CPP vs. OAS: How Do They Compare?

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by Enoch Omololu

Updated

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As older Canadians near retirement, an understanding of pensions and other retirement benefits become very important. Retirees are often interested to know the differences between CPP and the Old Age Security pension.

Questions that are often asked include:

  • What is the difference between the Old Age Security and Canada Pension Plan?
  • How much can I expect in pension or retirement benefits?
  • Should I elect to take CPP early, or should I delay it by a few years?
  • What can affect my retirement benefits?
  • What is my life expectancy?

These are just a few of the questions that come up for seniors when retirement is on the horizon or for younger folks who want to start planning and saving for retirement. In this article, we will compare and contrast the CPP and OAS.

Canada Pension Plan (CPP) and Old Age Security (OAS) are two of the three main pillars of Canada’s retirement income system. The third pillar includes workplace pension plans and RRSP.

Although both CPP and OAS benefits are available to retirees, they are different in many ways including how they are funded, how much you can receive, how they are calculated, supplementary benefits, and eligibility rules.

CPP and OAS: Comparisons and Contrasts

Canada Pension PlanOld Age Security
1. FundingIndividuals and their employees are required to contribute to the CPP and/or QPP. CPP/QPP are contributory retirement pensions.OAS is funded out of general government revenues and individuals are not required to have contributed in order to receive it. It’s a non-contributory retirement pension.
2. Contribution rateYou are required to contribute to the CPP if you’re older than 18, earn more than $3,500/year and work outside of Quebec. The contribution rate is 10.90% on pensionable earnings
(5.45% employee and 5.45% employer) for a maximum total of $6,332.90 (i.e. $3,166.45 each) in 2021.
No individual contribution is required.
3. Monthly amount receivedDepends on how much contributions you have made to the CPP and for how long.Depends on how long you have lived in Canada after turning age 18.
4. Supplementary benefitsAlongside retirement pension, other benefits available under the CPP are survivor’s pension, children’s benefits, disability benefits, and post retirement benefits.Supplementary benefits under OAS include Guaranteed Income Supplement, Allowance, and Allowance for the Survivor.
5. Age of EligibilityStandard age to start receiving CPP is age 65. You can receive reduced CPP as early as age 60, or can postpone to age 70 for an increased CPP.You must be at least 65 years of age to be eligible for OAS. Individuals can defer OAS for up to 5 years to get a higher monthly pension.
6. TaxesCPP is taxable income.OAS payments are taxable. However, GIS and Allowance are not taxable.
7. Clawback OptionCPP pension is not subject to a “Recovery Tax” or clawback i.e. it’s not income or means-tested.OAS benefits may be clawed back if your income exceeds a certain amount. For 2021, if your net income exceeds $79,845, all or part of your OAS pension is “Clawed Back”.
8. Benefits amounts for 2021The maximum monthly CPP payment amount for 2021 is $1,203.75. The average monthly benefit is $$706.57.The maximum monthly OAS benefit for July to September 2021 is $626.49.
9. Income splittingSpouses can elect to split their CPP pension as part of a tax-minimization strategy.OAS pension cannot be split between spouses.
10. Other provisionsCPP has other provisions including credit splitting for divorced or separated couples, child rearing and general drop-out provisions.OAS pension has no other provisions.
11. Inflation adjustmentsCPP rate increases are calculated once every year using the Consumer price Index (CPI).OAS benefits are adjusted quarterly based on changes in the CPI.
12. Provincial differencesCPP is for individuals who work in all provinces except Quebec. For those who work in Quebec, the provincial plan is called the Quebec Pension Plan (QPP).The OAS is applicable to all Canadian provinces.

Related reading:

For more information on retirement benefits, check out the articles above.

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Author

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in the Toronto Star, The Globe and Mail, MSN Money, Financial Post, Winnipeg Free Press, CPA Canada, Credit Canada, Wealthsimple, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

3 thoughts on “CPP vs. OAS: How Do They Compare?”

  1. Hi Enoch, thank you for your work to help all people in need of information on how to retire well in Canada. I also thank to all other participants in this blog for helping out by sharing information and experiences. We plan to retire in Ontario or Quebec. We used to live in both provinces.

    My question is about OAS program: for the residence calculation years in Canada, I read in the Totalization Accord US-Canada that the residence in the US will be added to the one in Canada (for Canadian citizens returning to Canada) I am asking this because I was working and living in the US for already over ten years. Will these ten years could be added to the total years of residence used for the OAS? Please let me know if this is correct or not.

    Reply
  2. If I am 66 and born in September 1954 and have not taken either CPP or OAS. Can you tell me what my payments would be if I started to take them in January 2021?

    Reply
    • @Craig: That’s difficult (maybe even impossible) to say. Your CPP amount will depend on how much you contributed to the plan and for how long you made those contributions. For OAS, you will likely qualify for the full amount based on spending 40 years in Canada since you turned 18. The current OAS maximum is just over $614. So, you would be expecting something close to this amount for OAS.

      Reply
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