Child Rearing Drop Out – Parents can get more out of CPP

Do you have children born after December 31, 1958? If so, you may qualify to increase your Canada Pension Plan benefit through the child rearing drop-out provision.

Understanding CPP

The Canada Pension Plan (CPP) provides basic benefits to contributors who retire or become disabled; when you die, benefits may be provided to your spouse or common-law partner and dependent children. Your benefit is determined primarily by how long and how much you have contributed to the Plan. Thus, if you leave the workforce for a period of time, this is likely to lower your benefit in the future.

Caring for children

One of the reasons you might leave the workforce if to stay at home a take care of children. The CPP takes this into consideration if you apply for a program call the Child Rearing Drop out provision (CRDO).

If your earnings either stopped or were lower because you were raising your children under the age of seven, you can ask the CPP to exclude that period of time from the calculation of your benefit.

To make sure that these periods of low earnings do not reduce your pension later, the CPP can apply the “child rearing drop-out” provision. This means the CPP doesn’t count the years when you were raising your children under the age of seven when calculating the amount of your benefit. By doing this, we ensure that you get the highest possible payment.

Here’s an example from CPP on how this works. Jennifer was employed outside the home until her daughter, Elizabeth, was born in 1983. Jennifer stayed at home with Elizabeth until she started kindergarten in 1989. When Jennifer applied for her pension some years later, the CPP dropped out the period from Elizabeth’s birth to 1989 when calculating the amount Jennifer should receive. When he pension application was approved, Jennifer discovered that her monthly payment would be $735 per month. Without the benefit of the CRDO, her retirement pension would have been $650 per month.

Eligibility requirements

The CRDO can be used only for months when:

  • you or your spouse/common-law partner received Family Allowance payments or were eligible for the Canada Child Tax Benefit (even if you did not receive the benefit), and
  • your earnings were lower because you either stopped working or worked fewer hours to be the primary caregiver of a child of yours under the age of seven who was born after December 31, 1958.

Either spouse or common-law partner can apply for the CRDO, but it cannot be used by both for the same period of time.

Why should you apply for the CRDO?

Applying for the CRDO may increase your CPP benefit by excluding from the calculation the periods when your income either stopped or was lower. The CRDO could also help you meet the eligibility requirements for a disability benefit, should you need it. In the event of your death, it could help you meet the contributory requirements to provide benefits to your estate and survivors.

You must apply for the CDRO to qualify. If you were a parent raising children, you will not get the CDRO automatically.

What documents do you need to provide?

You will need to provide an original or a certified true copy of your children’s birth certificates. You may also be required to provide proof of the date of entry into Canada for children born outside the country.

When should you apply for the CRDO?

You should apply for the CPP child rearing drop-out at the same time as you apply for any CPP benefit. If you are already collecting CPP you can still apply for the CDRO and the benefit may apply retroactive to the time you started collecting CPP.

If you need more information or you are unsure about whether you might qualify, call social development Canada (1-800-277-9914). You will need to have your social insurance number.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace.For more information you can follow him on Twitter @JimYih or visit his other websites Group Benefits Online and Advisor Think Box.

28 Responses to Child Rearing Drop Out – Parents can get more out of CPP

  1. I’m not quite sure about your question but CRDO helps give you a higher CPP retirement income by dropping out the child rearing years in the calculation.

    All CPP income is taxable to you the recipient. The child does not receive any income from CPP.

    I hope that helps
    Jim

  2. Jim,

    I’m a little confused. How does the CRDO affect the CPP in terms of “how long you contributed”. According to your article on getting the maximum CPP benefit, you have to contribute 85% of your working life (40 years).

    If I for example have 2 children, 3 years apart and stay home to raise them, technically I can claim up to 11 years between the two children.

    Since I also did not work while in university, I did not really start contributing to my CPP until after graduation, age 23.

    Does this mean that my benefit will definitely be much lower since I am “only” working a total of 31 years?

    Thanks.

    • The less you contribute to CPP, the less you will get. CPP contributions are based on how much you make. just because you work in a year does not necessarily mean you paid ‘enough’ CPP to get a full year of contribution. In that case you would get partial credit.

      As for the CRDO, you would be allowed to drop out the 11 years for calculating your benefit. IF hypothetically you were correct with the 31 years, then you could increase your CPP benefit by 35% (11/31).

      the best thing to do is call service canada. They are very helpful and designed to answer these questions! Good luck!

      Jim

      • What Service Canada website does not tell you is if you are eligible for CRDO but divorce later on, you will lose the CRDO as half your spouse’s income will be applied to your child rearing years. I am in the middle of appealing this and would like to hear from anyone who has been successful in this regard.

