The Canada Pension Plan (CPP) is a pension meant to provide financial protection for senior citizens. The CPP was created by Prime Minister Lester Bowles Pearson in 1966.
From the age of 18 until a person reaches the age of 65, they must contribute a percentage of their pensionable earnings to CPP. Employers must also contribute a similar percentage of behalf of each employee. In the case of self-employed individuals, that individual must contribute both amounts.
For the 2002 taxation year, the maximum deducted in CPP contributions was $1,673.20 CAD. What usually happens is that for anyone working the entire year at the same salary or wages, they will end up paying all their CPP contributions for the year by August.
Upon reaching the age of 65, contributions end and a person will receive a monthly pension cheque from CPP, the amount based partly on their lifetime of contributions. However, federal and provincial taxes may "claw-back" some of the CPP pension if the person receives other income such as from a Registered Retirement Income Fund.
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