How Will The New CPP Changes Affect You?

The Federal and Provincial finance ministers met again earlier this week to pursue their ongoing discussions on how to improve the Canada Pension Plan.

The majority of the provinces agreed to make the following changes to CPP:

New CPP Changes Explained

1. “Drop-out” becomes “drop-in”

Currently, CPP recipients can drop years of lower earnings from their retirement pension (17% of contributory period). In addition to that there is the “child rearing dropout provision” for a parent who has low or zero earning while being their child’s primary caregiver (under the age of 7).

Instead of this child rearing “drop out”, the new change will use a formula to determine the average income earned for the preceding five years and “drop it in” for the retirement amount calculation.

People eligible for CPP disability payments, now receive a fixed monthly payment of $471.43 plus 75% of their projected retirement pension.

The new formula will use 70% of average earnings for the prior six years for the disability amount.

There have been some concerns about whether these changes would actually improve benefits.

I know the child rearing drop-in won’t do much for me because I had my children at a young age and probably earned minimum wage in the couple of years previous.

2. Survivor benefits

Full survivor benefits will be paid to widows and widowers, regardless of age.

At present, full survivor benefits are only paid only if the survivor is over 45, disabled or raising a child. It is reduced by 120th each month the survivor is under 45 until it comes to zero at age 35. People under 35 would have to wait until age 65 to receive benefits. (The theory was that a widow(er) with no children or disability should be able to adjust financially by returning to work.)

The amendment will allow everyone to receive benefits immediately. Anyone who was previously denied will be able to reapply when the change comes into effect.

3. Death benefit

The maximum death benefit lump sum payment is currently $2,500. It is prorated depending on past CPP contributions.

The good news is that $2,500 will be paid for everyone regardless of past contributions.

The bad news is this amount has not changed since 1997 when it may have been enough to cover an average funeral. Today, it will hardly put a dent in the most modest funeral.

Final thoughts

The above amendments will go into effect in 2019.

The government assures us that there will be no increases to CPP contributions beyond those that were proposed in 2016 – but time will tell. Actuaries have not yet assessed the cost of these changes.

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34 Comments

  1. D Potts on December 15, 2017 at 6:36 am

    How will these changes affect those who are delaying CPP benefits until age 70 (which will be after 2019) — will the new amendments to the child rearing provision apply then to the projected CPP calculation? If so, it might be necessary to do calculations under old and new provision to determine the best way forward?.



    • Doug on December 28, 2017 at 7:58 pm

      Hi D Potts – As long as the child-rearing period was all prior to 2019, these proposed changes won’t impact you at all.



  2. S Davey on December 15, 2017 at 7:54 am

    How will the drop in provision affect a woman who had her first child at 16 and her last at 24? She had little income until all of her children were in school and she was 30 years old. Also we are planning to delay collecting CPP until we are 70.

    Thanks.



    • Doug on December 28, 2017 at 6:15 pm

      This article is Wrong, both about the child-rearing drop-in provision and the change to the disability drop-in provision.

      First, the child-rearing drop-in provision does NOT replace the drop-out provision. The drop-out provision still applies to all child-rearing periods prior to 2019 and to the first 25% of earnings-replacement for child-rearing periods for 2019 forwards. The drop-in provision only applies to the “enhanced CPP”, which means only for periods after 2018 and only for 8.33% of earnings replacement up to the YMPE and 33.33% of earnings above the YMPE and below the future YAMPE.

      For the disability drop-in, it doesn’t change the formula for the disability pension, it only allows average earnings to be used for periods of disability after 2019 and again only for the enhanced CPP portion of the calculation.



  3. boomer on December 15, 2017 at 10:57 am

    @D Potts
    @S Davey
    That’s just it. It is not advantageous to people who had children at an early age. In my case, since you don’t start paying into CPP until age 18, I had hardly any earnings before my first child was born, so there’s barely anything to “drop in.” My children are three years apart so I would potentially have 10 years of drop out in addition to the general 17% rate. The new rules come into effect just about the time I was thinking of applying for benefits. Now I will have to do some calculations.



    • Stan Davey on December 16, 2017 at 3:56 pm

      I saw some info on another forum that the drop-out provision is still available. I guess we will have to see what the legislation actually says.



      • boomer on December 18, 2017 at 4:22 pm

        Hi Stan. The changes don’t go in affect until 2019.



      • Doug on December 28, 2017 at 7:12 pm

        Hi Stan – You’re correct that the legislation doesn’t exist yet, but it’s 100% clear that the new “drop-in” provisions will apply only to the enhanced CPP portion of any future benefits and they do NOT replace the existing child-rearing or disability dropout provisions under the basic calculations (i.e., the first 25% of average earnings replacement portion).



