To calculate your CPP retirement pension, the first thing you should do is go online to the My Service Canada site and obtain your most recent CPP Statement of Contributions (SOC).
Also on the My Service Canada site, you can request an estimate of your CPP benefits. These estimates are very accurate if you’ll be eligible for your CPP retirement pension in the next few years. Otherwise, they can be misleading, especially if your future earnings will be significantly higher or lower than your previous average lifetime earnings.
If an estimate of your CPP retirement pension is not accurate enough for your purposes, you can do a more precise calculation of your CPP retirement pension. I’ll explain each of the steps in the calculation briefly in this article, and then you can ask questions if anything is unclear or you need more detail.
Step 1 – Calculate your number of contributory months (NCM)
Your contributory period begins either the month after you turn 18 or in January 1966, whichever is later. It ends either the month you turn 70 or the month before the month that your CPP retirement pension starts, whichever is earlier. Your contributory period excludes any month that you received a CPP disability benefit.
Your NCM would simply be the total number of months in your contributory period, minus any months excluded as a result of receiving CPP disability benefits.
For example, the contributory period of someone applying for the CPP at age 65 in 2013 or later, and having never received CPP disability benefits, would be 47 years (from age 18 to age 65). The NCM would be 564 months (47 years x 12 months).
Step 2 – Calculate your Total Adjusted Pensionable Earnings (TAPE)
First, find the “Your pensionable earnings” amounts for each year on the SOC that you got from the My Service Canada web site. These are referred to as your Unadjusted Pensionable Earnings (UPE).
For each year, divide the UPE for that year by the corresponding Year’s Maximum Pensionable Earnings (YMPE).
(UPE/YMPE)
The following two links will provide you with a list of all YMPEs since the CPP began in 1966:
http://www.servicecanada.gc.ca/eng/isp/cpp/contribrates.shtml
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/cpp-rpc/cnt-chrt-pf-eng.html
Next, multiply that result by the average YMPE for the five-year period ending in the year that your CPP will start.
(UPE/YMPE) x average YMPE for five-year period
Example calculation using the year 2013:
The average YMPE for the five-year period ending 2013 is $48,600, based on YMPEs of $46,300 for 2009, $47,200 for 2010, $48,300 for 2011, $50,100 for 2012, and $51,100 for 2013.
($46,300 + $47,200 + $48,300 + $50,100 + $51,100)/5 = $48,600
So if a person had a UPE of $4,000 in 1966, the APE calculation would be:
($4,000/$5,000 (the YMPE for 1966) x $48,600 (the average YMPE for the five-year period ending in 2013)
The resulting APE would be $38,880.
This step effectively brings the earnings for each year up to a current year value. This means, for example, that a UPE of $5,000 in 1966 (when the YMPE was $5,000) is worth the same as a UPE of $51,100 in 2013 (when the YMPE is $51,100) when calculating your CPP retirement pension.
Your Total Adjusted Pensionable Earnings (TAPE) is now calculated by simply adding together all of the APE calculations for your entire contributory period.
Step 3 – Determine your “dropout” periods
The two most common dropouts are the general dropout and the Child Rearing Provision (CRP).
Related article: The Child Reading Drop Out Provision
If you are eligible for the CRP, you can drop out any period of time that your children were under the age of 7 and where your APE was less than your average APE. The CRP is done first and then the general dropout is applied.
The general dropout, for which everyone is eligible, drops out a percentage of the lowest remaining earnings in your contributory period. The general dropout percentage was 15% before 2012, has been 16% since 2012, and will be 17% starting in 2014.
Example 1: As mentioned in Step 1, for someone reaching age 65 in 2013, the contributory period would be 47 years or 564 months. If they never received CPP disability and weren’t eligible for the CRP, they would use the general dropout to remove the lowest 96 months of APE (564 x 17% = 95.88, rounded up to 96).
Example 2: If the same person from Example 1 was eligible for the CRP for two children born three years apart, that person could drop out up to 10 of those years (or 120 months) under the CRP, plus a further 76 months ((564 – 120) x 17% = 75.48, always rounded up to 76) under the general dropout.
Step 4 – Calculate your Average Monthly Pensionable Earnings (AMPE)
First, subtract all of the APEs that you identified in Step 3 as being dropped out, from the TAPE that you calculated in Step 2. For example, if you are dropping out 96 months, you would identify your 8 years of lowest earnings and subtract the APEs for those years from the TAPE. The result of this calculation is the TAPE (after dropout).
If you are dropping out less than a full year of APE, just pro-rate that amount. For example, if you are dropping out 76 months, you would drop out your lowest 6 full years of APE, and 4 months of the next lowest year. When dropping out the 4 months, you would drop out 4/12ths of the calculated APE for that year.
Next, subtract the number of months identified as dropout periods in Step 3 from your original number of contributory months (NCM) calculated in Step 1, to get your NCM (after dropout).
For example, 564 NCM – 96 months dropped out = 468 NCM (after dropout)
Finally, your AMPE is simple math using the formula:
AMPE = TAPE (after dropout) / NCM (after dropout)
Step 5 – Calculate your retirement for benefit calculation (RTR-FBC)
This is the easiest step. Just take 25% of the AMPE that you calculated in Step 4.
The result of this step is the amount that your monthly CPP retirement pension will be, if your pension is starting the month after you turn 65.
Step 6 – Apply any applicable actuarial age adjustment factor
If you are starting your CPP retirement pension earlier than age 65, decrease your RTR-FBC calculated in Step 5 by the appropriate age factor.
