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Sep 1, 2022

Considerations When Applying For CPP And OAS

by Jason Heath

Most Canadian seniors are entitled to both the Canada Pension Plan (CPP) retirement pension and Old Age Security (OAS) pension in retirement. There are several factors that should be considered before applying for and collecting these government benefits.

 The CPP is based on years of contributions. The OAS is based on years of residency in Canada. CPP can start as early as age 60 or as late as age 70. A recipient can begin to receive OAS between the ages of 65 and 70.

Deferring To Age 70

If a CPP applicant delays their CPP after age 65, their pension will be adjusted by 0.7% per month—8.4% per year—plus the annual inflation adjustment. OAS increases by 0.6% per month or 7.2% per year plus inflation.

An applicant at age 70 will receive more cumulative CPP payments compared to starting at age 65 partway through their 79th year. For OAS, the breakeven is shortly after age 80. This does not take into account the time value of money and the benefit of an early applicant receiving more payments earlier in retirement. Those earlier payments can be invested or can allow the pensioner to leave more of their other investments invested, so has a benefit.

Regardless, a senior who lives well into their 80s may be better off financially for having deferred their CPP or OAS. Especially given there is a 50% probability of a 65-year-old man living to age 89. For women, there is a 50% probability of living to age 91.

Because CPP and OAS are indexed to inflation and adjusted annually in the case of CPP, and quarterly in the case of OAS, these pensions provide a great inflation hedge. Deferring and increasing these pensions also simplifies retirement income planning later in retirement when it may be harder to make investment decisions or investment risk tolerance may be diminished.

Withholding Tax

There is no income tax withholding required for CPP and OAS pensions. You can elect on your pension application forms to have voluntary tax withholding. You can also contact Service Canada after you have begun your pensions to request tax be withheld.

A low-income pensioner may have no tax payable. But for most retirees, the tax payable on CPP ranges from about 20% to over 50%, depending on their other income and province or territory of residence. OAS can have tax payable from about 20% to as much as 100%. If an OAS recipient’s income exceeds $133,527 for 2022, they may need to repay all their OAS as a social benefits repayment on their tax return.

Applying While Working

Even if you are still working, you can apply to begin your CPP as early as age 60. Your ongoing CPP contributions will result in a post-retirement benefit that increases your CPP pension the following year.

If you are 65 or older and have already earned the maximum CPP retirement pension, your ongoing contributions may be all for naught. That is, they will not increase the pension. However, if you apply to begin your pension and continue to contribute after age 65, your pension will be increased the following year due to a post-retirement benefit.

You can stop contributing to the CPP at age 65, but you must submit an Election to Stop Contributing to the Canada Pension Plan form to Service Canada and provide an approved copy to your employer.

If You Are Married

CPP pension-sharing allows spouses or common-law partners to equally divide the CPP contributions they made during the time they were living together. The result will be the spouse with the higher CPP retirement pension will share some of their pension with the spouse with the lower CPP entitlement.

The result of this income-splitting may be that the combined tax payable by the couple is less because their incomes are more equal. Income-splitting can also be accomplished with pension income-splitting of defined benefit pensions and Registered Retirement Income Fund (RRIF) withdrawals, so whether CPP pension-sharing is beneficial or not depends on a couple’s circumstances.

Spouses can apply for pension sharing when they complete their CPP applications by submitting an Application for CPP Pension Sharing of Retirement Pensions.

If You Are Widowed

A senior who defers their CPP retirement pension to age 70 and lives well into their 80s will likely be better off financially. This is because they will receive more lifetime income even after adjusting for the time value of their payments.

The CPP pays a survivor’s pension to the spouse or common-law partner of a deceased contributor. Someone who is widowed and receiving a survivor’s pension has the added benefit of continuing to receive this benefit until they begin their retirement pension. As a result, most survivor’s pension recipients will benefit from deferring their CPP retirement pension to age 70.

If You Are Divorced

CPP credit-splitting allows spouses or common-law partners to equally divide the CPP contributions they made during the time they were living together. These credits can even be divided if one spouse was not contributing at all to the CPP.

If you are divorced, and you do not apply to split your CPP credits within 36 months, your credits can only be divided if your spouse is still alive and agrees in writing to waive the 36-month limit.

If you are separated, there is no time limit unless your spouse has died, in which case, there is a 36-month limit from the date of death that applies.

If you were common-law, there is a 48-month limit from the date you began living apart.

To apply for credit splitting, you need to complete the CPP Credit Split form. In many cases, this is done at the time of a relationship breakdown as part of a separation agreement and long before you apply to begin your pensions.

If You Have Kids

There is a CPP provision that may help a parent whose income was low when their children were young to qualify for a higher retirement pension.

You can make this claim when applying for your CPP by confirming that you were the primary caregiver for a dependent child under the age of 7 in years when you had no or low income for CPP contribution purposes. You do this using the Child Rearing Provision Request form.

Service Canada would exclude this time from your pension calculation and instead look at the five years before the birth or adoption of your child and give you credit based on those earnings if they were higher than the period when your child was under the age of seven.

If You Plan To Leave Canada

Non-residents of Canada can apply for and receive their CPP pension. It can even be deposited into a foreign bank account in a foreign currency.

OAS can be paid to a non-resident if they lived in Canada for at least 20 years after the age of 18. Even if you lived in Canada for less than 20 years, Canada might have a social security agreement with your country of residence that considers the time you lived or worked in that other country so that you can continue to qualify.

If you begin your OAS pension and then become a non-resident, if you do not meet the 20-year threshold, your payments will stop within six months of leaving Canada.

Non-resident tax withholding of 15-to-25% generally applies based on the tax treaty between Canada and the other country.

If You Have A Low Income

If your income is relatively low, you may be motivated to apply for CPP and OAS earlier to supplement your cash flow. A low-income OAS applicant may also be entitled to a Guaranteed Income Supplement (GIS) monthly payment.

If you are a single, widowed, or divorced pensioner, and your income is less than $20,208 for 2021, you may be entitled to up to $996 per month of GIS (as of the third quarter of 2022). If you have a spouse or common-law partner, the annual income threshold may be as high as $48,432. The threshold and your entitlement depend upon whether your spouse or common-law partner receives the full OAS pension, does not receive OAS, or is receiving the OAS allowance.


There are a number of unique factors when considering an application for CPP and OAS. A 65-year-old who lives until age 95 may collect over $1 million from these pensions during their lives.

CPP and OAS considerations are an important part of retirement planning for Canadians. It is important to be aware of the CPP and OAS factors that may impact your entitlement before you apply.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever