3.1 Government Retirement Pensions: CPP/QPP, OAS, GIS & the Allowance
Key Takeaways
The maximum CPP retirement pension starting at 65 in 2026 is $1,507.65 a month; it is reduced 0.6% for each month before 65 (36% at 60) and increased 0.7% for each month after 65 (42% at 70).
OAS is residence-based: a full pension needs 40 years in Canada after age 18; from October to December 2026 the maximum is $762.50 a month at 65 to 74 and $838.75 at 75 or older.
OAS is reduced by a 15% recovery tax on net world income above $93,454 (2025 income, applied July 2026 to June 2027).
The GIS (up to $1,138.90 a month for a single senior in late 2026) and the Allowance for ages 60 to 64 are income-tested and not taxable; CPP/QPP and OAS are taxable.
Base CPP/QPP contributions earn a non-refundable tax credit rather than a deduction, while enhanced (additional) contributions are deductible.
Government Retirement Pensions
Every retirement plan starts with the government benefits the client will receive. The curriculum lists four: the Canada Pension Plan (CPP) and Quebec Pension Plan (QPP), Old Age Security (OAS), the Guaranteed Income Supplement (GIS) and the Allowance. Figures below are from canada.ca for 2026.
1. Canada Pension Plan and Quebec Pension Plan
The CPP is a contributory, earnings-related plan covering workers outside Quebec; the QPP is Quebec's parallel plan with its own rates.
Contributions (CPP, 2026):
- Employees and employers each contribute 5.95% of earnings between the $3,500 basic exemption and the year's maximum pensionable earnings (YMPE) of $74,600.
- A second additional contribution (CPP2) of 4% each applies to earnings between the YMPE and the year's additional maximum pensionable earnings (YAMPE) of $85,000.
- Self-employed people pay both halves.
Retirement pension:
| Starting age | Adjustment to the pension | Maximum monthly pension if started in 2026 |
|---|---|---|
| 60 | 0.6% less for each month before 65 (36% less at 60) | about 64% of the age-65 amount |
| 65 | None | $1,507.65 (average for new recipients in July 2026: $858.34) |
| 70 | 0.7% more for each month after 65 (42% more at 70) | about 142% of the age-65 amount |
Other CPP benefits include the post-retirement benefit (for people who keep working and contributing after taking the pension), the disability benefit, the survivor's pension, the children's benefit and a one-time death benefit of $2,500.
Example: Lise starts her CPP pension at 62, which is 36 months early: reduction for life. If her age-65 entitlement were $1,000 a month, she would receive $784.
2. Old Age Security
OAS does not depend on work history. Eligibility is based on age (65 or older), legal status and residence in Canada after age 18:
- Full pension: 40 years of residence after 18.
- Partial pension: at least 10 years, earning 1/40 of the full pension per year of residence.
- Deferral: up to 60 months, with a 0.6% increase per month (up to 36% at 70).
- Age 75: a permanent 10% increase since July 2022.
| Benefit (October to December 2026) | Maximum monthly amount | Income condition |
|---|---|---|
| OAS pension, age 65 to 74 | $762.50 | Net world income (2025) under $152,062 |
| OAS pension, age 75 and over | $838.75 | Net world income (2025) under $157,923 |
| GIS, single, widowed or divorced | $1,138.90 | Income under $23,112 |
| GIS, spouse receives full OAS | $685.56 | Combined income under $30,528 |
| Allowance (age 60 to 64, spouse receives GIS) | $1,448.06 | Combined income under $42,768 |
| Allowance for the Survivor (age 60 to 64) | $1,726.18 | Income under $31,152 |
OAS amounts are indexed to the Consumer Price Index every quarter and never decrease.
OAS recovery tax (clawback): OAS is reduced by 15% of net world income above a threshold, $93,454 for 2025 income (applied July 2026 to June 2027) and $95,323 for 2026 income.
Example: Raymond, 68, has 2025 net income of $103,454, which is $10,000 over the threshold. His recovery tax is 0.15 × $10,000 = $1,500, deducted from his OAS payments from July 2026 to June 2027.
3. Guaranteed Income Supplement and the Allowance
- GIS: a monthly, income-tested supplement for low-income OAS recipients aged 65 or older who live in Canada. It is recalculated each July based on the previous year's income.
- Allowance: for people aged 60 to 64 whose spouse or common-law partner receives the GIS, with at least 10 years of residence after 18.
- Allowance for the Survivor: for low-income widows and widowers aged 60 to 64 who have not remarried or entered a new common-law relationship.
Because these benefits are income-tested, every dollar of taxable income (including RRSP withdrawals and the taxable part of annuity payments) can reduce them. That makes TFSA withdrawals, which are not income, and prescribed annuities, which have a small taxable portion, valuable for low-income seniors.
4. Tax Characteristics
Non-deductibility of mandatory government plans: base CPP/QPP contributions and Employment Insurance premiums give employees a non-refundable tax credit, not a deduction. The enhanced portion of CPP/QPP contributions (the first and second additional contributions) is deductible.
Taxation of benefits:
| Benefit | Taxable? | Notes |
|---|---|---|
| CPP/QPP retirement, survivor, disability benefits | Yes | Reported on a T4A(P) (RL-2 in Quebec) |
| OAS pension | Yes | Reported on a T4A(OAS); subject to the recovery tax |
| GIS, Allowance, Allowance for the Survivor | No | Reported in net income, then deducted, so they still count in some income tests |
5. What This Means for the Recommendation
- Estimate the government income floor first; for a lower-income couple, CPP, OAS and GIS may cover most essential costs.
- Consider timing: deferring CPP to 70 adds 42% to a lifetime, inflation-indexed pension; deferring OAS adds up to 36%.
- Watch income tests: for GIS recipients, taxable RRSP withdrawals can cost benefits; for high-income retirees, the OAS clawback is the concern.
- Fill the gap between government income and the client's needs with workplace pensions, RRSPs, RRIFs, TFSAs, segregated funds and annuities.
Monique, age 63, applies to start her CPP retirement pension next month at age 63 and 0 months. If her pension at 65 would be $1,200 a month, what will she receive?
$1,200, because CPP pensions are the same at any starting age
$1,027.20, because the pension is reduced 0.6% for each of the 24 months before 65
$768.00, because the pension is reduced by a flat 36% for any start at all before age 65
$1,401.60, because early starters receive a 0.7% monthly increase
Paul, 70, had net world income of $108,454 in 2025. Using the 2025 threshold of $93,454, how much OAS recovery tax applies from July 2026 to June 2027?
$2,250, which is 15% of the $15,000 by which his income exceeds the threshold
$15,000, which is the full amount by which his 2025 income exceeds the recovery threshold
$1,500, which is 10% of the amount by which his income exceeds the threshold
$0, because the recovery tax applies only to seniors aged 75 or older
Which of the following government benefits is NOT taxable income to the recipient?
The CPP survivor's pension
The Old Age Security pension at any age
The Guaranteed Income Supplement
The CPP disability benefit
Sections you finish are checked off in the contents.