        • Janet

          That’s an interesting way of looking at the situation. I’m also appealing this CRDO/DUPE situation, but from the perspective of the male parent. In my case I lost 1/2 my CPP earnings for 10.5 years that my ex-wife has dropped out under the CRDO provision. I would be interested in discussing this issue with you more, if you want to contact me by email at Dogger1953@yahoo.com.

    • ib
      Based on what you have described, the CRDO can help you considerably. Firstly however, 2 children born 3 years apart would only be 10 years of CRDO protection, not 11 years (mth following birth of 1st child until 7th birthday of 2nd child). If you didn’t work at all during those years, they would be excluded from your contributory period, and your CPP benefit would be based on the best 85% of your remaining years (47 yrs – 10 yrs for CRDO = 37-year contributory period). The general dropout (was 15% increasing to 17%) would mean that working and contributing the maximum for 31 years would get you a maximum CPP benefit.

  3. I’m writing to elaborate on Janet’s concerns about losing the CRDO when a DUPE (Division of Unadjusted Pensionable Earnings) occurs, either after divorce or separation. In her case, she has lost the benefit of CRDO because she now has received 1/2 of her former spouse’s iincome for that period, and those earnings are presumably now more than her overall average earnings (if not, she does indeed retain the rights to claim the CRDO).
    I am concerned about this same situation (ie., CRDO/DUPE overlap) but from the perspective of the male parent. In Janet’s case (and all female contributors), she at least gets the benefit of either 1/2 the earnings OR the CRDO (this happens automatically, she doesn’t have to choose). The male spouse however, has no such choice. He simply has his earnings reduced by 1/2, but has no option to benefit from the CRDO. That’s fair, you might think. After all, he didn’t stay home to look after the children. That’s true, but after a DUPE, they both have the same CPP earnings for the period of the marriage. Why should only one spouse have protection of the CRDO, and the other is stuck with the lower earnings?
    The net result in my case is that my CPP retirement pension estimate at age 65 decreased by about $190/mthly as a result of an 18-year DUPE, whereas my ex-wife’s CPP retirement calculation only increased by about $70/mthly. The reason is that she is able to drop out about 10.5 years under the CRDO provision if those years are less than her “average lifetime earnings”, which is the case for her both before and after the DUPE. I, on the other hand, am stuck with 1/2 max earnings for the 18-year period, only 7-8 of which I can drop out under the general 15-17% dropout provision.
    Based on statistics from the government, this issue currently affects 4,000-5,000 male contributors each year, most of whom are unaware because the DUPE happens well before benefits are calculated and the impact of the CRDO becomes apparent.
    I am currently appealing this situation at the Federal Court level, and would be glad to hear from others that are affected by this situation.

  4. How does this apply to the death benefit? Rule is the person needs to have made at less 10 years of contributions (or 1/3 of the calendar years whichever is less).
    So the person made valid contributions in ’71, ’72, ’73, ’76, ’77, and ’79. That is 6 years. Had 2 children in ’74, and in ’80. So you are given 7 years credit for each child. For child #1 only 2 years claimed (’74 and ’75) then where back to work. So total is 8 years (6 years real + 2 years for the provision). Then for child #2 (’80, ’81, … ’87). Therefore, total is 15 years (6 years real + 9 years rearing provision (2 years for #1 and 7 years for #2)).

    • Joe
      You’re misunderstanding the CRDO if you are trying to add those years to years of contributions to meet the requirement for death benefits.
      The CRDO could never help you to reach the minimum 10 years of contributions, but it could help you meet the one-third of the calendar years requirement. This would be possible if someone had earnings less than the Year’s Basic Exemption during any full year that they qualified for the CRDO. In that case, the whole year would be excluded from their contributory period, which might result in a lower number of years being required to meet the 1/3 requirement.

  5. What sort of child-rearing-drop-out-parent am I entitled too if I had and raised a dependant disabled child till aged 18 and after?

  6. I raised three children. 1st born Sept, 1969, 2nd born Oct, 1971 and 3rd born Jan, 1975. I went to work in 1981 and am still working. I will be 65 in 2015. I also went back to school for 5 years in total. Would the child drop off be of a benefit to me?

    • Bonnie
      The child-rearing dropout provision will be of great assistance to you. You will be able to drop out all months from Oct/69 thru Dec/81 when you were a low or non-contributor to CPP. This is done whenever you apply for a Cpp benefit.

