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A Quick Guide to Pensions for Seniors

Retirement is an exciting milestone to look forward to, but it can be daunting to consider the financial aspects of leaving work permanently. It's wise to begin thinking about your retirement age, your expected retirement income, and your current financial and debt situation at least 10 years prior to retiring.

Then, around six months before retirement you should check where you are with your finances and make sure your pension payments are set up in readiness for leaving work. After retirement, it's important to stay informed about your financial situation to ensure your pensions and savings last. In this quick guide, we describe the three types of pensions available here in Canada to help you get started managing your retirement income.

1. Old Age Security (OAS) Pension

The OAS is a taxable, means-tested payment provided to seniors aged 65 and above. It is not tied to employment history and is available to everyone who is eligible, including those who are still employed and those who have never worked. The amount of OAS you receive depends on how long you've lived in Canada since turning 18. The full amount is currently $691 per month for those aged

between 65 and 74, and $760 for those aged 75 and over. You must have lived in Canada as an adult for at least 40 years to receive the full amount. If you haven't, you'll receive a partial amount.

It's important to factor in the OAS recovery tax, also known as OAS clawback. The government sets an income threshold each calendar year, and those whose income exceeds this threshold must repay 15% of the excess, up to a maximum of their total OAS income for that year. The clawback is applied by a reduction in the monthly OAS payments.

2. Canada Pension Plan (CPP)

The CPP is designed to replace a percentage of a senior's retirement average wage. Initially, this was 25%, but the rate has gradually increased and is set to reach 33% in coming years. The amount you receive depends on what you and your employer contributed to the plan during your working life, with contributions determined by your earnings.

The standard age to withdraw your CPP is 65, but you can take it from age 60. If you do take it early, you'll receive smaller monthly amounts. You can also defer withdrawal of CPP up to the age of 70, and doing so can increase your monthly amounts once you start drawing it. The same goes for the OAS pension described above.

3. Workplace Pension Plans

Workplace pensions are voluntary schemes in which both you and your employer pay contributions throughout your working life. There are two main types of workplace pensions available. Defined benefit (DB) pension plans are where the employer invests contributions into a pension fund. Upon your retirement, the employer pays you a defined monthly income based on your average earnings

and years of service.

Defined contribution (DC) pension plans are where contributions are invested for the individual in a personal pension account to suit their goals and risk profile. The total proceeds are then given to the individual upon their retirement. They can take this payout as a lump sum or transfer it to a Locked-In Retirement Income Fund, a Life Income Fund, or a life annuity to get steady payments after retirement.

Consult an Expert for More pensions Advice

Pensions can be difficult to navigate so it's important to seek professional advice to ensure you're making the most of your available income during retirement. Consult a financial planning expert or pensions lawyer for more support.

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