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Books by Lee Tang
This Book Is For You
Part One: Know Your Public Pensions
1. The Government Giveth
2. When You Become a Senior
3. When You Become Disabled
4. When You Die
5. When You Have Lived Abroad
6. The Government Taketh Away
Part Two: Know Your Employer Pensions and Personal Savings
7. Employer Pension Plans
8. Your Personal Tax Shelter
Part Three: Know the Secrets To Maximizing Your Retirement Income from Government Pensions
9. Finding Out Where You Stand
10. Maximizing Your Public Pensions
11: Applying to Specific Situations
12: The Grass Is Greener
Exhibit I Government Benefits Administration Offices
Exhibit II Provincial Income Supplement Programs
Exhibit III Documents Required by the OAS Application
About the Author
The Secrets to MaximizingYour Retirement Incomefrom Government Pensions
Revised & Updated 2017
Title: Canada's Public Pension System Made Simple
Subtitle: The Secrets to Maximizing Your Retirement Income from Government Pensions
Author: Lee Tang
Publisher: LMT Press (lmtpress.wordpress.com)
Copyright © 2015, 2017 by Lee Tang
All rights reserved. Aside from brief quotations for media coverage and reviews, no part of this book may be reproduced or distributed in any form without the author’s permission. Thank you for supporting authors and a diverse, creative culture by purchasing this book and complying with copyright laws.
First Edition: June 2015
2017 Edition: July 2017
Issued in print and electronic formats.
ISBN 9780994764010 (ebook)
ISBN-13: 9781514784686 (paperback)
ISBN-10: 1514784688 (paperback)
Library and Archives Canada Cataloguing in Publication
Tang, Lee, 1951-, author
Canada's public pension system made simple: the secrets to maximizing your retirement income from government pensions / Lee Tang.
Includes bibliographical references and index.
1. Retirement income--Canada--Planning. 2. Pensions--Canada. 3. Finance, Personal--Canada. I. Title.
To my wife, Lillian, who is the source of energy and love for everything I do, and to Andrew and Amanda: watching you grow up has been a privilege.
The publisher and author make no representations or warranties regarding the accuracy or completeness of these contents and disclaim all warranties such as warranties of fitness for a particular purpose. The author or publisher is not liable for any damages. That an individual or organization is referred to in this document as a citation or source of information does not imply that the author or publisher endorses the information that the individual or organization provided. The website addresses in the book were correct at the time going to print. However, the publisher and author are not responsible for the content of third-party websites, which are subject to change.
This publication provides competent and reliable information regarding the subject covered. Its sole purpose is to assist readers in understanding the public pension system in Canada, independently of other financial issues. It will not explain every possible option for every individual, and the information provided is not intended as a substitute for complete financial planning. The author will do his best to keep the information current and accurate; however, given the ever-changing nature of the subject, no guarantee can be made on the accuracy of the information contained within.
Although every effort has been made to provide accurate and authoritative information regarding the subject covered, it is offered with the understanding the author and publisher are not engaged in rendering legal, financial, tax, or other professional advice for specific individual situations. The author and publisher make no written or oral representations or warranties of any kind, and specifically disclaim any liability incurred from the use or application of the contents of this book. Please consult with an attorney, accountant, or financial planner if you have any questions about your individual financial situation.
For a complete list of books by Lee Tang and information about the author, visit https://lmtpress.wordpress.com.
This book is for you if you are:
At or approaching retirement age wanting to discover what government benefits are available for you and how you can get the most out of it.
A Canadian living abroad wanting to discover whether you are eligible for government pensions from Canada.
A new immigrant to Canada wanting to know what your adoptive country's public pension system provides.
A financial planner wanting to improve client services by getting a deeper knowledge of how to help your clients maximize income from government pensions.
An immigration consultant wanting to improve client services by getting a deeper knowledge of how international social security agreements can help your clients qualify for public pensions.
A human resources professional wanting to serve your employees better by understanding how public pension benefits relate to your employer plans.
A student of public policy wanting an in-depth understanding of the system.
This book is for anyone with a stake in Canada’s public pension, and for those who assist others with retirement, disability, or death.
Retirement is undergoing dramatic change. People are living longer and spending more time in retirement. As life expectancy continues to increase, and fewer employers are offering defined benefit pension plans, people are by necessity becoming responsible for a greater share of their retirement funding. To help yourself prepare for a comfortable and sustainable retirement, you must understand where your retirement income is coming from and plan it accordingly.
Most Canadians have two sources of retirement income:
Canada's public pensions such as the Old Age Security program and the Canada/Quebec Pension Plan.
Private retirement savings such as employer pension plans, registered retirement savings plans, and other personal savings.
According to Statistics Canada, 41.2% of the total income of senior citizens in 2011 came from public pensions; 33.7% from private pension and registered retirement savings plans; and the remaining 25% from investment income and other sources. Canada's public pension system plays an important role in your retirement finances. Understand how the system works and what you can do to get the most out of it.
