Canada Pension Plan (CPP): Understanding Contributions & Benefits

The Canada Pension Plan is a social insurance program that requires all employed Canadians, age 18 or older, to contribute a predetermined amount of their earnings to a national plan. The human resources and social development department of Canada administers the plan. The only exception are Canadians who live in Quebec. Those in this part of the country take part in a similar plan, known as the Quebec Pension Plan.

In 2010, the contribution rate for the Canada Pension Plan is 4.95 percent. The maximum annual contribution is $2,163.15. One of the most important aspects of the plan is that the worker’s employer is required to match the employee contribution. In turn, the annual contribution doubles. Those who are self-employed are required to pay their half and that of an employer.

When the worker reaches the age of 65, the plan provides regular payments. The payments are 25 percent of the average maximum over the employees working career. The Canada Pension Plan offers a reduced plan which begins to payout at the age of 60. The system works much like the social security system in the United States.