The maximum Old Age Security pension you can get in a given year is the same whether you retired recently or many years ago. The same is not true with Canada Pension Plan pensions. The maximum amount of CPP payable depends on when you stopped contributing.
For someone turning 65 in 2024, the maximum annual CPP pension is about $16,400. This reflects the effects of the CPP expansion from 2019 up to now. That amount will continue to rise with inflation. If price inflation is 2.5 per cent for 2025 and 2.2 per cent a year thereafter, the maximum payable to a 2024 retiree in 2040 will be about $23,300.
By comparison, the maximum pension payable to someone who retired at 65 in 2040 is estimated to be $32,800. There are two reasons for the $9,500 difference.
The first is that wage inflation is expected to be higher than price inflation by 1 per cent a year. Once you start your CPP pension, it rises only with price inflation. If your CPP starts in a future year, however, it will rise with wage inflation right up until the year you start payments. Historically, wage inflation has usually been higher than price inflation by about 1 per cent a year.
The second reason is that CPP expansion will continue to be phased in over the coming years, but will affect only future retirees – not people who are already retired. As the chart shows, the difference becomes rather substantial over time.
Incidentally, this chart does not reflect the additional pension someone would receive for deferring their CPP pension to the age of 70. Someone who continues working until 2040 and who turns 70 that year could look forward to a maximum CPP pension of about $46,600 in 2040.
Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca)
