facebook_pixel

CPP Child Rearing Dropout-The Good

The Child Rearing Dropout (CRDO) provision of the Canada Pension Plan (CPP) isn’t an actual benefit paid on its own, but it is an important provision nonetheless. The CRDO provision is generally helpful, but the actual impacts of it aren’t always fair. This article is the first of a three part series on the Good, the Bad and the Ugly aspects of the CRDO provision.

  1. The CRDO can help someone meet the eligibility criteria for disability or survivor benefits (the Good), and it can also increase the amount of these benefits and increase the amount of retirement pensions (also the Good).
  2. The legislative provisions governing the CRDO have some flaws and weaknesses that result in some gender inequities (the Bad) and it generally doesn’t work well if both parents share the child-rearing responsibilities (also the Bad).
  3. In combination with another feature of the CPP known as the Division of Unadjusted Pensionable Earnings (DUPE) provisions, the CRDO often results in a significant net loss of benefits to the “couple” (the downright Ugly).

Who is eligible for the CRDO and when does it apply?

Family HomeService Canada will tell you that the Child Rearing Dropout can be claimed by whichever parent was the “primary caregiver” for a child under the age of seven. I’ll explain in Part II (The Bad) why that isn’t always the case, but for now let’s pretend that’s the truth and let’s call that person the qualified parent.

The CRDO is intended to apply when a qualified parent stays home or works only part-time while raising a child under the age of seven. I’ll explain in Part III (The Ugly) why that isn’t always the case, but for now let’s pretend that’s the truth.

The period of CRDO eligibility starts with the month following the birth of the child, and ends with the month that the child turns seven. If you have more than one child and the children are born less than seven years apart, the period of eligibility starts the month following the birth of the oldest child and ends the month that the youngest child turns seven.

For example, if you had three children born July 1970, April 1973 and May 1976, the period of CRDO eligibility would start August 1970 and end May 1983.

The CRDO is not automatic. The qualified parent must complete a separate form (ISP 1640) when applying for a CPP benefit.

If you are eligible for the CRDO and did not complete this form when you applied for your CPP benefit, it can be submitted later. It is fully retroactive.

How does the CRDO work?

The Child Rearing Dropout is actually a two-step process. The first step (I’ll call this CRDO 1), allows a qualified parent to exclude any years from their contributory period where their earnings were less than the Years’s Basic Exemption (generally $3,500). By excluding these years from their contributory period, CRDO 1 can help someone meet the eligibility criteria for disability and survivor benefits. It will also increase the amount of those benefits and increase the amount of their retirement pension.

The second step (I’ll call this CRDO 2) allows a qualified parent to increase the amount of their CPP benefits by dropping out periods of time where their earnings were less than their “average lifetime earnings.” You may want to check out an earlier article that I wrote on how to calculate your CPP retirement pension  to learn more about what your average lifetime earnings means, and how dropouts work.

Now let’s look at a couple of examples that demonstrate how the Child Rearing Dropout works.

EXAMPLE 1

Nancy worked part-time while attending university, and then full time for 10 years after she graduated. She then had a daughter and stayed home to look after her until the child started school. At that time she got a part-time job, but was permanently disabled two years later.

Without the CRDO, Nancy would have been denied a CPP disability benefit, because she would not have met the requirement of having made contributions in four of the last six years in her contributory period. However, under CRDO 1, she does meet the requirement because she can exclude the five years that she stayed home to look after her daughter. Furthermore, when her CPP disability benefit is calculated, she can drop out the last two years of part-time earnings under CRDO 2 and thereby increase the amount of her disability benefit.

EXAMPLE 2

Susan worked full time for a couple of years after completing high school, and then had two children, born June 1969 and December 1972. She worked part-time until the second child turned seven, and then went back to work full time and earned more than the Year’s Maximum Pensionable Earnings every year until she turned age 60, at which point she retired.

Without the Child Rearing Dropout, Susan’s CPP retirement pension at age 65 would be significantly affected by the 10.5 years of part-time earnings that she had while raising her children, because the general dropout would allow her to drop out only the five years of zero earnings after age 60, plus three of the lowest years of part-time earnings. By dropping out all of those 10.5 years under CRDO 2, however, and by using the general dropout to drop out the five years of zero earnings after age 60, Susan can receive a maximum CPP retirement pension.

