CANADA PENSION PLAN (CPP) CHANGES
As mentioned in our previous newsletters there a number of changes to the CPP programs and the most significant changes are in effect January 1, 2012.
RATES FOR EARLY/LATE COLLECTION OPTION
The government has determined that individuals are living longer and have changed the “early pension” penalties and the “late pension” bonus. Starting in 2012 the penalty for an early pension election has moved to 0.52% per month and increases to 0.6% per month by 2016. The late pension bonus has moved to 0.57% starting in 2011 and increases to 0.7% by 2013.
EMPLOYEE’S WHO ARE COLLECTING CPP
The government has introduced the collection of mandatory CPP contributions for early CPP pension recipients. This change requires that any taxpayer receiving early CPP pension is still required to contribute to CPP until they are age 65, as a minimum.
This means that all employers must deduct from their employee’s the applicable CPP amount and pay the matching employers portion for all employee’s under the age of 70 that are presently collecting CPP. You will need to change your payroll details for these employee’s prior to processing your first payroll in calendar 2012. The amounts paid into the CPP program will not increase their CPP benefits but become part of another retirement program, Post Retirement Benefit (PRB), and they will receive separate payments from this program.
Employee’s who are between 65 and 70 and collecting CPP can elect out of contributing to the program. The employee can elect out of this program by applying in writing for cancellation by completing and submitting this form, CPT30.
If you are self employed, under 65 years of age and collecting CPP you must pay the applicable CPP when you file your personal tax return. We suggest you file the CPT30 two months prior to your 65 th birthday.
POST RETIREMENT BENEFIT (PRB)
Any employee paying into CPP while collecting CPP (ages 60 to 70) will build up credit in the PRB at the maximum rate of 1/40 of the current year maximum pension amount ($11,520 for 2011) for each year of contributions. This means that if you earn the maximum amount of pensionable earnings in 2012 ($50,100) you will receive about $290 of additional retirement income per year, after retirement.
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