Tag Archives: Survivor Benefits

Retired Money: The survivorship downside of deferring CPP benefits

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My latest MoneySense Retired Money column is the second part of a series on CPP and survivorship issues. You can find part 2 by clicking on the highlighted headline here: Reconsidering when to take CPP benefits amid Covid-19 risk.  You can find the first part here and yesterday’s Hub summary here.

What’s all that about Covid-19 risk? It’s admittedly a bit morbid but after all, retirement survivor benefits are all about expected longevity and mortality. To the extent Covid-19 provides a slightly higher probability of a spouse passing away before expected, it underlines the fact senior couples need to think about survivor benefits. They should have all along, of course, but this crisis just makes the issue that much more tangible.

The main sources in the column are again retired advisor Warren Baldwin, who personally took his own CPP at 66 in part because of survivorship issues, and TriDelta Financial president Ted Rechtshaffen, who tackled the topic in this recent column in the Financial Post. There he  described the unfairness of CPP and how it may have “effectively” no survivor benefits. He observed that if a couple both collect full CPP and one dies, the other receives a one-time $2,500 death benefit, but loses the entire ongoing CPP benefits of the deceased.

But if the same couple has one person collecting a full CPP benefit and their partner never paid into the plan and collects $0 CPP, if either dies the net result is they will continue to collect one full CPP benefit. The maximum survivor benefit is 60% of the maximum pension, since no individual can collect more than 100% of a CPP benefit. However, if one person currently receives less than 100%, if the partner dies, that person can top up the CPP payment up to 100% out of the amount being collected by the partner.

For most seniors, dropping combined maximum CPP income (at age 65, in 2019) from $27,600 a year to just $13,800 constitutes a huge hit if both partners contributed a lot to CPP over the years. Rechtshaffen suggested these rules “almost provide an incentive to only have one working partner over the years. It hurts couples in which both partners worked full time.” He also made some suggestions on how Ottawa could redress this unfair situation.

Asher Tward, Tridelta’s VP estate planning, generated quotes on a life-only, $14,110 per annum, single-person annuity, no survivorship, with the payment 2% indexed. He found a typical quote for a 65-year old male with 2% indexation was worth $316,000, while a typical quote for a 65-year old female with 2% indexation was worth $355,000. We also asked what it would cost to buy the same annuity with a 60% survivorship payout to the surviving spouse. The relevant comparison is someone with no spouse or who has a spouse with maximum CPP against a person who has a spouse who has no CPP. For a registered annuity for couples like my wife and I, Tward found a joint annuity with 2% indexation and a 60% survivor benefit was worth $358,000, with either partner being the survivor.

So for a couple with maximum CPP, the total “value” is around $700,000. If they can afford it, they could defer collecting benefits by living off RRSPs and other savings; however those assets are fully estate-protected for either survivors or beneficiaries.

“There is a degree of use-it-or-lose-it in the CPP,” Baldwin concludes, adding it behaves somewhat like a tontine, except with no lump sum at the end.

Similar issues with OAS

OAS presents a similar issue: at just over $7,000 a year, it would have a value around 50% of CPP: about $150,000, so why not collect as soon as possible? Continue Reading…

CPP Payments: How much will you receive from Canada Pension Plan?

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Canada Pension Plan (CPP) benefits can make up a key portion of your income in retirement. Individuals receiving the maximum CPP payments at age 65 can expect to collect nearly $14,000 per year in benefits.

The amount of your CPP payments depends on two factors: how much you contributed, and how long you made contributions. Most don’t receive the maximum benefit. In fact, the average amount for new beneficiaries is just over $8,000 per year (as of March 2019).

CPP Payments 2019

The table below shows the monthly maximum CPP payment amounts for 2019, along with the average amount for new beneficiaries:

Type of pension or benefit Average amount for new beneficiaries (March 2019) Maximum payment amount (2019)
Retirement pension (at age 65) $679.16 $1,154.58
Disability benefit $980.24 $1,362.30
Survivor’s pension – younger than 65 $439.37 $626.63
Survivor’s pension – 65 and older $311.99 $692.75
Death benefit (one-time payment) $2,394.67 $2,500.00
Combined benefits
Combined survivor’s and retirement pension (at age 65) $869.86 $1,154.58
Combined survivor’s pension and disability benefit $1,096.12 $1,362.30

Now, you may not have a hot clue how much CPP you will receive in retirement, and that’s okay.

The good news is that the government does this calculation for you on an ongoing basis. This means that you can find out how much money the government would give you today, if you were already eligible to receive CPP. This information is available on your Canada Pension Plan Statement of Contribution. You can get your Statement of Contribution by logging into your My Service Canada Account, which – if you bank online with any of the major banks – is immediate.

