When using the Estimate from Income option for CPP, you may notice that the projected benefit at retirement is higher than today’s maximum CPP benefit simply increased by the CPP/QPP COLA assumption.
This is because these are two separate calculations.
How is the starting CPP benefit estimated?
When Estimate from Income is selected, Voyant estimates the CPP benefit available when the client begins receiving CPP.
For clients who will begin CPP in a future year, the projected benefit reflects the CPP rules applicable at that time. This includes:
- CPP enhancement, which gradually increases the amount of retirement income CPP is designed to replace
- CPI-based increases to CPP benefit and earnings thresholds, which affect future maximum benefit levels
Because these factors are incorporated into the future CPP estimate, simply taking today’s maximum CPP benefit and increasing it by the plan’s COLA assumption may not produce the same starting benefit shown in Voyant.
What does the CPP/QPP COLA assumption do?
The CPP/QPP COLA assumption does not increase today’s maximum CPP benefit up to the client's retirement date.
Instead, Voyant first determines the estimated CPP benefit available when the client begins receiving CPP, including the applicable CPP enhancement and CPI-related adjustments.
Once CPP payments begin, the selected CPP/QPP COLA is then applied to increase the projected benefit in subsequent years.
For example, if Voyant estimates that a client will begin receiving $28,500 of CPP at age 65 and the CPP/QPP COLA assumption is 2.5%:
- The starting benefit is approximately $28,500
- In the following year, the benefit would increase by 2.5%
- The benefit would continue to increase annually using the selected COLA assumption
Why might the projected maximum be higher?
The future CPP maximum is not simply today’s maximum carried forward using the plan’s COLA assumption.
The estimate also reflects changes to the CPP program itself, including the CPP enhancement and CPI-based adjustments to CPP benefit and earnings thresholds.
These factors can result in a higher projected starting benefit for someone retiring many years in the future.
Key takeaway
The starting CPP benefit and the CPP/QPP COLA assumption serve different purposes:
- Starting benefit: Voyant estimates the CPP benefit available when payments begin, factoring in future CPP rules, CPP enhancement and CPI-based adjustments.
- CPP/QPP COLA: Increases that estimated benefit annually after payments have started.