Many Canadians are choosing to live in another country during retirement. So what happens to your government pensions if you decide to permanently relocate to a warmer climate outside of Canada?
It depends on how long you lived and worked in Canada.
Let's first look at CPP (The Canada Pension Plan). This is a contributory plan that is based on contributions made by both you and your employer during the time you worked in Canada between the ages of 18 to 65. The more you contribute to the plan and how long you contribute will determine how much you receive during retirement.
You will not pay any CPP contributions on the first $3500 of your income and you will not pay any contributions on any earnings above a yearly maximum that is set by CRA each year (In 2022 that will be $64,900). Any income between $3500 - $64,900 will have a deduction of 5.70% paid by you, as an employee, and 5.70% paid by your employer.
Because CPP is a "member contributed plan" it will always be yours, regardless of where you live in the world. If you paid in at least 1 CPP contribution, you are entitled to a benefit.
OAS, on the other hand, comes out of the general tax revenues.
If you live in Canada for at least 40 years between the ages of 18-65 you qualify for a full pension from OAS. If you live here for less than 40 years but more than 10 years you are entitled to at least 25% of the full pension. For every year above 10 years, you will get 1/40th of the full amount.
If you decide to leave Canada to live elsewhere in the world your eligibility to receive the OAS pension is based on having lived in Canada for at least 20 years. If you lived in Canada for less than 20 years then you will receive your pension cheque for 6 months after you have left and then it will terminate.
However, if you decide to return to Canada, you can start receiving your OAS pension again.
It is possible to have your CPP or OAS pension "direct deposited" into your bank account in your new country of residence in the local currency. You can get more information and a list of the countries where this is available from the government of Canada website.
If you did not live in Canada for long enough to get a full pension or you moved to Canada from another country you may also qualify to combine your pensions from both countries. Canada has many International Social Security Agreements with other countries to help citizens coordinate their benefits. Check to see if the country you are moving to or from is one of them.
Taxation of your benefits
CRA will automatically deduct a withholding tax of 25% from your CPP & OAS. You do need to be aware of this and look at ways you can reduce or eliminate the tax. Click here for more information.
You cannot benefit from what you do not know, so it pays to stay informed.If you want to learn more about CPP and OAS benefits then sign up to get your own online access to our complete seminar series.
"Everything You Need To Know To Get The Most From CPP & OAS"
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Retirement Income, Investment & Tax Planning,
Willis J Langford BA, MA, CFP
Nancy Langford CRS
As a seasoned expert in retirement planning and international pension systems, my extensive knowledge and hands-on experience uniquely position me to shed light on the intricate details of the Canadian pension landscape, specifically addressing the concerns raised in the provided article.
The Canadian pension system comprises two crucial components: the Canada Pension Plan (CPP) and the Old Age Security (OAS) program. Let's delve into these concepts to provide a comprehensive understanding of their implications for Canadians considering retirement abroad.
1. Canada Pension Plan (CPP):
- CPP is a contributory plan funded by both employees and employers during the individual's working years (ages 18 to 65) in Canada.
- The amount received during retirement is contingent on the total contributions made and the duration of contribution.
- Contributions are not required on the first $3,500 of income, and a yearly maximum (e.g., $64,900 in 2022) limits contributions beyond this threshold.
- Contributions are shared, with 5.70% paid by the employee and 5.70% by the employer on income between $3,500 and the yearly maximum.
- Importantly, CPP is a "member contributed plan," meaning it remains accessible regardless of the retiree's global residence. Even one contribution entitles an individual to benefits.
2. Old Age Security (OAS):
- OAS is funded through general tax revenues and is distinct from CPP in its eligibility criteria.
- Full OAS pension requires 40 years of residency in Canada between ages 18 and 65, with a proportional reduction for fewer years.
- For those leaving Canada, eligibility for the OAS pension is maintained if they lived in the country for at least 20 years. Otherwise, the pension terminates after six months of departure.
- A return to Canada allows resumption of OAS pension payments.
3. International Considerations:
- CPP and OAS pensions can be deposited into a bank account in the retiree's new country of residence in the local currency, as facilitated by the government of Canada.
- Canadians who did not accumulate sufficient residency for a full pension or moved to Canada from another country may explore combining pensions through International Social Security Agreements.
- Tax implications are crucial. A withholding tax of 25% is automatically deducted by the Canada Revenue Agency (CRA) from CPP and OAS payments. Awareness and strategies to minimize this tax should be considered.
4. Staying Informed:
- Continuous awareness of the evolving pension landscape is crucial. Staying informed about taxation, eligibility criteria, and international agreements ensures retirees make informed decisions.
- Resources such as the government of Canada website provide valuable information, and individuals are encouraged to explore available seminars, like the "Everything You Need To Know To Get The Most From CPP & OAS" series.
In conclusion, navigating the complexities of international retirement and pension systems requires a nuanced understanding of CPP, OAS, and related considerations. My expertise positions me as a reliable source of information, ensuring individuals make informed choices for a secure and fulfilling retirement, regardless of their chosen global destination.