Watch this website in the coming months for Part II (CRDO  − The Bad) and Part III (CRDO − The Ugly).

Written by Doug Runchey

Doug Runchey worked for the Income Security Programs branch of Human Resources and Skills Development Canada for more than 32 years, and was a specialist in the Canada Pension Plan and Old Age Security legislation, regulations and policy areas. He now runs his own company, DR Pensions Consulting, which provides pension advice, including detailed calculations for CPP retirement planning and “credit splitting” purposes. Doug can be reached by email @ DRpensions@shaw.ca or check out his website at http://www.drpensions.ca/.

41 Responses to CPP Child Rearing Dropout-The Good

  1. Doug, is there any effect to when in the year you start and stop CRDO period. For example, if someone was to take a year off to raise their newborn, is there a difference if your 1 year off of work was from July to June vs Jan to Dec, all else being equal?

    • Lance
      This is a very good question!!

      I’m going to talk about this situation in a bit more detail in CRDO Part II (The Bad), but the two scenarios that you describe would be treated quite differently under the CRDO provision. The answer isn’t as simple as you might think, and it’s complicated a bit by when the child is born, as CRDO eligibility starts the month following the birth.

      Let’s use your 2 examples with the child being born in the month prior to stopping work, with someone earning $36,000 annually.

      If they stop work from July in one year to June in the following year, their actual earnings in each year will be $18,000. None of this period would be excluded under CRDO1, but if $18,000 was less than their adjusted average earnings when their pension was calculated, the 18 month period from July of the first year thru December of the second year would be dropped out, as would $27,000 of earnings (half of the first year’s $18,000 and all of the second year’s $18,000.

      If they stopped work from January thru December, they would have zero earnings that year, and the whole 12-month period would be excluded from their contributory period.

      On the surface, it might seem that the second scenario is a better option (and it probably is in most cases), but I think you’d need to plug the numbers into a whole contributory record to see how much of a difference there would actually be.

  2. Hi Doug,

    Question, can an individual apply both the general drop-out and child rearing provisions to the calculation of their contributory period?

    For example, if person X earned nothing between the ages of 18 and 25 because they were in University, then had a child at 30 and left the workforce for seven years to be the primary caregiver. Could you apply both provisions in order to wipe out the full 14 non-earning years from the calculation, or would this be an either/or scenario?

    Thanks

  3. Dylan

    This is a very good question! The short answer is that a person can use both dropouts, but the result isn’t quite as simple as adding the two together.

    First, the general dropout is now 17%, so that means that someone applying at age 65 can now drop out as many as 8 years (up from 7 years when the general dropout was 15%). If you’re also eligible for the child-rearing dropout (CRDO) however, you can’t double-dip on those 7 years.

    What happens is that you drop out the 7 CRDO years first, and then you get to drop out 17% of the remaining 40 years = 6.8 more years under the general dropout provision.

    The above numbers change if you start your CPP at any age other than 65.

  4. hi Doug,

    what if you go back to work full-time in those 7 years but make under the the minimum requirement. Is it 7 of your lowest years in that 40 year period. Many people can work full time and make below the minimum. ie I can work as a Sr personal banker and make less than the $51k minimum required to meet my 40 points. I dont understand how this process can be deemed as fair? I have worked full time for the last 24 years. I am 42 and may not get a full entitlement? So the only people guaranteed a full income are the ones that could afford to contribute to RRSP being over the very high minimums. ie as a Customer service manager at a bank I was offered only $50,000 per yesr..under the required minimum??? with a significant education.Again, I am having a hard time understanding how this can be perceived as fair. So how is the govt proposing to help all the families they are cutting out of receiving their full entitlement with these new rules? And why isnt it like an annuity, where the funds of the hug income earned funds the lower income earners??? Why is it not a percentage of income based on income brackets? This to me would seem more fair. And more fairly fund the plan based on income earned. So the same maximum can be enjoyed by all trying to make ends meet in retirement, that may not have had the luxury of enough disposable income to fund rrsp’s. Ie being a single parent. I speak as a Financial Planner and the flaws so apparent with this system. Or is the govt counting on clawbacks for high income earners, which will achieve further income in the plan? I have been lycky enough to have maximized my rrsp each year, but good planning should not exempt me from anything. If anything If I have my own retirement olan I should be anle to opt out of the CPP, especially if my contributions will not lead to anything. Perhaps that is what we dhould be lobbying for. Or at the minimum be able to draw what you have contributed? I prefer to opt out and take that money and invest it myself. Since it is in fact my money. $3500 a year for 40 years compounded…im going to guess thats at least 5 or $600,000 over 40 years and youre telling me I mày be lucky to get $500 a month. Sounds like stealing to me, youre trying to tell me the plan is under funded? well half way through my working career and my contributions plus compounding are probably close to 2 or $300,000. Pretty sure thats enough for the govt to pay me my maximum for 30 years in retirement. No?????

