5 Proposed changes to the Canada Pension Plan explained
The federal and provincial Ministers of Finance recently announced that they had reached agreement on some changes to the enhanced CPP, along with some other changes to the basic CPP.
While the legislation to implement these changes has not yet been finalized, it is important to understand what these changes could mean to your CPP benefits.
Probably the most important and most misunderstood change is the announcement of a new child-rearing “drop-in” provision.
In the past week, I’ve received several enquiries from people who are very concerned that this provision replaces the current child-rearing dropout provision (CRDO or CRP). This is not true!
The current CRDO provision will still apply fully to any periods of child-rearing before 2019, and it will still apply to child-rearing periods after 2018 for the “Base CPP retirement pension” calculation, which replaces the first 25% of average lifetime earnings up to the Year’s Maximum Pensionable Earnings (YMPE) level.
The new child-rearing “drop-in” provision (CRDI) will apply only to child-rearing periods after 2018, and only to the “enhanced CPP” calculations. The enhanced CPP is calculated as 8.33% of average earnings since 2019 and up to the YMPE level, plus 33.33% of the average earnings above the YMPE and below the future Year’s Additional Maximum Pensionable Earnings (YAMPE), which begins in 2024.
As to how the CRDI is intended to work, eligible parents will get credit for earnings based on their average earnings for the five-year period immediately prior to the child-rearing period, if their actual earnings while child-rearing are lower than that average.
Another change is the introduction of a disability drop-in provision. As with the CRDI, this provision does not replace the current disability dropout provision and it only applies to the enhanced CPP calculations.
The disability drop-in provision will presumably apply to anyone who is receiving a CPP disability pension in 2019 or subsequent years. When they subsequently become eligible for a CPP retirement pension, they will be credited with earnings during the period that they received a disability pension, based on 70% of their average earnings during the six-year period immediately prior to becoming disabled.
Note 1: While it’s definitely true that this provision will only apply to someone who is receiving a CPP disability in 2019 or later, it may further be restricted only to CPP disability pensions that begin in 2019 or later. This is because you may have to make “enhanced contributions” on earnings in 2019 or later in order to benefit from this provision. Once the legislation is passed (presumably sometime later in 2018), I will be able to clarify and quantify this change.
Note 2: I have been advised by the Dept of Finance, that this disability drop-in provision will not apply to anyone who is currently receiving a CPP disability pension. It will only apply if you have employment earnings in 2019 or later, and become disabled after that time.
Currently, CPP survivor’s pensions are paid at a reduced rate for someone who is under age 45 unless they are disabled or have dependent children. CPP survivor’s pensions are not payable at all if someone is under age 35 and doesn’t meet either of those same two conditions.
Under the proposed change, these restrictions will be eliminated. Anyone who is currently receiving a reduced under-age-45 survivor’s pension will automatically have their survivor’s pension increased in 2019, and anyone who was denied a survivor’s pension because they were under age 35 when their spouse died can reapply for a survivor’s pension to start effective in 2019.
Currently, if you become disabled before age 65 but after you started receiving your CPP retirement pension, you are not eligible for a CPP disability pension.
Under the proposed change, people in this situation will “receive an additional payment.” No further details have been provided as to how this change will be implemented, except that it is again scheduled for implementation in 2019.
Currently, the amount of a CPP death benefit is six times the amount of a contributor’s “calculated retirement pension,” up to a maximum of $2,500.
Under the proposed change, anyone who qualifies for a death benefit in 2019 or later will receive the same flat-rate payment of $2,500.