In December 2024, Canadians will see an increase in their Canada Pension Plan (CPP) and Old Age Security (OAS) benefits. This comes as welcome news for those who rely on these essential programs for their retirement income. With the ongoing rise in living costs due to inflation, these increases aim to help seniors and workers better manage their financial needs.
Whether you’re nearing retirement, already receiving CPP or OAS, or simply looking to understand how these changes may impact your finances, this article breaks down all the key details. From eligibility requirements to how much you can expect in increased payments, we cover everything you need to know.
What Are CPP and OAS? An Overview
Before we dive into the specifics of the December 2024 boost, it’s essential to understand what CPP and OAS are and how they work within Canada’s retirement system.
Canada Pension Plan (CPP)
The Canada Pension Plan is a federal program designed to provide retirement, disability, and survivor benefits to those who have contributed during their working years. These contributions are deducted from paychecks for employed individuals, while self-employed Canadians contribute both the employee and employer portions.
Once you retire, your monthly pension is based on the amount you’ve contributed to the CPP over the years. The age at which you start receiving CPP payments can affect how much you get each month:
- At Age 65: In 2024, the maximum CPP payment for a person starting at age 65 is expected to be $1,306.57 per month.
- Delayed Payments: If you choose to delay your CPP until age 70, your monthly payment will increase by 0.7% each year, providing up to a 42% higher benefit by age 70.
Old Age Security (OAS)
Old Age Security is another vital federal program that supports Canadians 65 and older. Unlike the CPP, OAS is not based on contributions but on residency in Canada.
- Eligibility for OAS: To qualify for OAS, you must be a Canadian citizen or legal resident and have lived in Canada for at least 10 years after age 18. For full benefits, you need to have resided in Canada for 40 years after the age of 18.
- OAS Payments: In 2024, the maximum OAS payment for seniors aged 65 and older is projected to reach $1,025 per month.
OAS is not dependent on your work history but on how long you’ve lived in Canada. However, seniors with higher incomes may face a reduction in their OAS benefits through the OAS clawback.
Expected CPP and OAS Boosts for December 2024
Both CPP and OAS will increase by 6-7% in December 2024, in line with inflation and rising living costs. This adjustment is especially important for seniors facing higher expenses.
Canada Pension Plan (CPP) Increase
- Maximum Payment: For individuals starting their CPP at age 65 in 2024, the maximum monthly payment is expected to increase to $1,306.57.
- Example: If you were receiving $1,200 per month in 2023, your payment could increase to $1,272 per month starting in December 2024, reflecting a 6% increase.
This increase is part of the annual adjustment based on inflation, ensuring that the value of your CPP payments remains aligned with the cost of living.
Old Age Security (OAS) Increase
- Maximum OAS Payment: The maximum OAS payment for seniors aged 65 and older will rise to approximately $1,025 in 2024.
- Example: If your current OAS payment is $950 per month, you can expect a monthly increase of about $57 with the 6% rise.
OAS payments are adjusted annually based on inflation to help seniors maintain their purchasing power amid rising costs.
OAS Clawback for High-Income Seniors
The OAS clawback is a provision that reduces OAS payments for seniors with higher incomes. It’s important to understand how this works:
- Clawback Threshold: Seniors with an annual income exceeding $81,761 will see a reduction in their OAS payments. The reduction continues as income rises, and payments are fully eliminated if income exceeds $134,000.
- Income Affected by Clawback: The clawback applies to various forms of income, including pension income, investment earnings, and employment income.
For seniors with higher income, strategic planning can help reduce the impact of the clawback and preserve OAS payments.
How to Qualify for CPP and OAS
Eligibility for CPP
To qualify for CPP, you must have worked in Canada and made contributions throughout your career. You can begin receiving CPP at age 60, although early payments will be at a reduced rate. Full benefits are typically available at age 65.
If you’re unsure about your contributions, you can check your CPP statement by creating an account with My Service Canada Account. This will provide an estimate of your future payments based on your work history.
Eligibility for OAS
To qualify for OAS, you must be a Canadian citizen or legal resident who has lived in Canada for at least 10 years after the age of 18. For full benefits, you need to have lived in Canada for 40 years after the age of 18.
You can apply for OAS starting at age 65, with payments beginning the month after your 65th birthday. Applications can be submitted through My Service Canada Account.
Maximizing Your CPP and OAS Benefits
Here are some practical tips to help you get the most from your CPP and OAS:
- Delay Your CPP: If possible, consider delaying your CPP until age 70. Each year you wait beyond age 65 increases your monthly benefit by 0.7%, leading to up to a 42% higher payment by age 70.
- Maximize Contributions: The more you contribute to CPP, the higher your benefits will be. Self-employed individuals or those with the ability to increase contributions should consider doing so to boost their future pension.
- Plan for the OAS Clawback: If your income exceeds $81,761, make financial adjustments to minimize the clawback’s impact. Consider contributing to an RRSP to reduce your taxable income.
- Diversify Your Retirement Income: While CPP and OAS are essential, they may not cover all your retirement needs. Consider other retirement savings options like RRSPs and TFSAs to build a more comprehensive retirement plan.
Frequently Asked Questions (FAQs)
- When will the CPP and OAS increases take effect?
The increases will be reflected in your December 2024 payment, which you will receive in January 2025. - How do I apply for OAS?
You can apply for OAS through your My Service Canada Account. It’s recommended to apply at least six months before your 65th birthday. - How much will my OAS increase?
The OAS increase in December 2024 is expected to be 6-7%. For example, if you were receiving $950, your monthly payment could increase by about $57. - What is the OAS clawback?
The OAS clawback reduces payments if your annual income exceeds $81,761. If your income exceeds $134,000, your OAS will be fully eliminated.
