Can newcomer Canadians qualify for retirement plans?

So you’re new to Canada, eh? Let us be one of the first to welcome you!

Immigrating to a new country is never easy, but there are plenty of good reasons to make the move and make the taxing components of getting settled well worth it. Hopefully, we can make the difficult things less difficult so you can spend more time getting acquainted with your new town and country.

We understand you probably have a lot of questions. Wondering where the closest grocery store is or how to commute to work may be the most pressing but getting your financial life in order should also be quite high on the list of priorities. Things like opening a bank account, for instance, and establishing credit (did you know your credit score doesn’t transfer from country to country?) are pretty important.

With so much on your plate, you’re probably most concerned with the here and now, but putting off retirement is a financial faux pas you don’t want to make. We’ll help you tackle this topic and answer whether or not you can qualify for retirement plans in the first place. There are a few hoops newcomers have to jump through compared to Canadian citizens, but with the right direction, you will be able to set yourself up for success both in the near and far off future. Then, you will feel even more equipped to enjoy your life in Canada both now and for years to come.

What types of retirement plans are available?

If you’re new to Canada, you are probably unfamiliar with the types of retirement accounts and various pensions available to Canadians. Thus, it’s important that we inform you about your options as we discuss whether you qualify now or will be able to in the future. This way, you can make the best possible decision for yourself.

Whether or not you qualify is only one piece of the puzzle. Not all retirement accounts are available to everyone, regardless of their citizen status; some are only offered through employers and others leave out high-income earners.

If you’re immigrating from the U.S., there are similar options available in Canada as there are in your home country, so, although the accounts have different names, their functions shouldn’t be totally foreign. And, like in the U.S., you’ll find many of these accounts are called by their acronyms...

1. Registered Retirement Savings Plan (RRSP)

An RRSP is similar to a traditional IRA in the states. It is a personal retirement account that allows individuals to contribute and invest 18% of their pay annually, up to $27,830 for 2021. Contributions are tax-deductible and tax-deferred, meaning the funds grow tax-free and are then taxed as income upon withdrawal during retirement.

There is also a Group RRSP, which is an RRSP set up by an employer for employees, which is similar to a 401(k) plan in the U.S. in that contributions are deducted directly from each paycheque to fund the account and it is invested typically by a designated manager.

Do you qualify?

If you have employment income and file a tax return with the Canadian Revenue Agency (CRA), and are not yet 71 years old, you are eligible to open an RRSP. If you just moved to Canada, you may need to wait to do so, however, because your contribution limit is based on your tax return from the previous year. This means you won’t be able to contribute anything until you have reported income to the CRA.

In addition to having already filed a tax return, in order to qualify for a Group RRSP, as we mentioned above, it would need to be offered through your employer.

How to sign up

Once you have lived and worked in Canada long enough to file a tax return, you will be able to contribute to an RRSP. It’s smart to first ask if your employer offers an RRSP option because then you can open one directly through them and set up automatic contributions from your paycheque. You can also open an RRSP through any of the big banks or financial institutions you bank with.

2. Tax-Free Savings Account (TFSA)

A TFSA isn’t technically a retirement account but many Canadians use it as a retirement savings vehicle because their dollars can grow tax-free. This means when you withdraw funds from the account (which you can do at any time) you don’t have to pay income tax on the withdrawals.

Do you qualify?

You don’t need to be a Canadian citizen or even a legal resident to open a TFSA, however, if you aren’t a resident, you will be taxed 1% each month on contributions in the account. You do also need to be at least 18 years of age to open a TFSA. So as soon as you land in Canada, you can open this account and start saving and investing for your golden years, and once you become a resident you can avoid the 1% tax.

How to sign up

Similar to an RRSP, signing up for a TFSA is simple through a big bank or other financial institution. Unlike an RRSP, however, you’ll only be able to contribute up to $6000 per year. If you fall short of your limit one year, though, you can make up for it in the next.

3. Canada Pension Plan (CPP)

The Canada Pension Plan is a retirement plan run by the Canadian Revenue Agency to collect contributions and provide income to Canadians during retirement. Anyone over the age of 18 and under the age of 70 who works in Canada, outside of Québec, and earns more than $3,500 per year must contribute to the Canada Pension Plan.

So, regardless of your status as a newcomer to Canada, if you are working in the country, you are contributing to the CPP. Just because you contribute to CPP while living and working in Canada, though, doesn’t necessarily mean you will receive many benefits from it.

Do you qualify?

You won’t actually qualify for a CPP benefit until you are at least 60 years of age. At this point in time, if you have contributed even once to the CPP, you are eligible for the benefit. However, the amount you receive will be determined by how long and how much you contributed to the CPP. For those living in Québec, the Québec Pension Plan (QPP) has similar qualifications and benefits.

How to sign up

To receive benefits from CPP, you will need to fill out an application. Keep in mind that the longer you wait to receive your benefit, up until age 70, the greater the benefit amount.

4. Old Age Security (OAS)

Old Age Security is similar to Social Security in the states. This benefit is afforded to all Canadian citizens and legal residents, regardless of whether they are working or not once they turn 65, and whose annual income is less than $129,581. The maximum monthly payment amount as of 2021 is $626.49.

Do you qualify?

​​Canadian citizens 65 years of age and older who have lived in the country for at least 10 years after the age of 18 are eligible to receive Old Age Security. This means you need to become a citizen or legal resident by the time you apply for OAS in order to receive this benefit. The amount of the benefit you receive is influenced by how long you have lived in Canada. If you live in Canada for 40 years after turning 18 you would qualify to receive the full payment. If you live in Canada, say, from age 45 onward, you would be eligible to receive half of the full payment once you reach age 65.

There is another stipulation, however. If you are a high-income earner when you elect to receive OAS, you may be required to repay some of the OAS payments you are given, and if you make over the 129,581 dollar mark, you aren’t qualified to receive it at all.

How to sign up

Similar to CPP benefits, receiving OAS benefits isn’t automatic. You can apply for OAS once you are 65 years old, but you can also choose to defer payments up until age 70, and the longer you defer, the greater your monthly benefit will be.

Qualify with a social security agreement

If you haven’t lived or worked in Canada before and you’re nearing retirement age, you may be concerned that your status as a newcomer will affect how much you will receive in benefits. While valid, your concern may be lessened with something called the Social Security Agreement.

According to the Canadian government, a social security agreement is an international agreement between Canada and another country that is designed to coordinate the pension programs of the two countries for people who have lived or worked in both countries. Canada has social security agreements with a number of countries, so it is worth looking into if you have worked in another country before moving to Canada and want to qualify for Old Age Security or the Canada Pension Plan.

What retirement plan is best for newcomers?

The great news is that you don’t have to pick just one of these retirement plans! You can (and should) have both an RRSP and a TFSA, and you can benefit from the CPP and OAS too. Understanding how all of these plans can come together to provide substantial income for you in your retirement years is the key to success. As a newcomer to Canada, there is a lot to figure out, but there are just as many financial benefits to reap as there are hurdles to overcome. If you start saving with a TFSA right away and contribute to an RRSP or another retirement plan offered through your employer once you’re eligible, you will be well on your way to a comfortable retirement.