You, Me and the CPP – Part 2

Introduction

Although the CPP retirement pension is usually the centre of attention, it is not the only way you may collect CPP benefits.  Although I do want to focus on retirement benefits and things to consider when deciding when to claim them, the lapsed Catholic in me would feel guilty if I didn’t spend some time explaining some of the other ways to get paid by the CPP.  By way of preamble, all of the amounts mentioned below, except the death benefit, are indexed yearly against inflation.  I have included the 2013 amounts for the various amounts listed in this article.

Death Benefits

To presumably help with funeral costs, the CPP offers a death benefit.  The exact amount is based on 6 months’ worth of retirement benefits or, if you haven’t started yet, 6 months of what you would have received if you had died at 65.  While this may look like a significant chunk of change at first glance , the fine print is killer; the total benefit is capped at $2,500, no matter the size of your pension.  Moreover, this amount is taxable.

To get this benefit, someone (usually your spouse or executor) has to apply for it.  In some cases, funeral homes might assist with filling at the form.  As of the time of writing, CPP advises that it will take between 6 and 12 weeks for the cheque to arrive once they have received the application.

Survivor Benefits

If your spouse or common-law spouse passes on, you are eligible to apply for CPP survivor benefits.  What you get depends on a variety of factors, such as your age at the time of death, how much the deceased has paid in and whether you are already receiving other CPP benefits.

If you are between 45 and 65, your monthly pension is based on a flat fee of $176.95 plus 37.5% of the deceased’s retirement pension or what s/he would have received if  65 at death for a maximum monthly benefit of $556.64.  If you are under 45 but qualify for CPP disability benefits (which require a permanent or prolonged disability that prevents you from any type of employment) or are raising the deceased’s children, you also get full survivor benefits.  If you are between 35 and 45 and aren’t disabled or raising the deceased’s kids, your pension is reduced by 1/120 for every month you were under 45 at the time of the deceased’s passing.   If you are under 35 and don’t fit either of the exceptions, you won’t get any survivor pension until age 65.

Once you turn 65, your survivor pension is calculated by a different formula.  For many of us, we have already started our own CPP survivor pension at that point.  If you are already on your CPP retirement pension, your combined survivor and retirement benefit is capped at the maximum retirement pension you could have received based on your age when you started your retirement pension.  If you start your pension at 65, your combined pension is capped at $1,012.50.  As pointed out in the last article, this amount permanently decreases for each month you receive your pension prior to turning 65.   To underscore the key catch in this calculation, no matter how long the deceased has paid into the pension, your combined survivor / retirement benefits are capped at the maximum retirement pension for your age of retirement.  If you are already receiving the maximum retirement pension, this means that you will no longer receive any retirement benefit from age 65 onward.

If, on the other hand, the survivor has not paid into CPP, s/he would receive 60% of the deceased’s pension from age 65 onward.  If you lie somewhere between the maximum retirement pension and no retirement pension at all, the top up to your existing pension is determined by a complicated formula that I don’t have the heart to repeat.  I do want to answer one common question, however, before moving on; the survivor remains eligible for survivor benefits even if s/he remarries.

Orphan’s Benefits / Benefits to Children of Disabled Parents

If the deceased leaves behind dependent children (minors or children up to age 25 attending a recognized post-secondary educational institute), they qualify for a flat-fee of $224.62 if the deceased had paid into the plan for a minimum period.  Despite the name, children do not have to be truly orphaned to get this benefit; children with a surviving parent are still eligible.

Children of a parent who qualifies for the CPP disability pension also get the same flat fee on the same terms, assuming the parent remains disabled.

CPP Disability Benefits

As stated earlier, it is not easy to qualify for these benefits.  The disability must be, “severe and prolonged, and must prevent you from being able to work at any job on a regular basis.”  As well, you must have paid into the plan in at least 4 of the last 6 years or, if you have paid in for 25 years, at least 3 of the last 6.   There are a few exceptions to these requirements, such as if you were taking care of young children during that period, that I will not go into.

In any event, disability benefits are calculated as follows: 75% of your projected retirement benefits plus a flat amount of $453.52) for a current maximum benefit of $1,212.90.  If you are already receiving a survivor benefit, your maximum combined benefit is capped at the maximum disability amount.  In other words, if would have already qualified for  the maximum disability pension based on your own contributions, you will not really receive any survivor benefits until you are no longer disabled or until you turn 65, which is when disability benefits stop anyway.

 Conclusion

There you have it – a list of the various other benefits that you or your loved ones may receive  under the CPP, excluding retirement benefits.  Now that we have put this behind us and assuaged my guilt, we can focus our attention on retirement benefits.  Unfortunately, that will have to wait until next time, for which I do not feel guilty at all.