Understanding CPP sharing

What does CPP pension sharing mean?

First of all, it’s important to differentiate between CPP “pension sharing” and CPP “credit splitting” (officially known as Division of Unadjusted Pensionable Earnings or DUPE).

Pension sharing is a temporary sharing of CPP retirement pension benefits between spouses in an ongoing relationship, whereas a DUPE is a permanent splitting of pension “credits,” after a relationship has ended through separation or divorce.

CPP Sharing is sometimes referred to as CPP Splitting.

Related article:  Understanding CPP Splitting

CPP sharing is possible in both legal marriages and common-law relationships.

What is the purpose of CPP pension sharing?

The main purpose of pension sharing under the CPP is tax savings. CPP pension sharing is a form of income splitting.  Pension sharing really only produces a tax savings if one spouse is receiving more CPP and is in a higher tax bracket than the other spouse.

Related article:  Income splitting strategies in retirement

How does CPP pension sharing work?

Contrary to what most people think, CPP pension sharing does not necessarily result in a 50/50 sharing of retirement pensions, unless the couple have lived together for their whole lives or at least since the older spouse turned age 18.

What really happens is that they share their retirement pensions based on how many years they have lived together, in proportion to their “joint contributory period” under the CPP.

Related article:  The differences between CPP Sharing and Pension Splitting

What is the joint contributory period?

In simple terms, the joint contributory period starts when the older spouse turned age 18 and ends when both start receiving their CPP retirement pension. If one spouse has never contributed to CPP, it ends when that spouse reaches age 70 or when the application for pension sharing is received, whichever is earlier.

An example to show how CPP pension sharing works

Let’s look at a simple example where Allan and Carol were born three years apart, and they both started receiving their CPP at age 65. Their joint contributory period would be 50 years (from when the oldest turned age 18 until the youngest turned age 65 and started receiving CPP).

Let’s say that without pension sharing, Allan’s monthly CPP retirement pension would be $500 and Carol’s retirement pension would be $1,000. The following chart shows what effect pension sharing would have on the amounts that each of them would receive, depending on how many years they lived together during their 50-year joint contributory period.

Number of years lived together

Percentage of joint contributory period (50 years) Monthly CPP after pension sharing

Allan

Carol

10

20% $550 $950

20

40% $600

$900

30 60% $650

$850

40 80% $700

$800

50 100% $750

$750

 

As you can see from the above chart, the CPP pension sharing produces a 50/50 split only if Allan and Carol lived together for all 50 years of their joint contributory period.

Is it always necessary to do a two-way sharing?

CPP pension sharing is always a two-way sharing, unless one of the spouses never contributed to the CPP. In that situation, a one-way sharing is possible, as long as the non-contributing spouse is at least 60 years old.

When does CPP pension sharing end?

As mentioned earlier, unlike credit splitting which is permanent, pension sharing is temporary. It will end the earliest of:

  • The month in which either spouse dies
  • The 12th month after the spouses separate
  • The month of divorce
  • The month following receipt of a written request from both spouses

 

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 @ [email protected] or check out his website at http://www.drpensions.ca/.

14 Responses to Understanding CPP sharing

  1. I would like to know the ramifications if the higher CPP pension owner dies. What would the surviving spouse receive. Does he or she then just get their own pension amount and a paltry survivor benefit? As women generally live longer than men and men usually receive a higher CPP pension this would leave the survivor, assuming she is female with a vastly decreased income.

  2. If my wife who is five years older than I am has started drawing the CPP.
    Can we apply for pension sharing when I apply for my CPP at 60 or maybe 65?

  3. Hello Doug,
    If I have a spouse and I die before I start drawing my CPP, does the pension die with me with nothing going to my spouse?

    • Hi Paul – Eligibility for a CPP survivor’s pension isn’t affected by whether you are or aren’t receiving CPP when you die. If you are receiving your CPP when you die, the amount of your survivor’s pension isn’t affected by whether you took it early or late, because it’s based on your “calculated retirement pension” which is the amount of your CPP prior to any age-adjustment factor being applied.

  4. Hello Doug,

    I am divorced and able to apply for cpp this year… a court order says my x husband has to split cpp pension 50% with me… I am in titled to half split for the 12 years of marriage… how does this work… is my pension increased by his contributions or would I receive a separate cpp pension once he turns 60 and is eligible to receive… my statement shows eligible earnings as CS but does not show contributions amount??? I feel confused can you help me understand this

    Thanks Ann

    • Hi Ann – If your CPP statement already shows “CS” beside the years that you lived together, you have already received 50% of his pensionable earnings for those years (the amount of contributions is irrelevant in this situation) and your CPP benefit will be calculated to include those earnings whenever you decide to apply for your CPP. Your CPP amount won’t change if/when he applies for his own CPP.

  5. I am 3 months younger than my husband and I have applied for my CPP which will begin in September. My husband applied today and his will start in June. We both are taking it at 60. My husband is still working but I am not. Is it an advantage for us to share his CPP income for tax purposes?

    • Hi Dean – You cannot share his CPP until September, when you are both receiving your CPP. At that time it must be a 2-way sharing, so the answer as to whether there’s any tax advantage will depend on which one of you will receive the larger CPP prior to sharing and which one of you has the higher taxable income aside from CPP.

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