lost someone before they reached retirement age.

Taxes

In every province except Quebec, which has its own Quebec Pension Plan (QPP), the CPP taxes wages in a manner that is split between the employer and the employee, although the net effect is to reduce employee wages by the combined taxable amount. Taxes on wages begin at age 18 and end at age 65 unless the individual worker has already begun receiving benefits or has died.1 In general, CPP tax rates and income thresholds are lower than those of the U.S.’s Social Security system; corresponding benefits also tend to be much lower.3

Those taxed Canadian wages are placed into a trust fund managed by the CPP Investment Board, which in turn invests the funds in stocks, bonds, and other assets. As of late 2020, these assets included private and public equity holdings, as well as real estate.

When individuals reach retirement age, their benefits are determined based on the number of years they contributed the required minimum amounts. To qualify for the maximum benefit, they must not only have contributed to CPP for 40 years but also have contributed the sufficient amount in each of those years.

The Canada Pension Plan pays a monthly amount, which is designed to replace about 25 percent of the contributor’s earnings on which initial contributions were based.1 It is indexed to the Consumer Price Index. Several rules are governing the amount an individual will receive upon retirement or disability. This amount is based on the person’s age and how much they contributed to CPP while working.1 CPP benefits are considered taxable income. This is why some households elect to share the income, which can reduce taxes.

How to Apply

CPP benefits are not sent to anyone, even those with eligibility, until an application to receive them is filled out and submitted. If an application is denied, an appeal can be made to the Canada Pension Appeals Board.7 Those living in Canada but residing in Quebec are not eligible for CPP benefits since the provincial government of Quebec has opted out of the program. Instead, Quebec offers the Quebec Pension Plan.

Before applying, Canadian citizens need to have their Social Insurance Number (SIN) and banking information close at hand. If you wish to take advantage of pension sharing, you must have your spouse or common-law partner’s SIN as well. You must also provide your children’s SINs and proofs of birth if you plan to request the child-rearing provision on your application.9 Don’t apply until you’re sure that you’re ready to start soon. The maximum time you can apply before the pension starts is 12 months.

To apply for the Canada Pension Plan, you can complete the application online unless you fall into one of the categories that require you to fill out a paper application and either mail it in or bring it to the Service Canada Centre closest to you, with various other documents, as specified by the application information.

If you do fill it out online, there are two steps to the process:

  1. Complete your application online and submit it electronically.
  2. Print out the signature page of the application, sign it, and mail it to Service Canada.

Recent Reforms to the Canada Pension Plan

The Trudeau Government and its provincial governments have worked to improve the Canada Pension Plan to provide working Canadians with more income in retirement.12 These changes were principally motivated by the declining share of the workforce covered by an employer-defined-benefit pension plan, which had fallen from 48% of men in 1971 to 25 percent by 2011. 

Additional motivation was provided by the Ontario provincial government, which launched the Ontario Retirement Pension Plan, a supplementary provincial pension plan intended to begin in 2018.

These enhancements to the Canada Pension Plan will be fully funded, meaning that benefits will slowly accrue each year as individuals work and make contributions. Additionally, the enhancement of the Canada Pension Plan will be phased over a period of seven years, starting in 2019. When fully mature, the enhanced CPP will provide a replacement rate of one-third (33.33 percent) of covered earnings, up from the 25 percent provided prior to the enhancement.

Additionally, the maximum amount of income covered by the CPP will increase by 14 percent by 2025 (projected by the Chief Actuary of Canada to be $79,400, compared to the projected normal limit of $69,700 in the same year in the 28th Actuarial Report on the CPP).

The combination of the increased replacement rate and increased earnings limit will result in 33 to 50% higher pensions, depending on their earnings over the years.

Investment

Outdoor Ballet Experience Receives Government Investment – 91.9 The Bend

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The provincial and federal governments are investing over $362,000 in the Atlantic Ballet Atlantique Canada’s, Ballet by the Ocean experience.

Created in an effort to combat the restrictions caused by the pandemic, Ballet by the Ocean is an outdoor spectacle located on the Northumberland Strait.

“All of us at Atlantic Ballet Atlantique Canada are incredibly grateful for this significant contribution to our company and our newest experience. Ballet By The Ocean,” said Susan Chalmers-Gauvin, Co-Founder and CEO, Atlantic Ballet Atlantique Canada.

The funds committed by the Atlantic Canada Opportunity Agency will support marketing, promotion, and brand development.

Investments contributed by New Brunswick’s Regional Development Corporation and the Department of Canadian Heritage will focus on upgrades for the experience.

“That allows us to purchase a new stage, a sprung dance floor which is specialized for professional ballet and a rubberized dance floor that can withstand the outdoors and also the venue seating,” said Chalmers-Gauvin.

Ballet by the Ocean prioritizes a focus on local, with meals prepared by Chef Emmanuel Charretier and wine from a local winery.

Guests are provided with the exact location of the performance just two days before the event occurs. Upon arrival, guests witness the breathtaking backdrop that makes the experience unparalleled.

“The birds are flying overhead there might be a hare, there might be an eagle, so you’re witnessing the water, the wetlands and nature while you’re watching a beautiful ballet performance,” She said

She adds that their location required help from the Department of Environment to maintain the wetlands.

