Understanding the Canada Pension Plan – CPP

The Canada Pension Plan, or CPP, is a mandatory investment fund for all Canadian citizens. Anyone over the age of 18 is required to contribute to this government sponsored plan. Operated on a “state steady” basis, the fund promotes sustainability to all investors. State steady means that the fund is expected to remain constant over the next 75 years. Relatively new and prone to changes during its brief existence, the fund is similar to the Social Security system run by the United States.

Contributions to the Canada Pension Plan are automatically deducted from individual paychecks. The current rate of deduction is 4.95% for all working citizens. This money is placed in a general fund to earn interest so that workers will have enough of a monthly stipend during retirement. Canadian citizens are not allowed to remove any money from the fund until they reach the retirement age of 65.

The stability of the fund has been established by collecting a large enough pot. Initiated in 1965 to address the worries of Canadians who needed financial support after retiring, the original contribution was only 2%. When there were concerns over the funds running out in the 1990s Canada took a multi-pronged approach and increased contributions, lowered overhead and instituted a regular schedule of reviews.

Quebec is the only province that doesn’t participate in the plan. It has its own system, the Quebec Pension Plan, which is structured in a nearly identical manner. Citizens of Quebec only have access to their local pension plan which is in no way affiliated with the Canada Pension Plan.

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{ 1 comment… read it below or add one }

Robinsh August 9, 2012 at 10:13 am

Now after reading this detailed article I can say that every Canadian should submit their fund in their government’s pension plan to get the maximum return in their old age.

Thanks for writing this article !

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