Your CPP questions answered: When to file for CPP benefits and strategies to combine them with the OAS

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This is the latest article in an ongoing series, Planning for the CPP, in which Globe Advisor explores the decisions behind the timing of when to take CPP benefits and reviews different aspects of the beloved and often-debated government-sponsored pension plan.

As part of our ongoing series, we invite readers to ask questions about their Canada Pension Plan (CPP) retirement benefits and find experts to answer them. This week, we asked Chris Warner, wealth advisor at Nicola Wealth Management Ltd. in Victoria, to tackle two questions below:

I’m turning 70 in October. When should I file the application for the CPP and Old Age Security (OAS)? Can I designate the month I want the payments to start?

Congratulations on the milestone birthday coming up. I suggest giving yourself an early birthday present and filing whenever is most convenient for you. After 70, there is no more deferral benefit for either the CPP or OAS. You’re effectively topped up in October.

You can choose which month you want the payments to start, which allows you to be tactical. You can file sooner than your 70th birthday and still get full deferral benefits so long as you elect to have the payments begin sometime after your 70th birthday.

You can file online through your My Service Canada Account, or using a paper application. I recommend filing online if possible, as it makes checking the status easier. The application process can take up to 120 days.

If you did file a bit late, there’s no cause for concern. You can claim CPP/OAS payments retroactively for up to 12 months prior.

Does it make sense to consider CPP and OAS benefits jointly, or are they separate conversations? Does delaying OAS impact health benefits?

This is an insightful question as CPP and OAS benefits often are lumped into one conversation. While they certainly share similarities and can even complement one another, I’d recommend we first consider them individually and then assess how they interact with one another afterward.

Let’s first summarize the two programs for clarity:

• The CPP operates as a true pension in that workers pay into the program during their working years and are entitled to benefit payments – proportionate to their contributions – in retirement.
• OAS is a federal benefit designed more as a basic income supplement. It pays automatically to retirees who meet Canadian residency requirements. OAS is also income-tested and reduced for higher-income retirees. It’s known as an OAS clawback and applies above taxable income of $90,997. At $142,609 or above of annual income, OAS is $0.
• The standard age to take both CPP and OAS benefits is 65. With both programs, you can defer the income to 70 (or 72 for Quebec Pension Plan recipients as of 2024). Every month you defer your CPP benefits after 65, your payment increases by 0.7 per cent, to a maximum of 42 per cent if you wait until 70. OAS benefits increase by 0.6 per cent every month they’re deferred, up to 36 per cent at 70. CPP benefits are reduced by 0.6 per cent every month they’re taken before 65, up to a maximum reduction of 36 per cent. You can’t take the OAS until you are 65, so there’s no reduction.
• For lower-income earnings, the OAS has a supplementary benefit called the Guaranteed Income Supplement (GIS). A single individual earning less than $21,624 annually will receive up to $12,786 in GIS a year.
• OAS doesn’t have any health benefits. However, it is taxable income, so for any income-tested health programs, such as low-income provincial drug plans, it could impact eligibility.

What does this all mean on a practical basis? Generally, the CPP is flexible whereas the OAS tends to be most useful for those with lower taxable incomes.

I recommend the CPP be matched to a person’s anticipated life expectancy. If financially possible, and if a person’s health history is good, deferral benefits are strong at 8.4 per cent a year, plus inflation indexing. This also protects against longevity risk. If the health history is weaker or the income is much needed, taking the CPP earlier than 70 is fine.

The OAS should match lifetimes also, but with caveats. The $90,997 clawback limit can work for many retirees, but high-net-worth individuals can often find this limiting. In such a case, the $8,560 benefit isn’t usually worth restricting one’s retirement.

For couples, this is a key opportunity for planning. If a couple can split their taxable incomes efficiently, that gives them a household budget of $181,994 before clawback. That’s typically more manageable.

If you have any CPP questions, story suggestions or feedback on this series, please e-mail us at globecpp@gmail.com. We can’t respond to every e-mail or question, but we’ll do our best. The answers will appear on Tuesdays.

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Editor’s note: A previous version of this article stated that a single individual earning less than $21,624 annually will receive $12,786 in Guaranteed Income Supplement (GIS) a year. It's up to $12,786.