The Difference Between Old Age Security and The Canada Pension Plan

Jonathan Adomait |

You’re probably already familiar with some of the federal retirement programs that are available to you, but do you really know the differences between them? It’s important to understand both Old Age Security (OAS) and The Canada Pension Plan (CPP) so you’re properly prepared to manage your finances during retirement. Here’s what you need to know about each retirement plan. 

Funding Sources 

The main difference between OAS and CPP is their source of funding. Your CPP is funded through contributions from both you and your employer, or, in the case of being self employed - totally funded by you. It’s considered a contributory retirement plan—you’ll get more out of it the more you put into it. In order to contribute to your CPP, you must be age 18 or older, earn more than $3,500 per year and live outside of Quebec (Quebec residents can open their own Quebec Pension Plans instead).

OAS benefits, on the other hand, are government-funded. It’s a non-contributory pension plan, funded through a percentage of income tax that all Canadians pay. To be eligible for OAS benefits, you must have been a citizen or legal resident of Canada for at least 10 years after age 18. 

Payment Eligibility

In order to qualify for CPP benefits, you must have contributed at least one payment to CPP. You will be eligible for benefits as early as age 60, at a reduced rate. If you’re able to wait until you reach age 70 to cash in on your benefits, your monthly payment will increase by 42%. In general, your monthly benefit amount is determined by how much you and your employer paid into CPP over the course of your career. 

You must also be 65 years old to qualify for OAS benefits, but you don’t have to be retired to start receiving payments. Similar to CPP, if you defer until age 70 you’ll enjoy 36% higher monthly payments. Your monthly benefit amount is determined by how many years you have been a resident of Canada since age 18. Both CPP and OAS are taxable benefits. 

Supplementary Programs 

Both retirement programs have supplementary benefits available to certain groups of people. In addition to retirement pension, CPP offers survivor’s pension, children’s benefits, disability benefits and post-retirement benefits. 

OAS offers supplementary benefits including Guaranteed Income Supplement (GIS) for low-income retirees, as well as Allowance for the Survivor, for spouses and widowed spouses of GIS recipients. GIS and Allowance are both non-taxable benefits. 

Setting Yourself Up for Retirement Success 

Preparing for retirement can be confusing and overwhelming, but there are many programs in place to make sure you have the resources you need to continue living your best life after your career. If you’re still unsure about eligibility for retirement benefits or supplemental programs, the amounts of your monthly payments or how much you're projected to spend in retirement, let us know! We'd love to put together a custom projection that addresses your needs and gives you peace of mind.