Welcome to 2010. With the New Year the government is expected to approve some proposals that depending on your circumstances may affect you. Decisions you make this year could impact your retirement income for the rest of your life.

Last May 2009 the Department of Finance proposed changes for the Canada Pension Plan (CPP). These changes are intended to “modernize” the Plan to better reflect the different paths people can take into retirement. The changes are expected to be phased in from 2011 to 2016, so they will affect anyone planning to retire after 2010. These proposals must be approved by Parliament and the provinces before they can take effect.

Here are the Highlights:

Early retirement (after age 60 and before age 65) will result in lower income. CPP benefits will be reduced by 0.6% for each month, or 7.2% for each year of early retirement. Under the old rules the reduction was 0.5% per month or 6% per year. Under the new rules CPP beneficiaries who start collecting CPP at age 60, will receive 36% less than if you wait until age 65. Under the old rules the reduction was 30%. There will be no change for current CPP beneficiaries or for those taking their CPP benefit before these changes take effect. The early retirement changes will be phased in gradually over a five-year period from 2012.

Late retirement (after age 65 but before age 71) will result in higher income. CPP benefits will be increased by 0.7% per month or 8.4% per year for those who defer collecting CPP benefits after age 65 and before age 71. The increase was 6% under the old rules. This means that if you wait until age 70 to take your CPP, the benefit payments will be 42% higher (30% under the old rules) than if you start at age 65. This change is to be phased in over three years beginning in 2011.

Those who are still working, under age 65, will be able to collect CPP as early as age 60. If approved you may choose to receive CPP retirement benefits any time after age 60 regardless of your other employment income.

The calculation for CPP will change as well. Currently the lowest 7 years of earnings are deleted from the calculation. Under the proposed changes, the lowest 8 years will be omitted so that the benefits are not weighed down by low earning years.

For more information you should visit the Department of Finance Canada web site.

The foregoing is for general information purposes and is the opinion of the writer. This information is not intended to provide personal advice including, without limitation, investment, financial, legal, accounting or tax advice. Please call or write to Rick Sutherland CLU, CFP, FDS, R.F.P., of FundEX Investments Inc. to discuss your particular circumstances or suggest a topic for future articles, at 613-798-2421 or e-mail rick@invested-interest.ca.