CPP Survivor Benefits Not What You Would Expect

Enhancements to the CPP are always being suggested, largely to address the fact that fewer Canadians now have workplace pensions. The latest deal made by provincial Finance Ministers in June 2016 will boost CPP income from one quarter of pensionable earnings to one-third. The change will phase in slowly from 2019 to 2025 (when the pensionable earnings target will be $82,700), so it will be a while for these changes to be felt by future retirees.

Related: Canada Pension Plan expansion and why it matters

Of more pressing concern to current retirees, and not addressed – or even on the radar – is the issue of CPP survivor benefits.

As noted in this Globe and Mail article, if you find yourself widowed, you may not get the survivor benefit that you expected.

CPP Survivor Benefits Not What You Would Expect

CPP Survivor Benefits calculation

The amount a person gets depends on both the age of the survivor, past contributions of the deceased, and when CPP benefits started as seen here.

The exact formula used for each personal situation is complicated.

What is not often foreseen is that a CPP pension combined with a survivor benefit is capped at the year’s maximum single benefit ($1,114 per month in 2017). This means that if both spouses were receiving the maximum amount, there will be no survivor benefit.

What could the Survivor Benefit look like

Opponents to the current plan say that the CPP should work like a defined-benefit pension plan (or even a joint annuity) whereby the survivor receives 60% of the pension amount.

What is not considered is:

  1. This is not fair and equitable to single retirees.
  2. The survivor benefit option in pension plans reduces the original payment.

My proposed enhancement

My proposal is to eliminate the:

  • Survivor benefit
  • Orphan’s benefit
  • Death benefit

The CPP survivor benefits calculation would be based on what the employee paid into the plan during their working life, if and when they have started receiving the CPP benefit, and a commuted value based on their actuarial life span – currently the life expectancy for a 65-year-old is 85.3 years.

Related: Take CPP Early, Late, Or Somewhere in-Between?

Employees would have to designate a beneficiary, and the survivor benefit would be paid in a lump sum.

Final thoughts

Just like the objections to taking out an annuity, people are afraid that they will not receive the full benefits of money that they have paid in to a fund by dying prematurely. They don’t want to have paid a lot into the plan, only to have it go back into the pot.

I think my proposal seems doable, and fair to all.

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  1. John Hamblin on February 15, 2017 at 9:15 am

    Your proposal is OK but not great if as is often the case the spouse stayed at home for many years to raise kids and take care of a sick father and so has a CPP of under $600 per month whereas I worked for almost 50 years and have the maximum. If I die I feel she should receive 50-60% of my pension based on the years of contribution..

    • Sherry on February 16, 2017 at 6:47 pm

      Yeah is not fair they worked all their lives. And the wife stays home to take care of the house kids and the man of the passes away they should be in tiled to all the money he put into it

  2. christina on February 15, 2017 at 2:42 pm

    As a single person, I have mixed feelings about survivor benefits. In particular with my defined benefit pension, I don’t understand if I wanted to why I can’t choose someone as the beneficiary of my pension. Eventually a single person is going to challenge these survivor benefits that only benefit spouses as unfair.

  3. Jean on February 15, 2017 at 8:55 pm

    WE STAY at home mothers who didn’t pay into Cpp she get a pension for staying home .Not just thar little top up if u HD a child after 1959.

  4. Linda DalCin on February 16, 2017 at 6:26 am

    I am a widow and I resent the fact that both me and my husband worked and payed max for him and almost max for me. My friends , who never worked a day in their life , get 60 percent of their husbands cpp while I get 200 dollars . I am struggling to keep my house as I still have the same bills. Split income , I don’t get and my husband cpp I don’t get. The system is unfair for single retirees.

  5. Sheila Morgsn on February 16, 2017 at 6:37 pm

    My husband died in 2014 and as of now 2017 my CPP (combined) still doesn’t reach the Max of $1114.00 /mo. My monthly rent exceeds what I receive in CPP.Not fair in my eyes.

  6. t on February 17, 2017 at 9:09 am

    also if u happen to be disabled or limited income for whatever reason it isnt fair to say you didnt pay in so u wont get much .

  7. Davis on February 19, 2017 at 7:30 am

    I assume that all of these proposals to increase benefits or pay lump sums are based on the assumption that benefits for current re ipients would be reduced to pay for the enhancements. No-one ever mentions that, though. And no-one ever says, “and I would reduce everyone’s monthly CPP payment by $xxx to pay for this”, or “I would increase CPP premiums by $yyy a month to pay for it”.

    Everyone seems to assume that the CPP Board can conjure up the extra money out of thin air. It’s easy to propose enhancements when you don’t feel you have to identify the offsetting cuts or contribution increases, and who would lose or pay more because of your proposals.

    CPP is a stand-alone fund. If more money goes out to some people, either you pay less to others or charge more to others.

    • Doug on December 28, 2017 at 7:04 pm

      Hi Davis – I’m not sure what else you’ve been reading, but the upcoming increases under the “enhanced CPP” will be funded by increasing future contributions and not by reducing benefits of current recipients.

  8. Rani on December 15, 2017 at 3:45 pm

    To survive people need some money. After Single earners death in family ,spouse needs some funds to survive. People should always agree for survivor benefit universily , not only canada. Who are single ,its their choice to be single( if not spouse passed away), for unseen parter or divoced spouse ‘s are not getting benefit ,these type of thinking or calculations will come later after peoples survival. One spouse is raising chidren and cooking ,cleaning and other household activities are also a part of life aka must do job , someone is doing these properly then other spouse is giving more tax to government because they have mental peace to earn more and pay more tax. Thoughts should be like this not being mean.

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