    • Kasey,

      You should read some of the other articles they are very good and will give you a better understanding on how the CPP system works.

      You haven’t put $3500 of your money a year into CPP. The amount changes every year the maximum contributions when you where young were most likely in the 1000 dollar range, so your $600000 number is out to lunch.

      The CPP is not under funded.

      There are no claw backs in CPP. You are thinking about the GIS, which has income limits. OAS also has a very high income limit.

  5. kasey kasey

    To answer the one question that you asked dealing with the CRDO, the 7 years that can be dropped out are the 7 specific years starting from the month after the child is born to the month that he/she turns age 7. It doesn’t matter whether the qualified parent was working fulltime or not. What matters is whether their earnings during that period was over or under their lifetime average earnings.

    If their earnings during any/all of those 7 years was under average, those years will be dropped out under the CRDO to increase their pension.

  6. Hi Doug,
    I have had a turbulent career like many others. Contributions during my CRDO years rose and fell according to the jobs I was able to get and keep.

    I am afraid that if I claim some of those years as CRDO (as my wife has agreed to waive her claim) and I guess wrong will my CPP benefits be reduced?

    • Howard

      The CRDO can never decrease your CPP, because it only ever drops out years that are lower than average for you. If you had some good years of earnings during the CRDO period, they will be retained when your CPP is calculated.

  7. Can my ex husband get the CRDO without my consent?
    If he is approved for it, how will it affect my credits when split (he ended up at home with the kids because he didnt have a job). I worked full time at all times because of this except for the 3 months of maternity leave allowed at the time.
    He is applying right now and I a very worried about what this will do to my income (I did not start contributing until i was 25 as I came from England at that time, so my years are already decresed).

    • Liz

      The answer to your question depends on whether you’re talking about pre-1993 (when CRDO eligibility is based on family allowances eligibility, which was always paid to the female parent if there was one) or post-1992 (when CRDO eligibility is based on child tax benefit eligibility, which your husband could/should have received if he was the stay-at-home parent.

      This is a very complex issue, and you may wish to email me at DRpensions@shaw.ca. I can do some calculations for you, and perhaps save you both a lot of money in the long run.

  8. Hi Doug
    I have been on CPP Disability since 2009. I never heard of this CROD and cpp never mentioned it.. I had 3 children
    born 1982 1984 and 1989 and stayed home looked after them with a very miminal part time job. husband worked full time

    Am I still allowed to apply for this and if so how far back do they go with it. I also would like to know where would I get copies of my childrens birth certificates as I lost them in a house fire a year ago. Look forward to reply and would love to apply for this.. I am 53 in August been divorced since 1999.
    thank you

    • Christina

      The CRDO isn’t a separate benefit that’s paid to you, it’s part of the calculation to your regular CPP disability or retirement pension. It’s therefore possible that you did complete the CRDO form as part of your disability application, without fully being aware of it. If not, it would be fully retroactive to the start of your CPP disability in 2009.

      I recommend that you call Service Canada at 1-800-277-9914 and ask that if the CRDO was used in your calculation. If not, ask them to mail you the form ISP 1640 for you to complete. If you have any doubt in what they’re telling you, email me at DRpensions@shaw.ca and I will assist you (for a fee).