Related: CRA My Account – How to check your tax information online

If you’d prefer to send your personal information by mail you can request a paper copy of your Statement of Contribution sent to you by calling 1.877.454.4051, or by printing out an Application for a Statement of Contributions from the Service Canada Website.

Note that the information available to you on your CPP Statement of Contribution may not reflect your actual CPP payments. That’s because it doesn’t factor in several variables that might affect the amount you’re entitled to receive (such as the child-rearing drop-out provision). The statement also assumes that you’re 65 today, which means that later years of higher or lower income that will affect the average lifetime earnings upon which your pension is based aren’t taken into consideration.

CPP is indexed to Inflation

Canada Pension Plan (CPP) rate increases are calculated once a year using the Consumer Price Index (CPI). The increases come into effect each January, and are legislated so that benefits keep up with the cost of living. The rate increase is the percentage change from one 12-month period to the previous 12-month period.

CPP payments were increased by 2.3 per cent in 2019, based on the average CPI from November 2017 to October 2018, divided by the average CPI from November 2016 to October 2017.

Note that if cost of living decreased over the 12-month period, the CPP payment amounts would not decrease, they’d stay at the same level as the previous year.

CPP Payment Dates

CPP payment dates are scheduled on a recurring basis a few days before the end of the month. This includes the CPP retirement pension and disability, children’s and survivor benefits. If you have signed up for direct deposit, payments will be automatically deposited in your bank account on these dates:

All CPP payment dates 2019

  • December 20, 2018
  • January 29, 2019
  • February 26, 2019
  • March 27, 2019
  • April 26, 2019
  • May 29, 2019
  • June 26, 2019
  • July 29, 2019
  • August 28, 2019
  • September 26, 2019
  • October 29, 2019
  • November 27, 2019
  • December 20, 2019

Why Don’t I Receive The CPP Maximum?

Only 6 per cent of CPP recipients receive the maximum payment amount, according to Employment and Social Development Canada. The average recipient receives just 59 per cent of the CPP maximum. With that in mind, it’s best to lower your CPP expectations when calculating your potential retirement income. Continue Reading…

Retired Money: Pension Survivor Benefits

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Pension Survivor Benefits are one of those morbid topics every couple needs to investigate. No matter how happy a marriage may be, at some point the phrase “till Death do us part” sadly comes into play.

My latest MoneySense Retired Money column looks at the somewhat morbid topic of survivor benefits on employer pensions, savings and especially the triad of the three major Government retirement benefits we’ve looked at in recent Retired Money columns: the Canada Pension Plan (CPP), Old Age Security (OAS) and for some, the Guaranteed Income Supplement (GIS).

You can access the full MoneySense column by clicking on the highlighted headline here: Survivor Benefits: A Guide to CPP, OAS, GIS and more.

The piece begins with a look at the more or less straightforward survivor benefits of employer-sponsored pensions. It notes that pension law requires that you and your spouse be offered a joint-and-survivor pension that makes payouts until both partners die. While pension administrators will likely encourage the pensioner to provide for the spouse, some may offer a spouse the option to waive their pension rights.

Depending on the paperwork signed when you elected to start receiving a corporate pension, your spouse may be entitled to a good percentage of what the lead pensioner is promised: it can range from 50% to two thirds to 75% and may even be 100%.

Things are relatively simply on RRSPs and RRIFs. Ideally you and your spouse have named each other the beneficiary on your RRSPs and eventually RRIFs. If so, the rules are relatively simple: the money in the one spouse’s plan rolls over tax-free to the survivor. It’s only when the second spouse dies that there will be a large tax liability to the government.

Tax-free Savings Accounts (TFSAs), introduced in 2009, have a special wrinkle and here we will refer you to a past Retired Money column. The main thing is to ensure you and your partner do the paperwork and name each other a Successor Holder for your respective TFSAs.

Given the preceding, readers may be surprised to find that survivor benefits for CPP, OAS and GIS are quite a bit more complex, and may be less generous than you may have supposed.

No real OAS Survivor Benefit after 65

For starters, there really is no OAS Survivor benefit after 65, since Ottawa assumes the survivor will have their own OAS benefits. There is an income-tested transitional benefit called the Allowance for the Survivor but it’s only for those aged 60 to 64 and subject to various conditions.  Service Canada says once these beneficiaries reach age 65, their benefit is converted to an OA pension and “possibly the Guaranteed Income Supplement.”

Similarly, Survivor Benefits for CPP may be less than couples may have been hoping for, particularly if both had been receiving the maximum.  A survivor who is 65 or older and not already receiving CPP benefits qualifies for a survivor benefit of 60% of the deceased spouse’s CPP pension, assuming benefits beginning at 65.

Combined CPP Survivor Benefit and Retirement Pension can’t exceed $1,114.17 a month

Continue Reading…