Related article: How to Get Your CPP Early
If you are starting your CPP retirement pension later than age 65, increase your RTR-FBC calculated in Step 5 by the appropriate age factor (now always 0.7% per month).
Note: If all of the above is too confusing or complex, you can email me at DRpensions@shaw.ca, along with a copy of your SOC and any “scenarios” for which you want CPP retirement pension calculations. (For example, you might want to find out how much your CPP retirement pension will be if you start taking it at different ages, say 60, or 65, or 70.) I charge a small fee for each calculation that I do, but I also guarantee the accuracy of my calculations.
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Another informative post that I will email to myself and friends.
I was a stay at home mom for a decade and will be applying for a portion of my ex-spouses credits. I understand it is an easy process even though it will probably make his head explode when I tell him. He managed to go all those years without ever doing a load of laundry, washing a dish or feeding a chicken. The cows always got out when he waa at work and it was always me chasing them.
Every year he received huge tax return cheques because he could deduct me and the children and he used the return for trips and big toys. He will be receiving a huge pension from his employer and won’t miss a bit of CPP.
Jane
I’m glad that you found this article useful. I can understand how you feel about your ex-husband, but you should be aware that a credit split will likely reduce his CPP pension by much more than it will increase yours. I intend to write an article on this subject in the not-too-distant future(I call it the CRDO/DUPE overlap), but if you haven’t already done so, you might want to check out the above link to Jim’s article on the Child Rearing Dropout, and read some of my comments.
A much better solution in this situation (in my opinion) is a negotiated agreement outside of the CPP. That way you can split the difference that the government would otherwise be saving, if you simply apply for a credit split (Division of Unadjusted Pensionable Earnings).
Wow! I’ve been looking for this detailed information for some time. There are hundreds of hand-wavy explanations on the web, but this is the first one I could code up in a spreadsheet. Thanks!
Michael
Glad that you found this article useful for your spreadsheet. Let me know if you need any further explanation for any of the steps, and I’ll be please to assist you in refining your spreadsheet.
Thanks for the article. I used it to build a spreadsheet to compare two scenarios. CPP at 60 and 65. I’m 58 and retiring at 60; will not be working for $ going forward. Currently at the max if taking CPP at 60.
Question; the 65 scenario uses the 5 previous years ending 2020; which will of course be inflated by CPI. To compare apples to apples with “constant dollars” at 65 should I simply use the five years prior to 2015?
Thanks again.
Grant
As far as I’m concerned, I would do both calculations using the 5-year period ending 2013, as those are the only real numbers that you have. If you do try to estimate the 5-year average ending 2015 for your age-60 estimate, I would strongly suggest using the same average for your age-65 calculation. Otherwise you’re artificially inflating your age-65 calculation, and perhaps ignoring that if you choose the age-60 option, it will also be indexed to CPI for those same 5 years
Thanks;
Thought so. When I do that I end up with an age 60 max (before age reductions) of $12,150/yr. which matches the government web site. The amount at age 65 goes down to $11,695/yr. which is the likely impact of adding five years of “zeroes” at the end. So there’s a $455/yr. “loss” due to waiting, which, while minor, will have to be considered as part of the age 60 vs. 65 vs. 70 start date debate.
Gord
Sounds like you’ve got a good handle on it now. Glad that my article helped you to get there! Let me know if you have any further questions.
Very informative, thanks!
I would like to ask 2 questions:
1. In step 3, you’d mentioned “The two most common dropouts are …”, which implies there are other less common dropouts. Would you be able to give more details about these other dropouts, if any?
2. For the CRDO, does it apply to both parents, or only one of the parent is eligible?
Charles
The only other real dropout is the over-65 dropout, where you can either automatically drop out any years after age 65 if they are lower than your average, or if they’re better than your average earnings, you can use them to replace lower years (this dropout is performed after the CRDO and prior to the general dropout). The only other situation that is sometimes referred to as a dropout concerns periods of time in receipt of CPP disability. These periods of time are really excluded from your contributory period, but this has virtually the same impact as dropping those years out when calculating your benefit.
Your question about the CRDO is a bit more complicated, and is a bone of contention for me. Firstly, only one parent can claim the CRDO for the same period of time. In theory, that would be the primary caregiver for the child(ren), but by legislation and in practicality it is primarily the female parent who qualifies.
I intend to do an article specifically on the CRDO in the coming months, so maybe that will clarify the situation for you.
Doug,
Thanks so much for the information.
I look forward to reading your next post about CRDO.
I am trying to find out how CPP disability will affect my CPP payment when I turn 65. I am currently 49 and just started CPP disability. The CPP site gives me an estimate of what I would receive at age 65 (just shy of the maximum) but as I will have no income between now and then does this mean I will receive nothing or very little at age 65?
thanks
Cathie
Assuming your condition doesn’t improve and you continue receiving CPP disability until age 65, that entire period of time is excluded from your contributory period (see Step 1 above). That means that the fact that you’re no longer working and contributing (while receiving CPP disability) won’t reduce your CPP retirement pension calculation at all.
This means that the amount showing on the CPP site is probably fairly accurate. But there’s a way of validating that once you receive your first CPP disability payment, by reverse-calculating that disability amount. To do so, take your disability amount, subtract the flat-rate portion ($453.52 for 2013) and divide that result by 75%.
Using the maximum 2013 amounts to demonstrate this procedure, take the maximum disability amount of $1,212.90 – $453.52 = $759.38 = $1,012.50 (which just happens to be the maximum CPP retirement pension for 2013).
Sorry but I forgot one step in my example above!
That should have been:
$1,212.90 – $453.52 = $759.38 / 75% = $1,012.50