Tickets for the Ballet by the Ocean 2021 season were in high demand, with all 11 shows selling out. However, with New Brunswick set to remove all pandemic restrictions, there may be a seat for you after all.

“Now that we’re going to green, I’m thrilled to announce that performances on July 31st, September 4th,11th and 18th have reopened because we can have more capacity,” said Chalmers-Gauvin.

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Investment in rural broadband internet helps rural life – Toronto Star

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The Alberta government announced a $150 million investment to expand and improve broadband internet services for Albertans living in rural, remote, and Indigenous communities throughout the province.

Premier Jason Kenney, along with Minister of Service Alberta Nate Glubish, Associate Minister of Rural Economic Development and Drumheller-Stettler MLA Nate Horner, Chief Billy Morin of the Enoch Cree Nation, and Wetaskiwin-Camrose MLA Jackie Lovely made the announcement on Thursday, July 22.

“In a lot of our small towns we’ve seen houses fly off the shelves, some of the lowest householdings in some of our little towns are right now post pandemic, and no one is asking any questions but ‘How is the internet,’” Associate Minister Horner tells the Mail.

He says this is something not isolated to his Drumheller-Stettler riding, and adds the investment will have the “potential to change things in a big way” across the province.

The need for better rural broadband connectivity has been an ongoing topic of discussion at both the provincial and federal levels of government, and Horner says the COVID-19 pandemic really “shone a light” on several of the concerns rural residents face when trying to connect online.

“We had kids going to at-home, online learning, and the calls I took from school divisions and families who didn’t have reliable enough (internet), or fast enough, to come close to what the schools were asking of them,” Horner said.

Horner notes the investment will help rural life in a number of ways, including in the agriculture industry where many farmers use wireless internet connections from everything to operating machinery to controlling moisture levels in grain bins.

Although the Canadian Radio-Television and Telecommunications Commission (CRTC) has set targets for internet speeds across the country–at 50 megabits per second for downloads, and 10 megabits per second for upload speeds–Horner says this is simply not the case in many rural areas.

He says he is “fortunate” to be so close to an internet tower, but even in his close proximity–of about a mile–he says his internet is “just good enough” to allow him to connect virtually over Zoom meetings and his internet speeds are much lower than the CRTC targets.

Currently no announcement has been made as to which projects will receive part of the $150 million funding. Horner says there are some 800 projects before the Universal Broadband Fund in the province and the provincial government will need to “dig through those closely.” Each project will need to maximize private investment, reach as many households and small businesses as possible, and come under some form of regional fairness or equality, though Horner notes the first two points may at times contradict the third.

Horner also notes no federal deal has been finalized at this time, but it has been in conversation for “quite some time,” and is confident of federal participation.

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Segregated funds: an often-overlooked option for estate planning – Investment Executive

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Segregated funds may be a lesser-known option for estate planning, but they’re versatile instruments for clients with specific concerns, says John Yanchus, a tax and estate planning consultant with Canada Life.

A segregated fund is an insurance contract issued by a life insurance company. Seg funds have two parts: a pooled investment component (similar to a mutual fund), plus an insurance policy that protects against the loss of the invested capital when a contract matures. By law, a seg fund must guarantee a return of at least 75% of the original capital, and many provide guarantees for 100%. Seg funds are defined as life insurance policies under the Income Tax Act.

Yanchus said segregated funds have numerous advantages over other investments in an estate-planning context — particularly when it comes to avoiding probate and protecting privacy.

“They can provide the ability to determine how your beneficiary gets paid,” he said. “You can bypass the estate, and bypass probate. You can take advantages of liquidity and timing of the payment, protect those funds from creditors, and also accomplish your philanthropy goals, all in one action.”

When it comes to privacy, clients may not realize that wills are considered public documents, and anybody can obtain a copy for a small fee. Segregated funds, on the other hand, generally do not become public documents.

“Your affairs will remain private,” he said, but noted that in Saskatchewan, the provincial government must be made aware of life insurance policies and segregated funds that are handled by an estate executor.

Charitable donations can also be easily accommodated and dispersed through seg funds by naming a charity as the beneficiary of the policy.

Yanchus, who called seg funds one of estate planning’s best kept secrets, added that seg funds can allow the owner to name up to 20 beneficiaries.

He also explained that a seg fund can be structured as an annuity, allowing a beneficiary to receive scheduled payments instead of a lump sum after the insured dies.

Yanchus said estate planning can be a complicated process, and without a clear plan for avoiding pitfalls, clients usually end up creating more headaches than they solve.

“I think of probate planning as one of those areas where clients willfully engage in self-destructive hell,” he said. “Many, many people love the idea of avoiding probate. The problem is they lack the knowledge on which avenue to use.”

Yanchus said that using seg funds’ beneficiary designations can be quite powerful.

“You have the ability to name the estate, if that’s where you want the funds to flow for liquidity purposes. Or you have the ability to pass these assets outside of the estate, thereby avoiding probate, avoiding contestation, and avoiding other potential creditors of the estate,” he said.

“It’s almost a way to control from the grave.”

**

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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