CPP: How the Canada Pension Plan Works
The Canada Pension Plan (CPP) is a mandatory, contributory public pension that replaces a portion of your employment income in retirement. Both you and your employer contribute a percentage of your earnings during your working years, and you receive a monthly, inflation-indexed benefit for life once you start it.
2 min read · Updated June 2026
CPP is funded by payroll contributions, not general tax revenue. In 2026 the base contribution rate is 5.95% each for employee and employer (11.9% combined) on earnings between the $3,500 basic exemption and the Year's Maximum Pensionable Earnings. A second tier (CPP2) adds contributions on earnings above the YMPE up to a higher ceiling, gradually raising the income CPP replaces for higher earners.
Your benefit is earnings-related: the more you contributed and the longer your contribution history, the larger your pension, up to a maximum. The plan drops your lowest-earning months from the calculation (the general drop-out provision plus child-rearing provisions), so years of low or no income don't permanently sink your benefit. The 2025 maximum at age 65 was roughly $1,433/month, but most recipients get less because they didn't contribute the maximum every year.
The standard start age is 65, but you can start as early as 60 or as late as 70. Starting early reduces the benefit by 0.6% per month (up to 36% less at 60); delaying increases it by 0.7% per month (up to 42% more at 70). For someone with average life expectancy and no urgent income need, delaying to 70 is often the highest-expected-value choice — it's an inflation-indexed, government-guaranteed 8.4%-per-year increase you cannot buy anywhere else.
CPP is separate from Old Age Security (OAS). CPP is based on what you contributed from employment; OAS is a residency-based benefit funded from general revenue. Most retirees receive both, plus possibly the Guaranteed Income Supplement (GIS) if low-income. Together they form the public-pension floor that your RRSP, TFSA, and FHSA savings build on top of.
For FIRE planners, CPP is a backstop, not a plan — you generally can't access it before 60, and early retirement years with low or no employment income reduce your eventual benefit (offset partly by the drop-out provisions). Model your CPP estimate from your My Service Canada Account statement, then size your private portfolio to bridge the gap between early retirement and when CPP and OAS begin.
Richify lets you model CPP at 60, 65, and 70 against your private savings, so you can see how delaying CPP for a guaranteed inflation-indexed increase changes the size of the bridge portfolio you need to retire early.