      If required, you should be able to obtain copies of your children’s birth certificates by contacting the Vital Statistics department in whatever province(s) they were born.

        • hello thanks for the reply I do not hav social insurance numbers for my kids. Would the cpp not have excess to their stuff

  9. We have 3 children born in September 1984, December 1986 and April 1991. During the years 1984, 1985, 1986 I received the Family Allowance and worked enough each year to contribute the maximum to CPP. My husband did not. He was the primary caregiver. From 1987 until 1998 I was the primary caregiver. My spouse worked full-time (and contributed the maximum to CPP), whereas I didn’t work or worked part-time. I have read that the CRDP cannot be shared for the same periods, however can my husband claim the CRDO for the years 1984, 1985 and 1986 and then can I claim it for the years 1987 through 1998?

    • Maria

      Yes, as the FA recipient you can waive your rights to the CRDO in favour of your husband for those 3 years and retain your rights to the CRDO for all other years. This is done by you signing the waiver form at the time that he applies for his CPP.

  10. I was denied CPP as they said I have not pd into it in the last 4-6 years, that is because I became disabled and also was primary caregiver to my only child since 2004. how can they do this to me?

    • Christine

      The minimum requirement for CPP disability is that you have made contributions in at least 4 out of the last 6 years of your contributory period. If the reason why you haven’t done so is that you were disabled and/or looking after a child under age 7, that period of 6 years can sometimes be changed.

      If you want me to look at your case closer, send me a copy of your CPP statement of contributions to DRpensions@shaw.ca.

  11. Can either spouse claim the CDRO? If one worked full time while the other stayed home, and you calculate that the CDRO would increase the CPP benefit of the non caregiver more than the benefit of the caregiver, is that allowable?

    • Greg

      The short answer is “No”.

      Under the legislation, the CRDO actually belongs to the parent who received the Family Allowances and/or the Child Tax Benefit, which was generally the female parent. There is some provision for reassigning the CRDO if the other parent was actually the primary caregiver but it isn’t always easy, especially for periods of time since 1992 when CTB eligibility is the determining factor.

  12. Thanks for the article, Doug. I applied for the CRDO in 2010 when I applied for my CPP benefits at age 60. I spent 17 years raising my four children as a stay at home mom up to when the youngest was 7 (Aug 1970-Nov 1987). I was rejected for the CRDO because I never received the baby bonus. My husband had refused to apply for the baby bonus, though I would have been very glad to have it! I certainly didn’t know that it would affect my CPP benefits all these years later! It reduced my benefit by about a third, which is significant to a low income senior.

    When the Liberals were elected recently, they talked about revamping CPP, so I thought I would write to them about the problem for parents such as myself who are excluded from the provision. I went online to research, and found to my amazement that the wording on the CPP website has now changed (Jan, 2016) and that they now say that it is possible to benefit from the CRDO even if you did not receive the baby bonus! Do you know when this policy changed? Do you know if there are any more “gotcha’s” in how it is approved? If I were approved retroactively, I would be eligible for a tidy sum, and, as a low income senior, I don’t want to lose the chance for it.

    Thanks!

    • Barb

      There has been no change to the legislation or the regulations, and I’m not aware of any policy change. I wonder if the change on the website is intended only to clarify that any periods of CRDO after 1992 are based on receipt or eligibility for the Child Tax Benefit rather than the Family Allowances?

      Can you provide a link for the changed wording that you’re referring to?

      • Hi Doug,
        I talked with someone at CPP yesterday, and you are right! No change in regulations or policy. He looked at my case briefly and said that the CRDO would not have been of any use to me anyway because my working career was short and so I had already used the maximum number of drop-out years. (If I understood him correctly.) I asked him, if this was so, then why did CPP send me a letter saying that my CPP benefit was being reduced by 1/3 because I didn’t qualify for the CRDO? He had both the initial figure CPP sent me in 2010 as well as the follow-up letter there in my file. He said he couldn’t account for the difference, and that he wasn’t able to run the numbers starting from a date in the past, so couldn’t confirm which was correct. He suggested that I write to the regional office and ask them to send me a detailed accounting of how the figures were arrived at. But he warned me too, that there was a limit of 90 days after the original decision to appeal it. So it is unlikely (or impossible?) that I can change it even if a mistake was made.

