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.
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.
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.