Understanding the Canada Pension Plan (CPP) and Old Age Security (OAS): What Every Retiree Should Know
1. What is the Canada Pension Plan (CPP)?
The Canada Pension Plan is a contributory, earnings-related social insurance program. It provides a monthly, taxable benefit to eligible Canadians once they retire.
Who Is Eligible for CPP?
Be at least 60 years old,
Have made at least one valid contribution to the CPP, either through employment or self-employment.
CPP covers all Canadians outside of Quebec (which has its own version, the Quebec Pension Plan or QPP). Contributions begin as soon as you start earning over a minimum amount ($3,500 in 2025), and continue until you retire or reach age 70.
How Are CPP Contributions Made?
In 2025, the basic CPP contribution rate is 5.95% of pensionable earnings (for both employer and employee).
Self-employed individuals must contribute the full 11.9%.
For 2025, the maximum annual employee contribution is $3,867.50.
When Should You Start Receiving CPP?
You can start CPP as early as age 60 or delay it until age 70. The standard age is 65, but here’s how timing affects the benefit:
Taking it early (before 65): Reduces your pension by 0.6% per month (or 7.2% per year) before age 65.
Delaying past 65: Increases your pension by 0.7% per month (or 8.4% per year) after age 65.
That’s a 36% decrease if you take it at 60, or a 42% increase if you delay to 70.
2. What is Old Age Security (OAS)?
Who Is Eligible for OAS?
Be 65 years of age or older,
Be a Canadian citizen or legal resident at the time of approval,
Have lived in Canada for at least 10 years since the age of 18.
To receive the full pension, you must have lived in Canada for at least 40 years after turning 18.
If you live outside of Canada, you may still be eligible if you meet certain conditions, such as having lived in Canada for at least 20 years.
How Much Is the OAS Pension?
$713.34 (this amount is adjusted quarterly based on inflation).
OAS is reviewed quarterly and adjusted according to the Consumer Price Index (CPI).
Guaranteed Income Supplement (GIS)
In 2025, you may qualify for GIS if your annual income (excluding OAS) is:
Less than $21,624 (for singles),
Or less than $28,560 (for couples).
3. How Are CPP and OAS Taxed?
CPP Taxation
CPP payments are taxable income. When applying for CPP, you can request that tax be withheld from your monthly payments. If you don’t, you’ll need to pay the tax when you file your return.
Tip: If CPP is your only income, the tax owed may be minimal. But if you have other income (like RRSP withdrawals, rental income, or employment), it’s wise to have taxes withheld to avoid surprises.
OAS Taxation and the Clawback
If your net income exceeds $90,997 (for the 2025 tax year), you must repay part or all of your OAS benefit.
The repayment is 15% of income over the threshold.
If your income reaches approximately $148,179, you’ll lose your entire OAS benefit.
This makes income planning essential for high-net-worth retirees.
4. Should You Delay CPP or OAS?
CPP Considerations:
You are in good health,
You expect to live into your 80s or beyond,
You have other income sources in your early retirement years.
The boost from delaying to 70 can mean significantly more income in your later years. However, if you need income early or have a shorter life expectancy, taking it sooner could be more beneficial.
OAS Considerations:
But because of the OAS clawback, high-income individuals often delay or plan withdrawals (e.g., RRSP to RRIF conversions) to minimize their net income and preserve OAS benefits.
5. How These Programs Fit into Retirement Planning
Average Monthly Benefits:
CPP: ~$758/month
OAS: ~$713/month
That’s $1,471 per month, or about $17,652 per year, for someone receiving the average amount. This won’t cover most retirement lifestyles, so private savings (RRSPs, TFSAs, pensions, etc.) are still crucial.
Tax Planning Tips:
Split pension income: Couples can reduce their overall tax bill by splitting eligible pension income, including CPP.
Withdraw RRSPs strategically: Converting RRSPs to RRIFs early can help spread out income and avoid OAS clawbacks later.
Defer CPP or OAS: If you can afford to wait, delaying can enhance long-term income security and reduce the risk of outliving your savings.
That’s $1,471 per month, or about $17,652 per year, for someone receiving the average amount. This won’t cover most retirement lifestyles, so private savings (RRSPs, TFSAs, pensions, etc.) are still crucial.
6. Key Takeaways for Canadians
Start CPP as early as 60 or delay to 70 depending on your financial situation and health.
OAS starts at 65, but can also be delayed for higher payments.
Both are taxable, and high income can trigger OAS clawback.
Government benefits should complement—not replace—your personal savings.
Retirement tax planning is crucial to maximize benefits and minimize taxes.
Final Thoughts
Understanding the mechanics and timing of CPP and OAS is essential for any Canadian planning for retirement. With the right strategy, you can optimize these benefits and avoid costly tax surprises. At our firm, we help clients navigate these decisions every day—from deciding when to start benefits to designing tax-efficient withdrawal strategies.
Whether you’re five years from retirement or just starting your planning, now is the time to evaluate how CPP and OAS will shape your financial future.
Need help planning your retirement strategy? Contact our team today to book a consultation with one of our advisors.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Please consult a tax professional for guidance specific to your situation.
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