    • Doug on December 28, 2017 at 7:30 pm

      Hi Boomer – Since your child-rearing years were prior to 2019, the changes won’t affect you at all. You will still qualify for up to 10 years of child-rearing dropout plus 17% of the remaining years. I could do those calculations for you if you want?



  4. Alyce Laming on December 15, 2017 at 11:11 am

    It’s a shame that our pensions are not given raises. We have worked for years, raised families and been productive. Today all the money is given to the young children to have children. Focus should be on instilling an education as it was on us. Can you imagine, it is the generation who will be our leaders. Perhaps you should listen to other pensioners and pay attention to us.



  5. J green on December 15, 2017 at 2:12 pm

    When will pensioners get a raise.



  6. Joseph on December 15, 2017 at 2:21 pm

    So this means our CPP disability checks will be reduced



    • boomer on December 15, 2017 at 7:26 pm

      Hi Joseph. If you are on disability now, the payments won’t be affected. The new calculations will affect future applicants. It will depend on previous income.



      • David Doucet on December 16, 2017 at 7:44 am

        Tks boomer.. it’s hard enough ..I was really worried that this was going to cut my benefits payment..



      • Doug on December 28, 2017 at 7:37 pm

        Hi Boomer – The disability pension calculations do NOT change under the proposed legislation. What changes, is that their future retirement and/or survivor’s calculations will be credited with earnings (70% of their average earnings during the 6 years prior to becoming disabled) for the period that they were disabled, but this “credit” only applies to the enhanced portion of their future CPP benefit calculation.



  7. Karen Patterson on December 15, 2017 at 4:49 pm

    How does all this help someone like me who was disabled at such a young age I didn’t ask for this to happen to me I had two young children barely qualified due to child rearing and due to only making min wage and not working long enough yet over time to contribute much to my pay cheques before this happened to me I get a lousy 576.00 which was based on my contributions and that amount is what I’m left wirh after they take 200.00 off my cheque after each child turned 18. This is what I’m now supposed to survive on pay rent and groceries which may I add is less than what welfare pays a single person which is deplorable. Im lucky I’m married so I have a spouse who helps with the expensises but what if I was on my own how would I survive like I said I didn’t ask to be disabled I would rather be working. We need to make changes to the whole system as a whole my income hasn’t increased in many many years we can’t forget this affects not just retired and aging people. Whst about the ones that need the help now. Do these changes help us at all?



    • boomer on December 15, 2017 at 7:24 pm

      Karen, I sympathize with you. CPP Disability payments have never been enough to live on, especially for a single person.



      • Karen Patterson on December 18, 2017 at 4:06 pm

        Ty like i mentioned before obviously i would prefer working my income is so dismal it would never cover rent thats for sure. I guess what they are discussing has no bearing on what i was trying to convey or my situation i just felt the need to discuss something that has puzzled and upset me im 45 now, my son 22 and daughter now 19. I had worked a few differant jobs waitressing and primarily cashier for a big grocery chain. When my daughter was going to grade one full time i was going to go back to school finish my high school and than was looking forward to nursing school. Unfortunately over that summer i got vert sick so much so my husband had to carry me up stairs i was a very hard worker and loosing my independance was extreamaly hard on me. I was told by welfare when i went to apply to apply for the cpp federal disability i would get a bit more this was not true i discovered initialy i almost didnt qualify although my disabilty was very apparent but only because of some child rearing years and the age of my children did i qualify. It was because of them that i recived 200.00 per child equaling 400.00 and than with my portion it brought me up to almost 900.00 with small imcreases over a short period of time until i reached the maximum of 978.00 and that amount has stayed steady up until both children reached the age of 18 and was left only the 578.00 that i have been recieving for years i have never had any increase cause of cost of living or anything for that matter and this is because the amount you revieve is based on how long and how much you contribute to your paychecks. This is my argument and my question there are a lot of people out there like me whom either had a tragedy or illness happen at an age where not enough time working to be able to contribute enough to bring that monthly income up in order to just survive even. Non of us asked for this and than they dont increase like they do welfare or child tax due to the steady rise in the cost of living. We are being left out of the equation and forgotten about something needs to change cause for people like us that collect for differant reasons due to illness and are still so young and no one is talking about it. The system is faulty in every aspect and this needs to be adressed i cannot cintinue living on only 576.00 for 10 more years with no increase while everything around me is going up in price im frustrated and in tears cause i really cant work god i just want to work, so whats the answer if anyone knows of any other part of governmnet that i may get help please let me know but am i wrong in feeling its not fair to never increase cpp disabilty benefits simply cause its only based on what you earmed and contributed.



  8. Lorraine Mukli on December 16, 2017 at 7:37 am

    As far as I’m concerned is this cpp disability should qualify for any diagnosed by thier doctor that if they have a prolonging disability even so it doesn’t affect them from not working but will later in life. They should qualify for cop.



