The last three banking days of each month are when CPP and OAS payouts are paid out. 1 The first OAS benefit payment is made the month after the recipient reaches 65; otherwise, a recipient with a late-month birthdate may get his or her first benefit payment at 64. Recipients who want to start collecting CPP benefits before the normal retirement age of 65 can do so as early as the month following their 60th birthday, but there will be a penalty.
All CPP and OAS benefits are adjusted using a slightly different mechanism based on changes in the CPI.
2 The CPP death benefit, which is paid in full at death and has a maximum sum of $2,500, is the lone exception.
Canada Pension Plan
Earnings commencing at the age of 18 are used to establish the initial amount of the CPP retirement benefit. 3 Annually, the maximum pensionable earnings (YMPE) for the year are computed. When a worker’s earnings are equal to or over the YMPE, the premiums paid are equal to the contribution rate (4.95 percent in 2014) multiplied by the YMPE (minus the baseline exemption). Otherwise, the employee’s earnings are simply multiplied by the contribution rate (less the basic exemption).
Each year, the YMPE is calculated based on average earnings growth in Canada, as reported by Statistics Canada. The total is then rounded to the nearest $100. If average earnings fall below a certain threshold, the YMPE is frozen until they rise above the pre-freeze level.
For practically every period of employment, the starting pension benefit is calculated by calculating the ratio between the individual’s wages and the relevant YMPE; this technique removes up to 17% of the periods where income was lowest compared to the YMPE. As a result, the initial payment is based in part on the recipient’s earnings increase throughout the course of employment, and in part on average earnings growth across the country when the individual’s earnings are higher than the national average.
Following the determination of the initial benefit, it is increased in accordance with changes in the CPI. The rate at which CPP payments will be enhanced as of January 1 of the next year is announced at the end of each year. This rate is determined by taking the average CPI from November of the previous year to October of the current year, subtracting the average CPI from the previous year’s equivalent period, and dividing the result by the latter average CPI. The value is rounded to three decimal places, then multiplied by 100 to get a percentage.
From November 2012 to October 2013, the average CPI was 122.6, and from November 2011 to October 2012, it was 121.5. 0.009, or 0.9 percent, was the rounded result. As a result, on January 1, 2014, CPP benefits were boosted by 0.9 percent.
The outcome would have been less than 1 if the average (in this case, 122.6) had been lower than the previous year’s (121.5). Benefits would not have been reduced in this case; rather, they would have been frozen until the average from November to October exceeded the pre-freeze level (121.5).
The CPI for October is provided in the second half of November, allowing for the calculation of the indexing rate for the following year. The all-items CPI, which includes all components, is used to index the data. 4 The data is raw, which means it hasn’t been adjusted for season. 5
Old Age Security
Until 1973, OAS payments (pension, GIS, Allowance, and Allowance for the Survivor) were annually indexed. 6 Because inflation was rampant at the time (especially for energy and food), the government reasoned that quarterly indexation would give better protection against year-over-year price rises. To minimize the time it took to produce CPI data and provide benefits, administrative modifications were required. 7
The OAS indexing computation is based on the all-items CPI, just like the CPP.
8 Table 1 depicts the months for which the CPI was used to index OAS benefits for each quarter. For example, the difference between the average monthly CPI from August to October 2013 and the average CPI from May to July 2013 is divided by the latter average to compute the 1 January 2014 rate of rise for benefits from January to March 2014. The value is rounded to three decimal places, then multiplied by 100 to get a percentage. The average CPI was 123.1 from August to October 2013, while it was 123.0 from May to July 2013, a ratio of 0.001, or 0.1 percent, hence OAS payments were enhanced by 0.1 percent on January 1, 2014.
The average value of the CPI fell to 122.9 from November 2013 to January 2014, indicating that OAS payments were not enhanced for the April to June 2014 period. They were raised again on July 1, 2014, when the CPI’s average quarterly value surpassed the average before the drop (123.1), reaching 124.7 between February and April 2014. As a result, OAS benefits increased by 1.3 percent.
Is the CPP and OAS inflation-indexed?
The Consumer Price Index (CPI) All-Items Index is used to compute rate increases in the Canada Pension Plan (CPP). The hikes take effect in January and are mandated to ensure that benefits keep pace with inflation. The percentage change from one 12-month period to the previous 12-month period is the rate rise.
Based on the average CPI from November 2020 to October 2021, divided by the average CPI from November 2019 to October 2020, CPP benefits were increased by 2.7 percent in January 2022.
It’s worth noting that if the cost of living fell during the course of a year, the CPP payment amounts would remain unchanged from the prior year.
In January 2022, how much will OAS increase?
From July 2022, the OAS pension for persons aged 75 and up will be enhanced by 10% on a permanent basis. This translates to an extra $770.70 in OAS per year for eligible seniors ($642.25 110 percent x 12). Outside of quarterly indexation, this is the first significant increase in OAS payments since 1973.
The monthly OAS pension benefits are inflation-adjusted. Every four months, the indexation is updated, with annual increments of 1.30 percent or higher.
What is the annual rise in OAS?