    • Bonnie
      Yes, there is a way to calculate the impact of the child-rearing provision (CRP), and the easiest way to get an accurate estimate would be to call Service Canada and ask them to give you an estimate of your retirement benefit at age 65 with and without using the CRP. I could also do this calculation for you, but I would need the year-by-year record of your UPE (Unadjusted Pensionable Earnings).
      I don’t know if you’ve read all of the other messages about estimating CPP retirement benefits, but there is a general rule that each year of max earnings is equal to about $25/mth at age 65, if you only qualify for the general (used to be 15%) dropout. If you dropout the entire period of CRP coverage (12 years and 4 mths) and then dropout the new 17% dropout, you will be done to about 34.7 yrs for averaging purposes. That means that each year of max contributions that you have will be worth about $34.70/mth instead of the $25.mth. That difference is what the CRP is worth to you.

      • Bonnie
        My above answer was mostly accurate, except that I should have said that after the CRP and 17% dropouts, you will be down to averaging your best 28.8 years (NOT 34.7), which means that each year of max contributions is indeed worth about $34.70/mth towards an age-65 CPP retirement benefit.
        As mentioned, if you want a more accurate estimate, I would need to know your year-by-year UPE.

  7. I’m nearing retirement and have been divorced for 7 years, separated for 13 years. The divorce action did not include for a division of assets. She contributed to CPP from about ’68 to ’77 then raised two children and would be eligible for the CRDO from ’77 to ’87 but She never returned to the workforce. How does this affect her CPP calculation and roughly how much of the maximum benefit is she eligible for?

    • Nick

      I would need to review the detailed CPP record of earnings for both of you before I could answer these questions for you. It’s possible that she would be better off claiming the CRDO, but it’s also possible that she would be better off with a credit split.

      What’s almost certain however, is that a credit split will likely reduce your pension more than it will increase hers. Here’s a link to another article that I wrote on the negative impact of CRDO and credit split together: http://retirehappy.ca/crdo/

      I could do the calculations for a fee, if you email copies of your CPP statements to me at DRpensions@shaw.ca.

  8. Hi I was wondering how this works if you continued to work after having children and did not stay home for the first 7 yrs. I took in my two grandsons one was aged 2 and the other 3 months old, 11 yrs ago and they will be with me until they are of age except for the youngest who is disabled. I have collected child tax benefit for them for all these years.

    • C. Cormier – If you were receiving the child tax benefit for your grandchildren, you can claim the CRDO for the years that they were under age 7. Assuming your earned income was low those years, this will increase your CPP retirement pension when you apply for it.
      You can also claim the CRDO for your own children, but if you didn’t have low earnings (you don’t have to have stayed home fulltime) while they were under age 7, it won’t help you. On the other hand, it can never hurt you!

  9. From the CPP website (with my question following):

    The CPP recognizes that most people have periods when they are not in the paid labour force. To compensate for periods of unemployment, illness, schooling etc., up to 15% of your low-earnings periods are not counted toward your CPP benefits.

    Likewise, periods of lower earnings when you were at home caring for children under the age of seven can be excluded when calculating your CPP benefits. Other periods may also be excluded from the calculation, such as times when you received a CPP disability benefit.

    Note: Starting January 1st, 2012, there will be an increase in the general drop-out provision;

    · Effective January 2012: from 15% to 16%.

    · Effective January 2014: from 16% to 17%.

    Question: If I am eligible for 10 years of child-rearing drop-out (with zero income), am I also eligible for an additional 17% of drop-out for low-earning periods?

    Thanks!

  10. Janice

    Good question!

    Yes, you are eligible to claim both the child-rearing dropout (CRDO) and the general 17% dropout, but there’s a slight wrinkle to how it works.

    For most people applying at age 65, they can drop out 8 years (96 months) under the 17% dropout, calculated by multiplying 17% times the 47 years in their contributory period (from age 18 to 65).

    If you drop out 10 years under the CRDO, you would only be able to drop out 76 months under the general dropout, calculated as 17% of the 37 years remaining in your contributory period.

  11. I left the workforce (retired) in 1981 at the age of 25 to have a child. I did not return to work even after my second child in 1983. Could not find a job that would have made returning to work financially beneficial (after daycare costs). Do I qualify for any CPP benefits, given changes made to the program?

    • Ingrid

      You qualify for a CPP retirement pension if you have at least one year of contributions, so the short answer to your question is “Yes”.

      You will be able to drop out approximately 9 years under the CRDO/CRP when your CPP is calculated, but your pension will still be fairly small if you only contributed from age 18 to 25.

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