  9. Judy on December 16, 2017 at 8:47 am

    The Survivor’s benefit is also a joke. My husband worked all his life, contributed to CPP, with a match from his employer, and died at age 64 before collecting a penny. I get $443 a month.



    • John on December 16, 2017 at 2:15 pm

      Judy – You are correct, the survivor’s benefit is a joke. I think the entire amount should go to the remaining spouse. What happens when a single person who contributes for years and passes before they collect. I think it goes back into the plan. Not sure about that. More changes need to be made. I am not a big fan of CPP anyway.



  10. Hans on December 17, 2017 at 2:06 pm

    Here’s a question about common-law relationships. A young man dies at age 30 and he leaves a common-law spouse behind with 2 young children. What are they entitled to now and what will the difference be in 2019 (if any)?



    • boomer on December 17, 2017 at 4:39 pm

      Hi Hans. Currently, if the common-law wife is under 35 with dependent children she will receive 37.5% of the contributor’s CPP plus a flat rate of $186.51 a month. Keep in mind that CPP retirement benefits are based on a 40 year contribution span, so at 30 there will not have been much contributed, so the survivor benefit won’t be a whole heck of a lot.
      There won’t be any difference to this particular scenario in 2019.



      • Doug on December 28, 2017 at 6:05 pm

        Hi boomer – If someone dies at age 30, the calculation is based on their average earnings for the 12 years from age 18 to 30, so 40 years is not relevant in calculating the survivor’s pension.



        • boomer on December 28, 2017 at 6:19 pm

          Hi Doug. You are correct in saying the average earning years for a 30 year old would be a maximum of 12. I meant that full CPP benefits are based on 40 years of contributions, that’s why I stated that the survivor pension in this case would not be very much.



          • Doug on December 28, 2017 at 7:20 pm

            Hi Boomer – No, the surviving spouse of a 30 year-old could still receive the maximum survivor’s pension of $604.32 if that 30 year-old earned the YMPE for 10 of his 12 years from age 18 to 30. A maximum survivor’s pension does NOT require 40 years of contributions.



    • Doug on December 28, 2017 at 7:24 pm

      Hi Hans – Because of the children, there is no change between the existing legislation and the proposed legislation. If there were no children however, the survivor would currently receive nothing and under the proposal they will receive the regular under age 65 survivor’s calculation.



  11. Doug on December 28, 2017 at 7:44 pm

    Hi Boomer – Regretfully, the entire first section of this article is wrong. I strongly suggest that you rewrite that section, rather than misinforming your readers.



  12. boomer on December 29, 2017 at 11:15 am

    @Doug Runchey. The information above comes directly from the source. Everything I have read states that the changes go into effect in 2019 – there is no mention of “grandfathering” (except for no change for people already receiving benefits).
    I will gladly make revision, or delete the entire post, with apologies to our readers if I see in writing a different interpretation.



    • Doug on December 29, 2017 at 3:01 pm

      Hi boomer – You probably need a good understanding of the current legislation in order to fully understand the changes. Here is a link to what the Dept of Finance put out: http://www.fin.gc.ca/n17/data/17-122_2-eng.asp

      Although they don’t talk about grandfathering, they do talk about the “Base CPP” and the “CPP Enhancement”, and they mention that the drop-in provisions will apply only to the CPP Enhancements. The “Base CPP” is the current 25% income replacement formula which uses the dropout provisions, and that isn’t changing at all.

      The “Enhanced CPP” (which starts in 2019) was originally designed to always be averaged over 40 years, with no provision for low earnings due to child-rearing or disability. The proposed changes that your article refers to apply only to the Enhanced CPP and will use the drop-in provisions to allow some earnings to be credited into that 40-year period if earnings are low/zero for one of those two reasons.

      I just want your readers to understand what these changes are really about, and how they will or won’t affect them.



      • Dan on December 30, 2017 at 3:00 pm

        Hi Doug:

        You certainly seem to have a comprehensive understanding of CPP, and thanks for sharing the link.
        What do you do for a living?



        • Doug on December 30, 2017 at 3:54 pm

          Hi Dan – I worked for Service Canada for almost 33 years, all of that time working with CPP and OAS. I now operate my own business (DR Pensions Consulting), consulting exclusively on CPP and OAS benefits. Here’s a link to my website if you’re interested: http://www.drpensions.ca/index.html



  13. Alyce Laming on December 30, 2017 at 11:14 am

    After the end of February my income drops to less than $1000 a month because UIC ends. My rent is $1065 plus. How am I suppose to survive, plus I am awaiting a shoulder replacement.



  14. Doug on January 2, 2018 at 8:49 am

    Hi Boomer – Here’s a link to my explanation of these proposed changes:
    https://retirehappy.ca/proposed-changes-canada-pension-plan/