Do Newcomers to Canada Qualify for Canadian Retirement Plans?

By Remitbee - Apr 25, 2022

Immigrants to Canada frequently wonder if they are eligible to apply for a Canadian pension plan or qualify for the same retirement plans as Canadian citizens. Unfortunately, many newcomers to Canada are not qualified for a Canadian pension plan during their first few years.

Not all retirement accounts are also open to everyone, regardless of citizenship; some are exclusively available through employers, while others exclude high-income earners. To help you check on retirement plans that you might qualify for, let's review some of the retirement plans in Canada.

Canada Pension Plan (CPP)

As a government-run retirement plan, Canada Pension Plan collects payments and gives income to Canadians in retirement. Anyone between 18 and 69 years old who works in Canada, lives outside of Quebec (because Quebec has its own pension plan for residents), and earns more than $3,500 per year is required to contribute.

So, whether you are a newcomer to Canada or not, you are expected to pay for the CPP if you are working. However, even though you pay the CPP while working and living in Canada, it does not guarantee that you will get huge benefits. CPP benefits are calculated based on how long you have made contributions.

You are eligible for the benefits when you turn 60 years old, even though you only make payment once. But the amount they will get will not be the same as those who made contributions for a longer time.

Thus it is good to sign up for this plan as early as you find your work in Canada. You can apply to the CPP online or send your application through the mail. Once you submit your application, you can check its status using your My Service Canada Account (MSCA) and select the "Application Status" link. You can also contact Service Canada.

Old Age Security (OAS)

We can compare Old Age Security (OAS) to the Social Security of the United States of America. Canadian citizens 65 years of age and older who have lived in the country for at least ten years after 18 with a yearly income of less than $129,581 are eligible to receive Old Age Security benefits. It means you need to first become a citizen or legal resident by applying for OAS to receive this benefit.

How long you've resided in Canada impacts the amount of benefit you get. You would be eligible for the whole payment if you lived in Canada for 40 years after reaching 18. If you lived in Canada from 45 onwards, you would be entitled to half of the entire payout when you hit the retirement point at age 65.

Nevertheless, there is one more condition to remember when applying to receive the OAS benefit. If you are a high-income earner, note that you may be asked to pay back some of the OAS payouts you receive once you apply for OAS. Moreover, if you earn more than 129,581 dollars, you are ineligible to receive it.

Just like receiving CPP benefits, you won't be able to get the OAS right after application. You can apply for OAS once you reach the age of 65, but you can also prefer to delay payouts until you reach the age of 70, and the longer you wait, the larger your monthly benefit will be.

Registered Retirement Savings Plan (RRSP)

The Registered Retirement Savings Plan (RRSP), similar to the IRA in the United States, is a personal retirement account that lets people make contributions and put away 18% of their annual income, up to $27,830 (based on the 2021 data).

The funds you place in your RRSP are tax-free, but they will be taxed as income once you withdraw when you retire.

Employers can set up a Group RRSP for their employees. Just like the 401(k) plan in the United States of America, the contributions for RRSP are directly deducted from the employee's salary or each of their paychecks. Usually, employers designate a person to manage these contributions for their employees.

You are eligible to apply for an RRSP if you generate income from employment, file a tax return with the Canadian Revenue Agency (CRA), and are under 71. If you have recently moved to Canada, you might have to put it on hold because your contribution threshold is grounded on your tax return from the preceding year. It thus implies that you won't be able to make any contributions until you've reported your income to the CRA.

You must also be provided with a Group RRSP by your company to qualify, even if you have previously filed a tax return.

Tax-Free Savings Account (TFSA)

Although a TFSA isn't exactly a retirement account, countless Canadians use it to save for retirement since their money grows in this account tax-free. This implies that you won't have to pay income tax on any withdrawals you make from the account. You can withdraw from this at any time, unlike the regular retirement accounts.

As long as you're at least 18 years old, you can open this account right away after moving to Canada. Since being a Canadian citizen or even a legal resident is not a requirement. However, do note that your contributions will be taxed at 1% every month if you are not a resident.

Signing up for a TFSA is comparable to registering for an RRSP. You can apply for this at any major bank or financial institution. But unlike an RRSP, you will be limited to a maximum contribution of $6000 per year. And if you miss your limit in a year, you can cover for it the following year.

Wrap Up

Living abroad is always a big adjustment, and there is a lot to learn. Canada is no exception. From figuring out the healthcare system to understanding Canadian retirement plans, there are many new things to wrap your head around. One thing that you'll want to get sorted out early on is how to send money back home. That's where Remitbee comes in.

We offer fast, reliable, and affordable money transfer services, so you can rest assured that your loved ones will receive the money they need. We're committed to making the transition from Canada as smooth as possible for you. Get your free account today, and let us help you with your money transfer needs.

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