        Does the government really put that much onus on the poor retiree to figure out their own correct CPP benefit? Oh dear!

        Thanks,
        Barb

  13. “The first step (I’ll call this CRDO 1), allows a qualified parent to exclude any years from their contributory period where their earnings were less than the Years’s Basic Exemption (generally $3,500).” I assume that a period with earnings less than the Year’s Basic Exemption can only be excluded if it falls in the 7 year window beginning in the month following the month of birth and can not be excluded if it is a period preceding the year of birth.

  14. Hello Doug,
    Can I apply for DRDO without consideration of income split. I do not want to involve my ex-spouse with any issues that might come about if I say I want to apply for income spit. Because it will affect his CPP I don’t want to deal with any backlash from him. I was home for 8 years with young children while he worked. I have been back to work now for over 20 years and will retire in 2 years at 65. Would they force me to income split and would that affect my ability to get the benefits of CRDO.
    Thanks
    Susan

    • Susan – Yes, you can apply for CRDO regardless what you do (or don’t do) regarding a CPP credit split. If you’re divorced, Service Canada may tell you that a credit split is “mandatory”, but it’s not. It’s only mandatory that they approve the credit split if one of you requests it by completing a specific form notifying Service Canada of your divorce.

  15. Doug,
    I had credit splitting from 1977 to 1991. For 8 of those years my ex wife earned nothing so I lost half of my personable earnings. My ex-wife died in 2005 at age 56 so never drew her pension. Mine has been affected. So mine and my employers contributed to my pensionable earning were then split with my ex-wife who will never get a pension. Can I challenge this? This is obviously not fair. She was not disables although married again but her new husband also died before 60 a few years after her.

    • Tony

      It may seem unfair to you, but I don’t think you have any basis of appeal under the law. CPP credit-splitting is like any other division of assets during a divorce. Once the earnings “credits” are divided, they belong to her and it doesn’t really matter whether she uses them or not.

  16. Hi Doug, Thanks for all your informative articles. Sorry in advance if this is a stupid question. Can an immigrant (now Canadian citizen) claim the child-rearing dropout provision for the years prior to when the child entered Canada? If say, the family immigrated after the child turned age 7, would the parent now claiming CPP benefits be eligible for the child-rearing dropout provision for years prior to when the parent contributed to CPP?
    Thanks again!

    • Diane – It’s not a stupid question, and I should have covered this issue in my article. The short answer is “No”. The child-rearing dropout only applies if the parent was eligible for the Family Allowances and/or the Child Tax Benefit for the child while they were under age 7, and the child and the parent must both have been resident in Canada in order to have been eligible for those benefits and thus the CRDO.

  17. Hello Doug
    I’m in the process of applying for cpp and oasis.
    I was married in 1976 to my first wife. Children born in 1981 and 1983.I was farming at the time. In 1985 we separated and divorced later. I never received government assistance of any kind, although together with my parents and community I did look after the boys for 2 years and then again for another 2 years. I went bankrupt due to the divorce and interest rates of up to 22%.
    I remarried in 1994 and had another boy .
    The oldest 2 lived with us for the 1994-1995 scool year then went back to their mother to live with till adulthood.
    Can I claim to be the primary caregiver for the 5 years those 2 oldest boys were living with me or should I leave well enough alone?
    Thanks for reading this.

    • Hi Gordon – If they were still under age 7 and if you received the Family Allowances for them for those 5 years, then by all means you should claim the child-rearing dropout for them.

  18. Hi Doug
    Interesting reading. I understand the child rearing and drop our provisions. Is there a formula to calculate the CPP income that includes these provisions. Any of the formulas I have seen on the web does not include these provisions.

  19. Hi Doug, what is the impact on the childcare drop out years if the CPP applicant had a divorce in the past and had already split their CPP benefits?

    • If her earnings for any year after the split are higher than her “average lifetime earnings”, those earnings will increase her CPP. If they’re lower than her “average lifetime earnings”, they will be dropped out under the CRDO.

Leave a reply