All the Numbers

Workplace pensions

From the All the Numbers wiki · Retirement and benefits

A registered pension plan (RPP) run by an employer pays a monthly amount in retirement. In a defined-benefit plan the amount is set by a formula in the plan, usually years of service times average pay, rather than by how an investment account performed. The pension is taxable income. A life pension from a registered pension plan counts as eligible pension income at any age, so it earns the pension income amount on up to $2,000 a year and can be split with a spouse even before 65; see pension income splitting.[1]

The bridge benefit

Many defined-benefit plans are built to work alongside CPP, which starts at 65 in the usual case.[2] To make up the gap before then, a plan can pay a temporary bridge benefit. It is paid until the first of the month after the 65th birthday (the last payment is in the birthday month), or earlier if the person starts a CPP or QPP disability pension. It does not change if CPP is taken early or late. The amount is the plan's own formula, so it has to come from the plan's statement.[3]

What the engine does

  • Treats an employer pension as a monthly income payment, taxed as pension income. The amount comes from the member's statement; the engine does not work out a plan's formula.
  • Flags a payment as a bridge benefit and ends it the month after the 65th birthday, whatever the CPP start. All the Numbers takes the birthday as 1 January, and the engine refuses a bridge benefit that would start or run past that point.
  • Counts the payment as income for the Guaranteed Income Supplement and the OAS recovery tax.

What All the Numbers does

Under each person there is a place for a workplace pension: the yearly pension you expect when it starts, the age it starts, how much it rises each year once it is paid, and a bridge benefit if the plan pays one. Enter the pension with the years you will still work counted, at today's pay. A statement must show the pension you have earned so far, which leaves out the years still to come; many plans also show an estimate at retirement, or have a calculator that gives one. The plan takes the amount in today's dollars and grows it with inflation to the year it starts. It starts the month after the birthday at the start age, or at the retirement age when no start age is given, and then rises by the indexing you enter, or not at all when that is blank. No tax is taken off at source; the year's tax is settled when the return is filed, as for CPP and OAS in the plan.[4]

A couple can choose to split it: half of that person's eligible pension income is then taxed on the partner's return every year, which includes RRIF income from 65. All the Numbers does not look for the best share, which can differ from year to year; it uses half because one high pension beside a low income is the usual case.[5]

What it does not do

  • A plan's own formula (years of service, accrual rate, best average salary), early-retirement reductions and commuted values are not calculated: the amount comes from the statement.
  • A survivor's pension is not asked, because the plan does not model a death.
  • The pension adjustment, which lowers a member's RRSP room each year they earn a pension, is not taken off. Enter the RRSP deduction limit from your notice of assessment so the first year's room is right.
  • Plans' own bridge formulas, and plans where the lifetime pension is reduced after 65 to pay for the bridge, are not calculated.
  • Plans with bridge terms that differ from the 65 rule are not covered.
  • Defined-contribution plans are balances like any other registered account; see RRIFs and the wind-up at 71 for what happens when one is paid out.

See also: retirement age, Old Age Security.

See also

  • Old Age Security · A monthly pension paid to most Canadians from 65, based on years lived in Canada after 18. It can be deferred for a permanent increase, rises 10% at 75 and is partly repaid through a recovery tax at high incomes.
  • Pension income splitting · Spouses can jointly elect to move up to half of one partner's eligible pension income onto the other's return, lowering combined tax when incomes are uneven. CPP and OAS are not eligible.
  • Retirement age · The age at which a person's pay stops in the plan, 65 unless you give another. Their monthly contributions stop then, and an RRSP becomes a RRIF at 71.
  • RRIFs and the wind-up at 71 · An RRSP must become a RRIF by the end of the year you turn 71, after which a prescribed minimum comes out and is taxed every year. Give a birth year and the plan models it; leave it blank and a plan running past 71 looks better than it is.
  • RRSP room, deduction and withdrawals · Room accrues at 18% of earned income up to the annual cap, contributions earn a deduction refunded the following April, and withdrawals are taxed as income. The plan assumes you start with no carried-forward room unless you say otherwise.
  • The CPP retirement pension · A monthly pension from the Canada Pension Plan based on contributions, payable from 60 to 70. Starting earlier cuts it by 0.6% a month, starting later raises it by 0.7% a month. The plan estimates it from a Service Canada statement or from salary.
  • The Guaranteed Income Supplement · A tax-free top-up to Old Age Security for pensioners with little other income. It falls by 50 cents for every dollar of other income (75 cents through part of the range); RRSP and RRIF withdrawals count against it, TFSA withdrawals do not. The projection estimates it on the previous year's income.
  • The OAS recovery tax · Years where net income clears the threshold repay 15% of the excess out of Old Age Security. The projection adds it to the year's return and pays it with the April balance; Service Canada takes it from the OAS payments from the next July instead, so only the timing differs.

References

  1. ↑CRA — TD1 2026 Personal Tax Credits Return, line 4; ITA 118(3), (7) · Federal pension income amount (line 31400): lesser of this and eligible pension income (RRIF, RPP, RRSP annuity payments at 65+; not CPP, OAS, GIS or lump-sum RRSP withdrawals); not indexed · $2,000 · effective 2006-01-01
  2. ↑Service Canada — CPP retirement pension: when to start ("The standard age to start CPP is at age 65.") · CPP retirement pension standard start age; the early and late adjustments count months from the month after this birthday · 65 years · effective 1987-01-01
  3. ↑National Association of Federal Retirees — "Bridge benefits and turning 65" (federal PSSA practice); OTPP "Bridge benefit and CPP" (ends the month after 65 or on CPP disability, unchanged by CPP start); OPB PSPP CPP integration · RPP bridge benefit: a temporary supplement in an integrated defined-benefit pension paid until the first of the month after the 65th birthday (last payment in the birthday month), or earlier on a CPP/QPP disability pension; unchanged by taking CPP early or late; the amount is the plan's own formula and is supplied from the statement · See the source · effective 1966-01-01
  4. ↑Our convention; CRA line 31400 (a life annuity from a registered pension plan is eligible pension income at any age, ITA 118(3), (7)) · A defined-benefit pension is the yearly amount on the plan's statement, taken in today's dollars and grown with the plan's inflation to the year it starts; it starts the month after the start-age birthday (the retirement age when none is given), rises each year after that by the indexing entered (none when blank), and is taxed as pension income that earns the pension credit at any age, with no tax withheld at source. A bridge benefit is entered the same way and ends at 65 · effective 2026-10-13
  5. ↑Our convention under ITA 60.03 (CRA — Pension income splitting) · A pension split chosen in the planner moves half of the person's eligible pension income to the partner every year they are a couple (a T1032 election each year): the workplace pension at any age, and RRIF income from 65. The best share, which can differ from year to year, is not searched · effective 2026-10-13