You are eligible for OAS as soon as you reach the age of 65. You should receive one of two letters from Service Canada within a month of turning 64:
- You will receive notice that you may be eligible for OAS and that you must apply as soon as possible.
If you need to apply or do not receive a letter, you can do so up to 11 months before your 65th birthday by completing an application online through your My Service Canada account, mailing a paper application to Service Canada, or returning the application enclosed in your letter to any Service Canada office.
You can also choose to delay receiving OAS pension benefits for up to five years, or until you reach the age of 70. Your monthly OAS pension will grow by 7.2 percent for each year you postpone receiving benefits, up to a maximum of 36 percent, if you delay receiving benefits. If you have been automatically enrolled in OAS, you can request a deferment through My Service Canada or by filling out and submitting your automatic enrollment letter.
Is the OAS expected to rise in 2021?
You may recall that the federal budget for 2021 also pledged a permanent boost of 10% to the OAS pension for seniors aged 75 and up, beginning in July 2022.
Is my Omers pension inflation-indexed?
Each year, inflation protection boosts OMERS retirement, disability, and survivor benefits when the Consumer Price Index (CPI) rises, as follows:
Benefits earned on or before December 31, 2022 are fully protected against inflation, subject to a maximum rise of 6%. Any surplus is carried forward to be utilised in future years when the CPI rises by less than 6%.
Benefits earned on or after January 1, 2023 will be subject to Shared Risk Indexing, which means the amount of inflation protection will be determined by the OMERS Sponsors Corporation (SC) Board’s yearly review of the OMERS Plan’s financial health.
At 65, what will my OAS be?
OAS, unlike CPP, is available to all Canadians once they reach the age of 65. The maximum monthly OAS benefit for 2022 is $642.25. In addition, the OAS Guaranteed Income Supplement (GIS) is available to the lowest-income seniors, with a monthly maximum of $959.26.
With this in mind, a 65-year-old person would receive approximately $16,140 per year on average. Continuing with our previous scenario, this is far less than the required $70,000 (plus inflation) each year at retirement.
Benefits by the numbers
Most Canadians will face a significant retirement income gap if they rely solely on these two government payments. If you want to maintain your current quality of living in retirement, government benefits alone are unlikely to suffice. A retirement savings account can help you get the rest of the way.
For individuals approaching retirement, the Canadian government offers a retirement income calculator, but contact an ATB Wealth advisor for more specific assistance in establishing your nest egg.
In 2021, how much OAS will I receive?
If you are a senior with an income below a specific level, the Guaranteed Income Supplement will be added to your OAS (GIS).
It’s vital to know how much OAS you’ll get as part of your Canada Pension Plan (CPP) retirement income so you can be confident you’ll have enough in retirement.
The amount of your OAS payout is determined by your age, the length of time you’ve resided in Canada, and your income.
If your yearly individual income is less than $129,260, you will receive the maximum monthly OAS payment of $618.45, regardless of your marital status (these numbers are for April to June 2021 and may change every year).
If you’re single, widowed, or divorced, and your individual income is less than $18,744, or your combined income is less than $44,928, you’ll be eligible for the maximum GIS monthly payment of $923.71.
If you and your spouse/partner both receive full OAS and your combined income is less than $24,768, you’ll get the maximum GIS monthly payment of $556.04.
The figures in the table above are correct as of April to June 2021. If the Consumer Price Index rises, OAS payments are modified every three months (January, April, July, and October).
If you wait until you’re 70 to start getting OAS, you’ll get a lot more money each month.
The OAS is paid out on a monthly basis, either by direct bank account deposit or via check. A list of OAS payment dates can be found here.
Is OAS set to rise in October 2021?
According to the federal government, the basic OAS pension, which is paid to persons 65 and older, will be $479.83 per month as of Saturday, October 1, a 0.6 percent rise.
The maximum guaranteed income supplement (GIS) and allowance payments, which give supplementary benefits to low-income retirees and their spouses or common-law partners, as well as eligible survivors, would also increase by 0.6 percent.
In January, April, July, and October, old age security payouts are changed.
In addition to the quarterly rise, the GIS, the allowance, and the survivor’s allowance will all increase by 7% over the next two years, starting in 2006.
These benefits will increase by $18 per month for singles and $29 per month for couples beginning in January, and by the same amounts on January 1, 2007.
Is OAS set to rise in April 2021?
Benefit rates for Old Age Security (OAS) will increase on April 1st, according to Social Development Canada.
The baseline OAS pension, which will be paid to persons 65 and up, will be $463.39 per month. This represents a 0.2 percent increase over the preceding three months’ rate.
The maximum Guaranteed Income Supplement (GIS) and Allowance payments, which are calculated based on the recipient’s household income for the preceding year, will also rise by 0.2 percent.
Changes in the average Consumer Price Index are used to determine increases in OAS rates. All OAS benefits have been modified quarterly since 1973.
The Old Age Security (OAS) program is funded by general tax revenues and provides a bare minimum income for seniors in Canada. The Old Age Security (OAS) program is the most commonly available source of income for older Canadians, giving more than $26 billion to four million seniors in 2002/2003.