All the Numbers

Workplace pensions

From the All the Numbers wiki · Retirement and benefits

A registered pension plan (RPP) run by an employer pays a monthly amount in retirement. In a defined-benefit plan the amount is set by a formula in the plan, usually years of service times average pay, rather than by how an investment account performed. The pension is taxable income, and from 65 it counts as eligible pension income for the pension income amount and for pension income splitting.

The bridge benefit

Many defined-benefit plans are built to work alongside CPP, which starts at 65 in the usual case. To make up the gap before then, a plan can pay a temporary bridge benefit. It is paid until the first of the month after the 65th birthday (the last payment is in the birthday month), or earlier if the person starts a CPP or QPP disability pension. It does not change if CPP is taken early or late. The amount is the plan's own formula, so it has to come from the plan's statement.[1]

What the engine does

  • Treats an employer pension as a monthly income payment, taxed as pension income. The amount comes from the member's statement; the engine does not work out a plan's formula.
  • Flags a payment as a bridge benefit and ends it the month after the 65th birthday, whatever the CPP start. The planner takes the birthday as 1 January, and the engine refuses a bridge benefit that would start or run past that point.
  • Counts the payment as income for the Guaranteed Income Supplement and the OAS recovery tax.

What the planner does

The planner does not yet have a place to enter an employer pension or a bridge benefit, so a plan built there does not include one. Until it does, a retiree with a defined-benefit pension will see lower retirement income than they would receive.

What it does not do

  • Plans' own bridge formulas, and plans where the lifetime pension is reduced after 65 to pay for the bridge, are not calculated.
  • Plans with bridge terms that differ from the 65 rule are not covered.
  • Defined-contribution plans are balances like any other registered account; see RRIFs and the wind-up at 71 for what happens when one is paid out.

See also: retirement age, Old Age Security.

See also

  • Old Age Security · A monthly pension paid to most Canadians from 65, based on years lived in Canada after 18. It can be deferred for a permanent increase, rises 10% at 75 and is partly repaid through a recovery tax at high incomes.
  • Pension income splitting · Spouses can jointly elect to move up to half of one partner's eligible pension income onto the other's return, lowering combined tax when incomes are uneven. CPP and OAS are not eligible.
  • Retirement age · The age at which a person's pay stops in the plan, 65 unless you give another. Their monthly contributions stop then, and an RRSP becomes a RRIF at 71.
  • RRIFs and the wind-up at 71 · An RRSP must become a RRIF by the end of the year you turn 71, after which a prescribed minimum comes out and is taxed every year. Give a birth year and the plan models it; leave it blank and a plan running past 71 looks better than it is.
  • RRSP room, deduction and withdrawals · Room accrues at 18% of earned income up to the annual cap, contributions earn a deduction refunded the following April, and withdrawals are taxed as income. The plan assumes you start with no carried-forward room unless you say otherwise.
  • The CPP retirement pension · A monthly pension from the Canada Pension Plan based on contributions, payable from 60 to 70. Starting earlier cuts it by 0.6% a month, starting later raises it by 0.7% a month. The plan estimates it from a Service Canada statement or from salary.
  • The Guaranteed Income Supplement · A tax-free top-up to Old Age Security for pensioners with little other income. It falls by 50 cents for every dollar of other income (75 cents through part of the range); RRSP and RRIF withdrawals count against it, TFSA withdrawals do not. The projection estimates it on the previous year's income.
  • The OAS recovery tax · Years where net income clears the threshold repay 15% of the excess out of Old Age Security. The projection withholds it from the OAS cash, exactly as the CRA does, and leaves taxable income unchanged.

References

  1. ↑National Association of Federal Retirees — "Bridge benefits and turning 65" (federal PSSA practice); OTPP "Bridge benefit and CPP" (ends the month after 65 or on CPP disability, unchanged by CPP start); OPB PSPP CPP integration · RPP bridge benefit: a temporary supplement in an integrated defined-benefit pension paid until the first of the month after the 65th birthday (last payment in the birthday month), or earlier on a CPP/QPP disability pension; unchanged by taking CPP early or late; the amount is the plan's own formula and is supplied from the statement · See the source · effective 1966-01-01