Canada Pension Plan Complexities Part II

In the fall edition of our newsletter, we covered Canada Pension Plan (CPP) contributions, retirement pensions, and disability benefits; and this time, we are dealing with pension sharing and benefits when a CPP contributor dies.

CPP Pension Sharing

You can share your CPP retirement pension with your spouse or common-law partner, if both of you are receiving pensions and living
together. If only one of you contributed to CPP, you both can share the one pension. If you both contributed, you and your partner will receive a share of both pensions. The combined total amount of the two pensions stays the same.

The portion of your pension that can be shared is based on the number of months you and your partner lived together during your joint
contributory period, when either one of you could have contributed to CPP.

The new Post-Retirement Benefit is not eligible for pension sharing. Pension sharing stops:

  • A month aſt er Service Canada approves a cancellation request submitted by both you and your partner
  • The month you divorce
  • The month the partner who has never paid into CPP begins contributing
  • The month one of you dies
  • If you and your partner separate aſt er the pension sharing is approved — the pension sharing ceases the 12th month following the month in which the partners started to live separate and apart

When pension sharing ends, your pension will be adjusted to the amount you were to receive before the pension-sharing agreement.
If you are applying for, or are already receiving a CPP retirement pension, you can apply for pension sharing by obtaining the required forms from Service Canada offices or their website.

Pension sharing can be beneficial from a tax point of view and may help recovery of social benefits, such as Old Age Security or age 65 tax credit.

CPP Death Benefit

The CPP death benefit is a taxable, one-time, lump-sum payment to the estate of a deceased CPP contributor. This benefi t is equal to 6 months’ calculated retirement pension to a maximum of $2,500.

If an estate exists, the executor named in the will or the administrator named by the Court to administer the estate applies for the death
benefit. The executor should apply for the benefit within 60 days of the date of death. If no estate exists, or if the executor has not applied for the death benefit, payment may be made to other persons who apply for the benefit in the following order of priority:

  • The person or institution that has paid for or is responsible for paying the funeral expenses of the deceased
  • The surviving spouse or common-law partner of the deceased
  • The next-of-kin of the deceased

Survivor’s Pension

The CPP survivor’s pension is paid to the person who, at the time of death, is the legal spouse or common-law partner of the deceased
contributor. If you are a separated legal spouse and the deceased had no cohabiting common-law partner, you may qualify for this benefit. If you are widowed more than once, only one survivor’s pension — the largest — will be paid.

The amount you receive as a surviving spouse or common-law partner will depend on whether you are also receiving a CPP disability benefit or retirement pension, your age, and how much and for how long the deceased contributor has paid into the CPP. Service Canada first calculates the amount that the CPP retirement pension is, or would have been, if the deceased had been age 65 at the time of death. The second calculation is based on the survivor’s age at the time of the contributor’s death.

A surviving spouse under age 65 would receive 37.5 percent of the calculated retirement pension of the deceased contributor plus a
flat-rate benefit of $183.93 for 2016. The maximum survivor’s benefit for 2016 would therefore be 37.5 percent of CPP maximum retirement benefit of $1,092.50 or $409.69 + $183.93 for a total monthly benefit of $593.62.

A surviving spouse age 65 or older would receive 60 percent of the calculated retirement pension of the deceased contributor, to a
maximum survivor’s benefit of $655.50 (60 percent of $1,092.50).

Combined benefit calculations of the survivor’s benefit plus retirement or disability benefits are more involved. Please contact your Nakamun Advisor if you wish further information.

The survivor is responsible for applying for the monthly pension. If you are incapable of applying, you may have a representative, such as a trustee, apply for you. You should apply as soon as possible aſter the contributor’s death, because if you delay, you may lose benefits, because CPP will make back payments for only up to 12 months.

The survivor’s pension starts at the earliest month aſter the contributor’s death and continues even if you remarry. This was not the case prior to 1987. If you previously lost a CPP survivor benefit because you remarried, contact Service Canada to determine if you are now eligible.

If you already receive a CPP retirement or disability benefit, the survivor’s pension will be combined into a single monthly payment. The most that can be paid to a person eligible for both the disability benefit and the survivor’s pension is the maximum disability benefit. The most that will be paid to a person eligible for the retirement and survivor’s pensions is the maximum retirement pension. If you are already receiving the maximum CPP retirement benefi t, you will not receive the survivor’s pension. It takes approximately 6 to 12 weeks to receive your fi rst payment from the date Service Canada receives your completed application.

To obtain more information and to access all required forms and documentation for CPP benefits, visit Service Canada’s website at servicecanada.gc.ca.

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