Updated January 5, 2019 with 2019 rates
A question I’m often asked concerns how CPP benefits are calculated when someone is eligible for both a CPP retirement pension and a CPP survivor's pension (commonly called a combined benefit).
Many people seem to be aware that these combined benefit calculations are subject to some kind of maximum amount, but what that maximum amount is, is clearly misunderstood. And being subject to a maximum amount is only a small part of the story.
In this article, I hope to help you understand the general process involved in the calculation and to clear up any misunderstandings, especially about the maximum. The calculation is relatively complex and although I’ve included most of the details, I’m not necessarily expecting you to calculate your combined benefit yourself.
Three basic points to be aware of:
- Combined retirement/survivor benefits are subject to a maximum. The way this maximum is applied depends on the age at which you started your retirement pension.
- Even if adding your two pensions together would not exceed the maximum, you will not receive all of both pensions when they are combined.
- If you started receiving your retirement pension earlier than age 65, it will be increased by a special adjustment to offset some of the survivor’s pension that is “lost” as a result of the combined benefit calculation process.
CPP Survivor's pension calculations
Before I discuss the calculation of a combined retirement/survivor’s benefit, it’s probably useful to understand the calculation of a survivor’s pension on its own.
There are two basic calculations for a CPP survivor’s pension, depending on the age of the surviving spouse:
- For a surviving spouse under age 65 (<65), a survivor’s pension on its own would be 37.5% of the calculated retirement pension of the deceased contributor, plus a flat-rate benefit. The flat-rate benefit is $193.66 for 2019. Using this formula, the maximum <65 survivor’s pension for 2019 would be $626.63 (37.5% of $1,154.58 + $193.66)
- For a surviving spouse over age 65 (>65), a survivor’s pension on its own would be 60% of the calculated retirement pension of the deceased contributor. Using this formula, the maximum >65 survivor’s pension for 2019 would be $692.75 (60% of $1,154.58).
Combined benefit calculations
Now that you have a basic understanding of how a CPP survivor's pension is calculated on its own, let’s look at how it is recalculated when you are also eligible for a CPP retirement pension.
When combining a CPP survivor's pension with a CPP retirement pension, the survivor’s pension will be reduced from the regular amount described in Survivor’s pension calculations above, to the lesser of Option A or Option B, as follows:
Under this option, when calculating the combined retirement/survivor's benefit, the survivor's pension is an amount that when added to the surviving spouse's own calculated (or unadjusted) retirement pension, equals the maximum CPP retirement pension for that year (plus the <65 flat-rate benefit if applicable).
How this maximum amount works is commonly misunderstood. Many people think that if they start their CPP retirement pension early (at a reduced rate), they will be eligible for a higher survivor’s pension if/when their spouse dies. This is not true, since it is their calculated retirement pension amount that is used when calculating the combined maximum, which is not the same as their actual retirement pension amount, if they started receiving it earlier or later than age 65.
What this means, is (using the 2019 maximum of $1,154.58 for an age-65 retirement pension):
- Someone who started their CPP retirement pension at age 60 (with a 36% reduction) would effectively have a maximum combined benefit as low as $738.93 for 2019 (64% of $1,154.58).
- Someone who started their CPP retirement pension at age 70 (with a 42% increase) would effectively have a maximum combined benefit as high as $1,639.50 for 2019 (142% of $1,154.58).
Let’s use an example. Andrew started receiving his own retirement pension at age 60. He is receiving $448.00 per month (based on a calculated retirement pension of $700.00, reduced by 36% for taking it early). His wife dies in 2019, when he is over age 65. Let’s say that her calculated retirement pension is $800.00, so that Andrew’s survivor’s pension prior to being combined with his retirement pension would be $480.00 (60% of $800.00).
Under Option A however, the most that Andrew can receive as a survivor’s pension is $454.58 ($1,154.58 minus his own calculated or unadjusted pension of $700.00).
Under this option, the combined survivor’s pension is the normal survivor’s pension calculation as described in the Survivor’s pension calculations section above, reduced by the lesser of:
- 40% of the earnings-related portion of the survivor’s pension, or
- 40% of their own calculated retirement pension
Note: By earnings-related portion, I mean the 37.5% or the 60% calculated in the Survivor’s pension calculations section above.
Using the example of Andrew again, let’s look at how Option B works. As mentioned above, Andrew’s survivor’s pension prior to being combined would have been $480.00. Under Option B, it will be reduced by the lesser of 40% of itself (40% of $480.00 = $192.00) or 40% of his own calculated retirement pension (40% of $700.00 = $280.00).
The lesser of these two amounts is obviously $192.00, so under Option B, the combined survivor’s pension would therefore be $288.00 ($480.00 – $192.00).
Since Option A resulted in a combined survivor’s pension of $454.58 and Option B resulted in a combined survivor’s pension of $288.00, the lesser of those two amounts is obviously $288.00. Andrew’s combined survivor’s pension will therefore be $288.00.
Special adjustment to the surviving spouse’s retirement pension
As if the combined calculation wasn’t complex enough already, there is a “special adjustment” that applies if the surviving spouse started receiving their own retirement pension earlier than age 65. The effect of this special adjustment is to partially offset the actuarial adjustment that was applied to their retirement calculation, for any amount by which their survivor’s pension is reduced under either Option A or B above.
Carrying on with Andrew’s example above, his CPP retirement pension started at age 60, so this special adjustment calculation does apply to him. His uncombined survivor’s pension would have been $480.00, but under Option B, it was reduced to $288.00 (a reduction of $192.00 as a result of the combined benefit calculation).
His special adjustment would be calculated by multiplying the amount of this reduction in his combined survivor’s pension ($192.00) by the actuarial adjustment factor for his retirement pension (36%). The resulting amount of $69.12 ($192.00 x 36%) would be added to his retirement pension of $448.00 as a special adjustment. His net CPP retirement pension would therefore be increased to $517.12 ($448.00 + $69.12), making his net combined benefit $805.12 ($517.12 retirement pension plus $288.00 survivor’s pension).
Gold star question!
If you’ve made it to this point of my article and your head hasn’t exploded yet, I’ll give a gold star and a free CPP retirement pension consultation to the first person who replies with the correct combined calculation for the above example of Andrew, if he had still been under age 65 when his wife died. If no one replies with the correct answer within one month, I will provide the answer myself, and a free consultation will go to the person who comes up with the closest answer (and showing all calculation steps).
Note: There are special “‘grandfather rules” that apply to combined benefit calculations if the surviving spouse was born prior to 1933 or started their CPP retirement pension prior to 1998. Essentially this grandfather protection eliminates the 40% reduction described as Option B above, but it's even a little more complicated than that!