Retirement Income: OAS and CPP in Canada vs Social Security in US

In my post about Social Security family benefits, reader KD suggested that I look into the system in Canada and compare it with Social Security in the U.S. Great suggestion, thank you KD!

Canada has two government sponsored programs for retirement: OAS and CPP.

OAS stands for Old Age Security. OAS is non-contributory. You get OAS just for being a senior citizen. The primary qualifying factors are age and number of years lived in Canada.

Basic OAS benefit is about $550 a month (the values of Canadian dollars and US dollars are about equal right now). Low income seniors receive an additional supplement. OAS starts phasing out through repayment if a retiree’s income is above about $70k. It completely disappears if a retiree’s income is above $116k. The low base benefit amount, the low-income supplement, and the repayment mechanism make OAS a means-tested basic safety net.

CPP stands for Canada Pension Plan. Like Social Security, CPP provides disability and survivor benefits in addition to retirement benefits. I only look at the retirement benefits in this post.

The current CPP tax rate is set at 9.9% up to $51k, equally shared between the employee and the employer, just like Social Security. By comparison, Social Security tax rate is 12.4% up to $117k. The maximum tax for Social Security is about three times the maximum tax for CPP.

Because CPP’s tax rate and wage cap are lower, the benefits are also lower. The maximum CPP benefit at age 65 is about $1,000 a month. The maximum Social Security benefit is over $2,600 in 2014 at age 66, before any spousal or child benefits.

CPP also has a trust fund, but CPP’s trust fund is real. An independent CPP Investment Board invests the trust fund in actual marketable securities: stocks, bonds, real estate. Social Security trust fund loans out 100% of its assets to the U.S. government, which spent it on the general budget. When Social Security needs the money to pay benefits, the U.S. government must tax its citizens or borrow from someone else to repay the Social Security trust fund.

When it comes to benefits to a current or former spouse or life partner, CPP is completely agnostic. When a couple divorce or separate, their CPP credits built up when they were together can be split between the two. A CPP recipient can also choose to share a portion of his/her CPP benefits with a spouse or partner. In either case, the total benefits don’t increase. There won’t be a case where one person contributes and current and former spouses plus several children all receive benefits without any reduction to the contributor’s benefits. The splitting and sharing provisions in CPP address the uneven income and marriage/divorce situations very elegantly.

I see Canada’s OAS and CPP programs have a better setup than Social Security in the U.S. They are more of a safety net, less of a retirement program retirees can live on 100%. The CPP trust fund is real, and will grow. Family benefits aren’t free. These characteristics make Canada’s OAS and CPP programs more sustainable than Social Security.

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  1. KD says

    TFB, you are welcome! I have learned quite a few things from your posts that even paid advisers would struggle to explain in plain English.

  2. RZ says

    Your post seems to imply that the U.S. Social Security Trust Fund is not real. If so, that statement is flat incorrect.
    The U.S. Trust Fund is invested in U.S. Treasury securities that are backed by the full faith and credit of the U.S. government, which has not defaulted on an obligation since the War of 1812.
    To suggest such a fund is not real would be the same as suggesting that, oh, the Vanguard Intermediate-Term Treasury Fund Investor Shares – or any of the many, many mutual funds that invest solely in Treasuries – is not a ‘real’ fund since it is invested solely in government securities.

  3. Harry Sit says

    @RZ – I have no doubt the U.S. government will pay back what it owes to the SS trust fund, principal and interest. However, a real trust fund has an independent board that determines how to invest fund assets. A real trust fund holds assets it can sell to others in the open market. A real trust fund does not solely rely on future taxpayers for money. In these aspects, the SS trust fund isn’t as real as the Canadian CPP trust fund. It’s tied too closely to the U.S. government.

    All other defined benefit trust funds have an independent board. None of them invests only in Treasuries.

    If the U.S. government wants to quash any doubt whether the SS trust fund is real, it should move in those directions. First install an independent board who will only act in the interest of beneficiaries in terms of investing fund assets. Next replace the non-marketable bonds with regular Treasury bonds and let the board decide what to do. That will make SS trust fund more real, i.e. looking like other defined benefit trust funds.

  4. ken white says

    Seems like the age old Canadian marketing plan for everything from food to pension plans.
    We as Canadians simply look to our neighbours to the South and simply charge our citizens more and give them less.

  5. Ken White says

    So CPP and OAS is more like welfare? (according to your social safety net comment verses the American amounts that their Citizens could actually retire on)
    Just best to face it The US govenment has always showed more concern for their citizens than the Canadian gov.

  6. Walter Jasey says

    I have a “FOREIGN BENEFICIARIES PENSION DECLARATION FORM” to fill out and have been trying to contact the information number 800-277-9914 which is the number given on the form for information. I have been dialing the number since 3:45 P.M. on Monday August 13 and have received a busy signal on every call. Your website says an agent is available from 8 A..M. until 4:30 P.M. Monday thru Friday. That certainly isn’t the case today. I need to know if I have a police officer from Windsor Ontario/OPP witness the form he has no official stamp or seal of authority. How do I or he handle this. The form says I can have a police officer sign as my witness.

  7. Harry Sit says

    Walter – Please contact the appropriate government agency with your questions. This site is not associated with any government agency.

  8. Ken White says

    I must make a comment here as it may be that I am incorrect but it seems that in ALL business decisions when it comes to our Canadia Citizens the Goventment uses this approach which is really quite simple
    Look to our neighbours to the South…see what their govenment does for their citizens,charge our ctizens more and give them less.
    In Canada that seems to work as an excuse for all commerce.

  9. Bob Foss says

    Having lived in both countries, and have relatives in both countries, each has some advantages I think. I’m one of the roughly half of Americans who has government health insurance (Medicare and military Tricare); others have Medicaid, Veteran’s Hospital, etc. The real difference there is there are no waiting lists in the U.S. regardless of which type of insurance you have, except in the now being revamped VA Hospital system. Now, everyone has to have insurance under Obamacare, but I personally know some who pay the fine, and if they get sick, they’ll just go to a public hospital for basic treatment. Besides waiting lists, Canada also has private insurance options as well. The real quirk I think is that Canadian health systems are provincial-based. Go out of your province, and it could be sticky. This week (Aug 2015) a woman from one province got billed for Air Ambulance (having a child) but neither province would pay the multi-thousand dollar bill…she didn’t get travel insurance either. U.S. Medicare is cheap ($104 a month) covers most everything, and is good in all 50 states, D.C., and the five U.S. territories, but you should have a supplemental plan that is not very expensive to cover those few things Medicare doesn’t cover (eyeglasses, hearing aids). My employer covers my supplement. Pensions (Social Security) are higher and can be taken early (I took mine at age 62). My cousin’s neighbor in Alberta waited over a year for bone replacement surgery, but by then the bones had deteriorated so badly the operation offered little improvement. All in all, I think the two-tiered U.S. system for health care works best (government and private), and Social Security is a commitment that no U.S. politician would ignore…especially since in the U.S., citizens vote for Senators, unlike Canada where they are appointed.

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