Canada Pensions
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The Canada Pension Plan (CPP), a Canadian federal program, is a Canadian pensions scheme that provides income for retired and disabled people. The CPP took effect in 1966 across Canada, except for Quebec, which had its own pension plan. The Canadian pension plan is funded equally by employee and employer contributions.[br]
The Canadian Pensions System
Pensions in Canada are of two types:
· Defined contribution pension plans: Both the employee and the employer make regular contributions, according to a calculated plan. Contributions are generally made to an investment account, where the employee can select the type of asset mix desired. Funds are locked and not accessible till retirement at the age of 65. The amount that the person finally receives depends on the investment method.
· Defined benefit pension plans: Contributions are made by both the employee or employer, or the employer only. The amount is deposited in a pension fund, and the employee receives a monthly amount upon retirement. The fund is usually managed by a qualified and regulated advisory firm. This type of Canadian pension plan has fewer risks involved.
In Canada, both plans have their pros and cons. Defined contribution pension plans offer the employee control over investment allocation, but returns come with market risks and sub optimum decisions. On the other hand, defined benefit pension plans are conservative in nature, as there is an external advisory firm, which manages the assets and investments. Such pension plans offer low risk, but conservative returns.[br]
Eligibility and Benefits of Canadian Pension Plan system
One qualifies for a Canadian Pension Plan (CPP), if s/he had made at least one valid contribution to the plan. Also s/he must be 65 years of age or at least be between 60 and 64 years, and meet the requirements in the pension legislation act.
The monthly benefits are calculated by a formula that takes into account the length of the service and the average amount the person earned over the duration of the employment. Those who retire early reduce their benefits by a percentage.
In addition to retirement benefits, the Canada Pensions Plan also pays benefits to the participants of the plan upon disability or death. A disabled person will receive monthly disability payments, as will his/her dependent children. Upon the death of a CPP pension holder, the benefits go to the individual’s spouse and dependent children.
