How to maximize your CPP benefits

The Canada Pension Plan (CPP) represents an increasingly important part of our retirement plans. Yet some people may be getting less than their full entitlement, simply because they don’t fill out the right forms.

Before you undertake an audit or appeal of your benefits, it’s important to first understand the basics of CPP.

The following is a discussion of some of the key points governing CPP.

CPP fundamentals:
Founded in 1966, CPP is a contributory plan. As a worker, you and your employer pay into CPP with the understanding that you’ll receive benefits when you retire. (Quebec workers contribute to the Quebec Pension Plan, which has rules similar to those for CPP.)

In recent years, worries about the plan’s sustainability in the face of an aging population have encouraged the federal government to make reforms.

Among the changes introduced in 1998 were higher contributions, as well as guidelines that allow a newly created CPP Investment Board to invest the money not required to pay current pensions in financial markets.

Calculating benefits:
CPP is designed to replace about one-quarter the average monthly salary you earned during your working life.

You must apply for CPP benefits and may choose to start receiving payments as early as age 60 and as late as age 70.

For every month before age 65, your benefit is reduced by one-half of one per cent.

For every month after age 65, benefits increase accordingly.

Benefits are taxable and adjusted each January, if there are increases in the cost of living. The most you may receive in a month (retirement at age 65) is $788.75 but, on average, the monthly benefit paid in October 2001 was $427.77.

Get contributions statement:
Periodically, the government mails statements showing your total CPP contributions to date, as well as an estimate of what your CPP retirement income will be when you reach 65.

This statement is an important element of your retirement plan, and you should request one if you haven’t received one lately.

Next page: Low earnings periods

Low earnings periods:
The lowest 15 per cent of your qualifying years (between the ages of 18 and 65) is automatically excluded from the CPP calculation.

As well, you can leave out additional low or non-earning years spent raising children under the age of seven.

CARP, the advocacy association for Canadians age 50 plus, believes this progressive policy should be extended to include other situations. A dropout provision for workers who leave paid employment to care for aging or ailing relatives, for instance, would acknowledge a reality of life for many 50-plussers today.

Assign benefits to spouse:
You may share your pension with your spouse or common-law partner.

This could help reduce the taxes by equalizing income levels and moving the higher-income spouse to a lower tax bracket.

Credit splitting on divorce, separation:
CPP credits accumulated when you lived with your former spouse or former common-law partner may be divided equally between you.

Note that credits can be split even if one spouse or partner never paid into the CPP.

Because the rules governing credit-splitting have changed over time, be sure to check which rules apply to you.

Survivor benefits:
Survivor benefits include the death benefit, the survivor’s pension and the children’s benefit, and are paid to a deceased contributor’s estate, surviving spouse or common-law partner and dependent children.

Retroactive payments are limited to 12 months so it’s important to apply for survivor benefits as soon as possible after the contributor’s death. CPP makes back payments for up to 12 months.

The death benefit is a one-time, lump-sum payment made to a deceased contributor’s estate. This amount represents about six months of the deceased’s CPP retirement pension (or what this pension would have been if he or she had been age 65 when death occurred) to a maximum of $2,500. This money could help cover final costs, such as paying for the funeral.

The children’s benefit is a monthly amount paid to the dependent child of a deceased contributor. To qualify for this benefit, a child must be under age 18 or between the ages of 18 and 25 and in full-time attendance at a school or university.

Survivor’s pension:
If you are the spouse or common-law partner of a deceased contributor, you may be eligible for regular income payments from CPP, even if he or she died before retirement.

The maximum monthly survivor’s benefit for 2002 is $473.25 ($437.99 if you are under age 65).

The actual calculation uses the ages of survivor and contributor, as well as the deceased contributor’s “calculated” pension—his or her CPP retirement pension, or what it would have been if he or she had been age 65 at the time of death.

For example, if your survivor is 65 or older, the maximum is equal to 60 per cent of your calculated retirement pension.

As well, if you are getting a CPP retirement pension combined with a survivor pension, this limit may not equal the total of both benefits.
It’s important to note that, until 1987, remarriage disqualified an individual from receiving CPP survivor benefits stemming from the death of a previous spouse. This has changed, so if you previously lost such a benefit because you remarried, you should reapply.

Next page: Unfair limitation

Unfair limitation
CARP believes that limiting the combined survivor’s and retirement benefits is unfair. The organization states there is no reasonable justification for reducing payouts from a survivor’s benefit simply because an individual begins collecting retirement benefits he or she has earned. 

As well, the 12-month limit on retroactive payments should be removed.

Disability-benefit applications:
The government reports that 280,000 people and 90,000 of their children receive $2.5 billion in disability benefits annually.

In 1998, the rules for disability benefits were tightened. For example, now, eligible workers must have made contributions in four of the last six years instead of two of the last three.

The Retirement Planning Institute, a company that specializes in auditing CPP applications, has found that over 60 per cent of disability applications are denied and that, in many of these cases, a reconsideration is in order. 

CPP disability benefits are designed to protect contributors under age 65 who can no longer work at any job because of a severe and prolonged disability.

Where to go:
For help with your CPP application or to check on whether you qualify for CPP benefits, contact Human Resources Development Canada, the government branch that oversees Income Security Programs, at 1-800-277-9914 (1-800-277-9915 for service in French) or TDD/TTY 1-800-255-4786.

Or visit the HRDC website for information and application forms. For walk-in service, visit a Human Resource Centre near you – there are 320 in Canada.