By: Larry MacDonald

The Department of Finance recently announced a set of proposals to change the Canada Pension Plan (CPP). So far there seems to have been little coverage in the media. Perhaps there should be more. One big change planned is a reduction in pension benefits for persons who start CPP benefits before the age of 65.

Currently, employees can begin CPP as early as the age of 60 if they accept a reduction of 0.5% per month until the age of 65. Those choosing to begin CPP at 60 will thus suffer a 30% reduction in annual payments. The federal government is proposing to raise the monthly reduction to 0.6%, so a 60 year old will suffer a 36% decrease in annual payments. The higher rate will be phased in over five years beginning 2012.

Pensioners older than 65 are presently entitled to a 0.5% per month increase in benefits to the age of 70. The Feds are proposing to raise this rate to 0.7% per month. Thus, someone starting CPP at 70 will enjoy 42% higher benefit payments compared to the 30% higher rate offered today. This change is to be phased in over three years starting 2011.

Other changes planned:

• lowest 8 years will be omitted from calculation of benefits
• 60 to 65 year olds working and receiving CPP will be required to contribute
• 66 to 70 years olds working and receiving may elect to make contributions

More details at Department of Finance.