I’m confused by pensions. I’m 24 and embarrassed to admit I don’t know how pensions work and what I’m entitled to. I see that a portion of my paycheck (at least $50 CAD each check) goes to Canadian Pension Plan Contribution. When I retire, does this mean I will be taken care of to a certain degree? Thanks in advance.
In: Economics
As someone else said, there are a few different types of pensions in Canada. I will stick to explaining CPP, since that is what you are currently dealing with.
Your CPP deductions goes to the government into a separate fund it holds, and your employer is required by law to match that contribution. It is about 5.25% of your pay, although that changes from year to year based on inflation and other government announcements.
For 2020, the maximum amount you can contribute is $2,898. Once you reach that in a calendar year, no further CPP will be deducted.
When you retire, you will get a CPP pension. The amount you can receive varies on a few factors (described below). The maximum currently is just -about $1,175/month. This also increases every year with inflation. You are young, so by the time you retire this amount will likely be higher.
When you retire the government calculates how much CPP you will receive by weighing different factors such as:
– Your average earnings throughout your working life;
– How much you contributed to CPP over the years;
– How long you contributed.
The more and the longer you contributed, the more likely you are to receive a higher amount when you retire.
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