Heads up, folks - changes are in the works to modernize our Canada Pension Plan (CPP). The four proposed changes generally impact you favourably.

First off, here's some background on our CPP. This public pension plan was created in 1966 and provides a modest pension, disability insurance and a small death benefit. It is jointly funded by workers and their employers.

The maximum CPP benefit for 2009 is $10,905; however, your actual CPP pension will be based on how much and how long you have contributed into the plan, and how soon you draw on your pension. You qualify for the maximum pension if you have paid the maximum annual premium - $2,118 in 2009 - from age 18 to age 65. Your Statement of Contributions tracks your past contributions and estimates your future benefit at the normal CPP start-up age of 65. Call Service Canada at 1-800-277-9914 for your copy.

While CPP benefits generally starts at age 65, you can apply as early as age 60 or delay till age 70. You lose six per cent per year if you apply before age 65 and vice-versa.

Therefore, you'll receive only 70 per cent of your normal benefit if you start at age 60 and 130 per cent if you delay till age 70.

You cannot apply for CPP pension prior to age 60. Applying for CPP benefit after age 70 is throwing away money because you cannot receive retroactive payments.

Currently, to start your CPP early - between the age 60 and the normal start-up age of 65 - you jump a pointless bureaucratic hurdle called the Work Cessation Test. That test requires you to stop working for two months to qualify for early CPP. In practice, if you are able to finagle it, you tell your employer you are going fishing for two months; apply for early CPP and resume work after two months. This is all legal.

The first proposed change will eliminate this nuisance test. Effective 2012, you can continue to work and apply for early CPP, from age 60 on, to supplement your income.

Currently, you stop making CPP contributions if you are receiving CPP pension. As a result, you cannot continue to build up your CPP even though you are working.

The second proposed change, effective in 2012, requires you to pay into the CPP if you work while receiving early CPP pension, i.e., you are between age 60 to 65. It's a positive change because you continue to build up your CPP pension at the rate of 1/40 of the maximum pension per year of additional contribution. That means, using 2009 dollars, for every $2,118 you pay into the CPP, you'll receive an additional annual CPP pension of $273 for life. Is it worth it?

It's difficult to say because it depends on how long you plan to live. Generally, it's hard to go wrong paying for it while you are still working to receive more when you are not later on.

Also under this proposed change, you can voluntarily continue to pay into the CPP if you continue to work at age 65 or later. The additional pension payback is as above - 1/40 of the maximum CPP for each year of additional contribution.

Next week: The last two proposed changes. For more on these proposes changes, go to: http://www.fin.gc.ca/n08/data/09-051_1-eng.asp.