Canada Pension Plan changes
By Diana McLaren • Bankrate.com

It pays to keep working
Changes are also being made that will lift the cutoff for CPP contributions and payments if a person continues to work after taking her pension. According to the recent changes, Canadians will be able to collect CPP at age 60 while continuing to work either full or part time.

"Surveys of people about when they think they will retire indicate that the closer they get to retirement, the later they think they will retire," says Hamilton. "When retirement is 30 years away, it sounds like an incredibly long time. But as you get closer, you realize you can't afford to quit work."

Hamilton says the government's changes on cutoffs are nothing radical, they simply "no longer encourage people to stop working altogether. Neutral is the name of the game."

Still, the change allowing people to continue working while also making CPP contributions and increasing their benefits does reflect a shift in government policy.

As well, the government is also increasing the number of low-earning years allowed for the calculation of benefits. This will aid people who are out of the workforce for a period of time or earning very low wages.

Department of Finance calculations show how this would affect a teacher retiring at age 60 after the changes take full effect in 2015. This teacher was in post-secondary school for five years and took a two-year leave of absence from work for family reasons. Under the current system, she would earn $8,202. With the increase in allowance for time off, her CPP will be $8,359, increasing each year with the cost of living.

Government direction or individual choice
Critics charge that the federal government is moving toward policies that discourage Canadians from full or early retirement, but Hamilton says that's not the case.

"I would be strongly opposed to that. It's not up to the government to decide for people when they decide to retire at their own expense, and these changes aren't doing that. They are not rewarding or penalizing people, and that's just where you want the government policy to be."

As for the role CPP plays in retirement overall, the Department of Finance background statement on the recent changes states that it is designed to replace up to 25 per cent of preretirement employment earnings up to a maximum amount ($46,300 this year) and is based on how much a person contributed during his or her working years.

It's all relative
How great a role CPP plays depends on your earnings and assets before retirement, says Hamilton.

"You look at it in conjunction with the other government pension programs, any private pensions and savings and assets. For a person of low income at age 65, CPP represents an adequate portion of their retirement. For someone of middle income, they'll need some retirement savings of their own or private pension. And for someone of higher income, government pensions are only a start in terms of replacing income after retirement."

That is, if you wish to retire in the style to which you've become accustomed.

Diana McLaren is a writer based in Toronto.