Spending time outside of Canada, whether living overseas or travelling extensively for a long period of time, may change the way you receive your Canada Pension Plan (CPP) and your Old Age Security (OAS). Find out more in our guide.
What is the Canada Pension Plan (CPP)?
The Canada Pension Plan is a monthly payment paid out to Canadians who contributed to the CPP during their working years. All employed Canadians over the age of 18 must contribute a portion of their income, which currently sits around 4%, to their Canada Pension Plan. Depending on your employer, this is usually deducted automatically from your paycheque each month.
The benefit of contributing to your CPP is that you’ll receive a monthly retirement pension. As of July 2018, the current CPP payout is equal to 25% of your average earnings on which CPP contributions were made from the age of 18 to 65. As stated by the Government of Canada: “The earnings upon which contributions are made are subject to an annual limit, which, in 2018, is $55,900.”
In 2018, the average monthly CPP benefits in Canada were sitting around $550.
The Canada Pension Plan forms one of the two major components that make up the retirement income system in Canada. The other is Old Age Security (OAS).
What is Old Age Security (OAS)?
Old Age Security (OAS) is a taxable monthly payment that is available to most Canadians over the age of 65. However, those who earn more than $74,788 (current as of July 2018), must pay back a portion of their OAS at a rate of 15% of their net income. Those who have an individual income over $122,843 do not receive OAS.
To receive OAS, you must have been living in Canada for at least 20 years past your 18th birthday. To receive the full amount of OAS possible, you must have been living in Canada for at least 40 years after your 18th birthday.
Access to your CPP and OAS overseas
If you have lived and worked in both Canada and another country, you may be eligible for pensions and benefits from Canada and/or from the other country, depending if Canada and the other nation have a social security agreement.
If you permanently relocate to a different country, you can still receive CPP and OAS payments. However, payments sent to someone who’s not living in Canada is taxed at a rate of 25%. There are 2 ways to avoid or reduce this tax. (1) If you live in a country that has a tax treaty with Canada, you may not be subject to this tax or may be able to get a tax credit. (2) You can apply to have your non-resident tax reduced by submitting a NR5 application to the CRA.
Unlike the OAS, there is no residency requirement related to CPP. So, if you live outside Canada, you’re still eligible to receive CPP payments without any penalty tax being applied strictly because you live outside the country.
What is a social security agreement?
A social security agreement is an agreement between Canada and another country that allows coordination of two pension plans, one from each country the person has lived in. Canada has social security agreements with a number of nations worldwide. You should check to see if the other country you have lived or worked in has an agreement with Canada.
Factors to keep in mind:
- Usually 20 years of living in Canada is required to receive OAS.
- If less than 20 years, partial OAS can be received if Canada has a social security agreement with the other country of residence. The amount of OAS received will depend on the number of years spent living in Canada.
- You can sometimes combine pension plan contributions from other countries that Canada has a social security agreement with in order to meet minimum requirements.
- If you leave the country for more than six months, you are considered a non-resident for that tax year.
Transferring your pension overseas
Receiving your Canada Pension Plan (CPP) and Old Age Security (OAS) payments in the local currency can save you money since you will get a more competitive exchange rate and you may pay lower banking fees. You can receive your payments directly into your local bank account if you live in a country that offers the service of direct deposit.
If you don’t or can’t choose to have the money directly deposited, there are other ways to move your CPP and OAS overseas from a Canadian bank account. Your options include:
- Banks. Some Canadian banks have partner branches in other countries around the world, which can save you plenty of money on fees if you work with the two banks. If not, banks tend to charge high transfer fees and give poor exchange rates.
- Specialist money transfer services. Focusing on sending money overseas only, these companies give customers competitive exchange rates and charge low transfer fees.
Read more about specialist money transfer services here.
Who should you tell if you’re travelling or moving overseas?
You should inform the Government of Canada if you’re going to be relocating overseas. This will ensure you receive information regarding how to access your Canada Pension Plan and your Old Age Security. You should tell the department if you:
- Decide to move and live overseas.
- You take an absence from Canada for more than six months of the year.
- Are covered by an international social security agreement.
Transferring your pension back to Canada
Even if you decide to move back to Canada and want to transfer your pension back, you can easily do so by sending the funds using a money transfer service. If you directly receive your payments into your overseas bank account, you can have them directly sent into your Canadian bank account. Any additional funds in your overseas account can be transferred using the services of a specialist money transfer company.
As mentioned above, banks generally offer poor exchange rates and charge high fees, while specialist money transfer services tend to offer more competitive exchange rates, lower transfer fees and faster transfer speeds. Furthermore, if you decide not to move all of your money at once, you can arrange bi-weekly or monthly regularly scheduled payments to your account.
Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.