What is the Canada Pension Plan?

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  • Written By: Patrick Roland
  • Edited By: R. Halprin
  • Last Modified Date: 24 August 2019
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The Canada Pension Plan, also known as the CPP, is a mandatory retirement investment fund for Canadian citizens. It is one of two government sponsored retirement plans in the country, and it requires all citizens over the age of 18 to contribute. The money is operates on a "state steady" basis that promotes sustainability for all investors. The plan is relatively new and has undergone many changes in its short history. One Canadian province does not participate in this national pension plan.

Functioning on a foundation similar to the U.S. Social Security system, contributions to the Canada Pension Plan are deducted automatically from individual paychecks. The plan requires a mandatory deduction, currently at a rate of 4.95%, for all working citizens over the age of 18. The money goes into a general fund where it may earn enough interest so that Canadian workers can provide for themselves on the basis of a monthly stipend during retirement. Citizens in Canada are not allowed to remove money from the plan until they have reached the age of 65. The Canadian government also created another plan, called Old Age Security, that provides money to retirees based on different criteria.


The contribution rate of the Canada Pension Plan is known as state steady because it is estimated to remain constant for the next 75 years. This is done by accumulating a large enough fund of reserve finances to produce a stable system. This system is considered a blend of other retirement systems and is modeled this way to avoid increasing contributions.

This retirement plan was first initiated in 1965 to meet the concerns of Canadian citizens needing financial support after retirement. The initial required financial contribution was less than 2%, but steadily rose to its current percentage. The 1990s were a turbulent period for the Canada Pension Plan because it was feared the surplus of money for the plan would soon run out. As a result, an increase in contributions, lowering of overhead costs, and a regular three-year review of policies was enacted.

Every province of Canada uses the Canada Pension Plan except for one. Quebec operates its own plan, called the Quebec Pension Plan. It is similar to the Canada Pension Plan's structure in most ways. This pension plan is only available to citizens of Quebec and has no affiliation with the plans other Canadian citizens may use.


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