Government programs, employer pension plans, and personal savings plans work together to help you create a financially secure retirement. In Canada these three sources are sometimes referred to as the three legs of the retirement income stool. In planning for your retirement the government programs make up an important leg of this stool. The two major programs in Canada are the Canada Pension Plan “CPP” and Old Age Security “OAS”.
A CPP retirement pension is a monthly benefit paid to people who have contributed to the Canada Pension Plan. The pension is designed to replace about 25 percent of the earnings on which a person's contributions were based. Any benefits paid by the CPP are taxable both federally and provincially.
OAS is a federal government program that provides a basic amount of retirement income to all individuals who meet certain residency requirements. The amount of OAS that you receive is not dependent on your past employment or salary. Low income OAS recipients may also be eligible for the Guaranteed Income Supplement “GIS”. Any benefits paid by the OAS are taxable both federally and provincially.