DID YOU KNOW?
Government pensions are not automatic. You must apply for it.
You do not have to stop working to receive your government pensions.
You may be eligible for Canadian government pensions even if you are living abroad and have never worked in Canada.
You may have to pay back part or all of your Old Age Security pension if your annual income is higher than a certain level. This is also known as the OAS clawback.
ARE YOU GETTING EVERYTHING YOU CAN FROM YOUR GOVERNMENT?
The public pension system is complex and often changes, which means many people are not claiming money that they’re entitled to. According to the report of the Task Force on Financial Literacy, published in December 2010, many people missed out on government benefits they are entitled to because the rules are too complicated. They don't know who qualifies for what and how to apply. Here are examples from the report:
Roughly 160,000 eligible seniors do not receive the Old Age Security benefit (representing almost $1 billion in benefits);
About 150,000 eligible seniors do not receive the Guaranteed Income Supplement;
Approximately 55,000 eligible Canadians are not receiving Canada Pension Plan benefits.
Many people missed out on government pensions because they failed to minimize their OAS clawback, although the clawback could have been reduced or eliminated had actions been taken.
ABOUT THIS BOOK
This book was written to help you get the most out of your government pensions. Inside you'll find everything you must know about Canada's public pension system and the actions and strategies you can take to reduce the clawback on your OAS pension. Specifically, you will learn:
What benefits are offered, how to qualify, and how to apply for it.
Why it is important to have an RRSP withdrawal strategy.
Why it is important to have a tax-efficient investment strategy.
How you can minimize the clawback, maximize your pension, and save taxes by following a few simple and proven strategy.
Read this book to make sure you’re not missing out on benefits that could help you pay your bills and balance your budget.
KNOW YOUR PUBLIC PENSIONS
THE GOVERNMENT GIVETH
They say a little knowledge is a dangerous thing, but it's not one half so bad as a lot of ignorance.
Canada's public pension system consists of a combination of government-sponsored programs:
The Old Age Security program which provides Canadians with a pension at age 65 if they satisfy certain residence requirements.
The Canada/Quebec Pension Plan, which provides Canadian workers and their families with partial replacement of earnings in the case of retirement, disability or death.
The Provincial Income Supplement Programs which provide their low-income residents with an income supplement to the Old Age Security benefits.
The Veterans Affairs Canada Program, which provides qualified veterans with retirement, disability, and death benefits.
These programs help eligible Canadians answer concerns regarding how they will pay their bills when retired, and what happens if they become disabled and cannot provide for themselves and their families.
Each program has separate eligibility requirements, procedures, and rules. Some programs require you to pay into the system to be eligible, others don't. Some benefits are paid only if you live in Canada, and others are paid anywhere in the world. Some benefits are income-tested, meaning the benefit amounts will be reduced if your income is over a certain level; others are not.
1.1 OLD AGE SECURITY PROGRAM
The OAS Program is the first pillar of Canada's public pension system. The program began in 1952 when Parliament passed the Old Age Security Act to provide a universal pension for seniors over the age of 70, as long as they met certain Canadian residence requirements.
Between 1965 and 1969, the age of eligibility went down gradually from 70 to 65. In the 1970s, the government indexed the pension payments to the changes in the Consumer Price Index and to provide supplemental benefits to low-income pensioners.
In the late 1980s, after a prolonged period of inflation and economic stagnation, the government saw the pension system as costly and levied a special tax called “recovery tax” on OAS pensions to reduce and ultimately eliminate the OAS pension for people whose annual income exceeded a certain level. Today, the benefits of the program include:
The OAS Pension
The Guaranteed Income Supplement
The Allowance for the Survivor
The program is funded entirely by the general revenues of the Government of Canada. It provides a basic level of support to those with no other sources of retirement income. In 2014, the total expenditure of the program was 2.3% of GDP, with 35 billion paid in OAS pension and 10 billion in Guaranteed Income Supplement to 5.5 million seniors.
Service Canada is the administrator of the OAS program. See Exhibit I for contact information.
1.2 CANADA/QUEBEC PENSION PLAN
The Canada Pension Plan (CPP) is a mandatory contributory public pension program for Canadians since 1966. It provides insurance protection to a contributor against losing income due to retirement, disability, or death. The retirement pension replaces approximately 25 percent of the contributor’s lifetime earnings, up to a maximum amount.
The plan covers virtually every person between the ages of 18 and 70 who works in Canada outside of Quebec and earns more than $3,500 per year. People between the ages of 18 and 70 who work in the Province of Quebec are covered by the Quebec Pension Plan (QPP). The QPP broadly mirrors the CPP in most respects, and the operations of the two plans are coordinated between the federal and the Quebec governments. The benefits of the Canada/Quebec Pension Plan include: