Canada Pension Plan (CPP) vs. U.S. Social Security: What’s the Difference?

Canada Pension Plan (CPP) vs. U.S. Social Security: An Overview

The Canada Pension Plan (CPP) and the U.S. Social Security system are publicly provided mandatory old-age pension systems. They both provide retirement, disability, and survivor benefits. But the amount you pay in and the benefits you receive differ between the two.

Canada Pension Plan

The Canada Pension Plan (CPP) is one of three levels of the Canadian retirement income system. It was established in 1966 to provide retirement, survivor, and disability benefits. Almost everyone who works in Canada, outside of Quebec, contributes to the CPP. A separate Quebec Pension Plan (QPP) provides similar benefits to its residents

In general, you must contribute to the CPP (or the QPP if you work in Quebec) if:

• You’re over age 18
• As of 2022, you must earn more than 3,500 Canadian dollars a year

If you have an employer, you pay half of the required contribution, and your employer pays the rest. If you’re self-employed, you pay the whole contribution. You make contributions based on your earnings. For 2022, the contribution rate is 11.4% of the amount you earn between CA$3,500 and CA$64,900.

With this cap in place, the 2022 maximum contribution for employers and employees is CA$3,499.80. If you’re self-employed, it’s CA$6,999.60.

The contributions go into a fund managed by the CPP Investment Board, which invests the assets “to maximize returns without undue risk of loss.”

Canada Pension Plan Benefits

Similar to the U.S. Social Security system, the Canada Pension Plan provides several types of benefits:

• Retirement pension. You can start full CPP retirement benefits at age 65. You can get a permanently reduced amount as early as age 60, or as late as age 70 with a permanent increase.
• Post-retirement benefit. If you’re under age 70 and you keep working while you receive your CPP retirement pension, you can continue to contribute to the CPP. These contributions go toward post-retirement benefits that increase your retirement income.
• Disability benefits. You can get disability benefits if you’re under age 65 and can’t work due to a disability.
• Survivor’s pension. Your surviving spouse or common-law partner can collect benefits based on your record.
• Children’s benefits. If you die or become severely disabled, your dependent children can receive benefits.

Your CPP benefits are based on how much you’ve contributed and how long you’ve been making contributions when you become eligible to collect benefits. For 2022, the maximum monthly retirement benefit is CA$1,253.59. The average amount for new beneficiaries as of July 2022 (latest figure) was CA$737.88.

Social Security

Social Security is a federal benefits program in the U.S. that was founded in 1935. In 2022, employees and employers each pay 6.2% in taxes on the first $147,000 of income. In 2023, the income threshold rises to $160,200. If you’re self-employed, you pay the full 12.4%. For 2022, the maximum contribution for employers and employees is $9,114, or 6.2% of $147,000. For 2023, the maximum contribution increases to $9,932.40, or 6.2% of $160,200. If you’re self-employed, it’s $18,228; in 2023, it will be $19,864.80.

Most people must pay into Social Security, regardless of age; however, exemptions may be available to certain groups of taxpayers, including:

• Qualifying religious groups
• Nonresident aliens
• Students who work for the same school they attend
• Foreign government employees

Social Security taxes go into the Old Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. Although legally distinct, they’re collectively known as “the Social Security Trust Funds”—or plain-old “Social Security” in common parlance.

All Social Security payroll taxes are put into the trust funds, and all of Social Security’s benefits and administrative costs are paid out of them. The trust funds are invested entirely in U.S. Treasury securities.

Social Security Benefits

Like the CPP, the Social Security system provides several types of benefits:

• Retirement benefits. Full Social Security retirement benefits start between ages 66 and 67, depending on when you were born. You can get a permanently reduced amount as early as age 62, or an increased amount if you wait until age 70 to collect.
• Disability benefits. You can get disability benefits if you can’t work due to a disability. Your family members may also be eligible for benefits.
• Survivor benefits. Your surviving spouse and minor children may be eligible to collect benefits based on your record.

To qualify for Social Security benefits, you must have 40 “work credits,” which comes out to about 10 years of work. Your benefits are based on your highest-earning 35 years of work.

For 2022, the maximum monthly retirement benefit is:

• $4,194 if you wait until age 70 to file
• $3,240 if you file at 66
• $3,568 if you file at 67
• $2,364 if you file at 62

For 2023, the maximum monthly retirement benefit is:

• $4,555 if you wait until age 70 to file
• $3,506 if you file at 66
• $3,808 if you file at 67
• $2,572 if you file at 62

Special Considerations

Budget shortfalls have often threatened the solvency of Social Security. According to the 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, “The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, one year later than reported last year. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 77% of scheduled benefits.”

“The Disability Insurance (DI) Trust Fund, which pays disability benefits, is no longer projected to be depleted within the 75-year projection period. By comparison, last year’s report projected that it would be able to pay scheduled benefits only until 2057.”

As of 2021, Social Security’s total annual cost exceeds its total income. But the trust funds’ reserves will supplement the program’s income so that Social Security can keep paying full benefits until 2034 (to retirees). In theory, this gives policymakers time to develop a financing plan for shoring up Social Security.

The Canada Pension Plan does not currently face a similar issue.