How Canadians Retire: Understanding the Three Pillars of Retirement Income

If you’re new to Canada, retirement might feel like a distant concern. But one of the most important things you can do early on is understand how the retirement system works here. In Canada, retirement income is built on what’s often called the “three pillars.” Each pillar plays a different role, and together, they help provide financial stability in your later years.

I talk to many clients who are surprised to learn that simply working and living in Canada doesn’t automatically mean a secure retirement. To build a stable financial future, it’s important to know what these three pillars are, how you can qualify for them, and what you need to do now to prepare.

Pillar 1: Old Age Security (OAS)

Old Age Security is a monthly payment funded by the Government of Canada. You don’t need to work or pay into it to qualify. Instead, eligibility is based on your age and how long you’ve lived in Canada as an adult.

To qualify for the full OAS pension, you usually need to have lived in Canada for at least 40 years after turning 18. But even with fewer years, you may still receive a partial pension once you’ve been here for at least 10 years. If you leave Canada, your eligibility may change depending on how long you lived here and whether Canada has a social security agreement with your home country.

The key takeaway is that time matters. If you’re a permanent resident or citizen and plan to retire in Canada, staying here long-term can increase your OAS entitlement.

OAS is not based on your income or work history, but higher-income individuals may have some or all of their benefit “clawed back” through a tax called the OAS recovery tax.

Pillar 2: Canada Pension Plan (CPP)

The CPP is a contributory program. If you work in Canada and earn more than a minimum amount each year, you and your employer both pay into the plan through payroll deductions. If you’re self-employed, you pay both shares yourself.

The amount you receive from CPP in retirement depends on how much and how long you’ve contributed. It also depends on the age you start collecting — you can begin as early as age 60 or delay up to age 70 for a higher monthly amount.

For newcomers, this is an area where early planning makes a real difference. Many clients I work with are surprised to find that CPP benefits are directly tied to your earnings history. If you work only part-time, or in cash jobs that don’t report income, you could miss out on valuable future benefits.

CPP also includes benefits for disability and survivors, which are important to be aware of as part of your long-term protection.

Pillar 3: Workplace Pensions and Private Savings

The third pillar includes any employer-sponsored pension plans and your personal retirement savings. These are not government-run programs — they depend on your job and your own choices.

If your employer offers a workplace pension, it may be a defined benefit (DB) or defined contribution (DC) plan. These plans can be a major asset to your retirement income. But not all jobs offer them, especially in the private sector. Always ask about pensions when starting a new role.

In addition to workplace plans, many Canadians use Registered Retirement Savings Plans (RRSPs) or Tax-Free Savings Accounts (TFSAs) to save for retirement. These are voluntary programs, and the earlier you start contributing, the more you benefit from compound growth.

As a newcomer, building this third pillar is especially important if you don’t yet qualify for full OAS or haven’t contributed much to CPP. You may need to rely more heavily on private savings to support yourself later in life.

Tips I Share with My Clients

• Whether you’ve just arrived in Canada or have been here a few years, here’s what I recommend:

  
  

• Track your time in Canada. Your years of residence directly affect your OAS eligibility. Keep records of your entry dates and immigration status.

  
  

• Make sure your work is reported. If you’re getting paid in cash or not receiving pay stubs, you may not be contributing to CPP — and you’ll miss out on future benefits.

  
  

• Ask your employer about pensions. Not every job offers one. If yours does, ask for a copy of the plan booklet.

  
  

• Start saving personally. Even small contributions to an RRSP or TFSA can grow over time and make a real difference later.

If you have questions about how these programs apply to you, or need help navigating the system, feel free to send me an email. I’m happy to help.