unit 2: government sponsored retirement income...

Retirement Planning

www.CIFP.ca © 2014 1

Unit 2: Government Sponsored Retirement Income Programs

Welcome to Government Sponsored Retirement Income Programs. In this unit, you will

learn about how the Canada Pension Plan (CPP) and Old Age Security System (OAS)

operate, the eligibility requirements, and the benefits available.

You will learn about the following topics:

Operation of the Canada Pension Plan

Survivor and Disability Benefits

The Old Age Security System


2 www.CIFP.ca © 2014


Welcome to Operation of the Canada Pension Plan. In this lesson, you will learn how the

Canada Pension Plan (CPP) operates, the benefits available, and who is eligible to receive these benefits.

This lesson takes 35 minutes to complete.

At the end of this lesson, you will be able to do the following:

describe the eligibility requirements

explain how contributions are calculated

describe the retirement benefits available, including early and delayed pension

options

describe how retirement pensions can be shared between spouses or common-law

partners for income splitting purposes

describe how CPP pension credits can be split upon divorce or separation

Program Overview

The Canada Pension Plan (CPP) is a federally administered program designed to provide

monthly pensions to qualified contributors in retirement, to disabled contributors and their

children, and to the widows, widowers, and orphaned children of deceased contributors. In addition, a lump sum death benefit is payable to the estate of a deceased contributor.

The value of the monthly pension payment is based on past CPP contributions made on

pensionable employment earnings. The value is also affected by the age at which a

contributor chooses to commence receiving the pension.

The Canada Pension Plan is an extremely complex program, especially in terms of eligibility

requirements and exemptions, options for commencing payment, and the calculation of

benefits.

CPP vs. QPP

The CPP applies throughout Canada, with the exception of the Province of Québec. The

Québec Pension Plan (QPP), sponsored by the Québec provincial government, provides

similar benefits. For the purpose of this lesson, only the CPP will be discussed in detail.

Where the plans differ significantly, the difference will be noted.

Residents of Québec must contribute to the QPP. Residents of the rest of Canada must

contribute to the CPP. If a contributor to one plan becomes a contributor to the other plan

through a change in residence, his earnings records are merged and recorded under both plans. Only one combined pension will be paid.

Same-sex and opposite-sex common-law partners

The Canada Pension Plan Act recognizes same-sex and opposite-sex, common-law partners

as having the same rights and obligations as spouses. The common-law partner of a

taxpayer at any time is a person who cohabits with the taxpayer in a conjugal relationship

and who has either so cohabited for at least one year, or who is the parent of the taxpayer’s

child. This also provides for termination of the common-law relationship if the partners

cease cohabitation for a period of at least 90 days because of a breakdown in their conjugal relationship.

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A widow includes a widower and means a person whose spouse or common-law partner has

died and who has not thereafter become the spouse or common-law partner of another

person.

Basic Eligibility The Canada Pension Plan is a social insurance program, meaning

that while the government administers it, the recipients of the

benefits must contribute a portion or all of the costs of the program

through premiums. Until the reforms introduced in 1997, the CPP

was primarily a pay as you go program, in that the premiums being

paid by current employees and employers were being used to fund

the benefits of current retirees.

Everyone who has worked and has contributed to the CPP program through

employer/employee premiums on their pensionable employment income is eligible to

receive CPP benefits. Pensionable employment includes any employment in Canada that is

not specifically exempt under the Canada Pension Plan.

Applying for CPP retirement benefits

Individuals wishing to receive CPP retirement benefits must complete an application form

and submit it to Service Canada who delivers the CPP program on behalf of Human

Resources and Social Development Canada (HRSDC). It is generally recommended that the

application should be submitted at least six months in advance of when the commencement of benefits is desired.

Exempt Workers

Some workers provide services that are not considered pensionable employment for

purposes of the Canada Pension Plan. These individuals are therefore, exempt from making

CPP contributions. However, it also means these individuals will not be eligible to receive benefits under the CPP. Exempt workers include:

those who do not earn more than the specified 'exempt amount' (currently $3,500)

migratory workers who do not work at least 25 days a year, and who do not earn at

least $250 a year from the same employer

casual workers, such as baby-sitters

casual employment if it is for a purpose other than your usual trade or business

members of religious orders whose entire earned income is turned over to the order

employment by a government body as an election worker if the worker is not a

regular employee of the government body and works for less than 35 hours in a

calendar year.



Contributory Period

The value of benefits received under the CPP is directly related to the contributions

previously paid by employees and their employers.

CPP contributory period

Generally, all individuals over the age of 18 who work in Canada—but, outside of

Québec—and who earn more than $3,500 are required by law to pay CPP premiums on their

pensionable employment income (income classified as exempt earnings would be excluded).

An employee pays 50% of the required contributions; his or her employer makes a

matching contribution. Self-employed individuals are required to pay both the employee and employer portion.

Contributions are required throughout a person’s contributory period, which commences on

the later of:

January 1, 1966 and

his or her 18th birthday

The contributory period ends the earlier of:

when the individual begins receiving a retirement pension (age 60 being the earliest

age)

when the individual reaches age 70

when the individual dies

Changes to the CPP contributory period

Previously, contributions to the CPP were not required once an individual began receiving

CPP retirement benefits. This was the case, even if the individual remained in the workforce

(i.e. he or she was a working beneficiary). As part of recent changes to the CPP, effective

January 1, 2012, working beneficiaries under age 65 are required to continue paying CPP

premiums to age 65; similarly, employers of working beneficiaries under age 65 must

continue to pay premiums on behalf of the employee to age 65. These additional

contributions will result in an increase in the individual's retirement pension by way of a

post-retirement benefit (even if he or she is already receiving the maximum CPP benefit).

Post-retirement benefits are earned based on a maximum rate of 1/40 of the maximum CPP

retirement pension per year of additional contributions.

Between age 65 and age 70, whether CPP premiums continue to be paid is at the discretion of the working beneficiary.

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Contributory Earnings

Contributions to the Canada Pension Plan are calculated as a specified percentage of an

individual's contributory earnings, which are all pensionable employment earnings (for

example, earnings from pensionable employment) above a basic exemption level (i.e. the

YBE), up to the yearly maximum pensionable earnings (YMPE). The YMPE is adjusted

annually to reflect changes in the average wages and salaries, as measured by the

Industrial Composite Index published by Statistics Canada. The YMPE for 2014 is $52,500.

The basic exemption level below which earnings are not subject to contributions is called the

year’s basic exemption or YBE. Since 1998, the YBE has been frozen at $3,500.

Example Jake will earn $29,000 this year. His contributory earnings are therefore $25,500,

calculated as [(the lesser of pensionable employment earnings and the YMPE) - YBE]

or [(the lesser of $29,000 and $52,500) - $3,500].

Example Jasmine earns $67,000. Since her earnings are above the YMPE of $52,500, her

contributory earnings are $49,000, calculated as [(the lesser of pensionable employment earnings and the YMPE) - YBE] or [(the lesser of $67,000 and $52,500) - $3,500].

Contribution Rates

Both employees and their employers must make contributions based on a specified

percentage of the employee's contributory earnings. The employee's share of the CPP

contributions must be deducted directly from his or her pay by the employer, to be remitted

to the Canada Revenue Agency (CRA) along with the employer's contribution.

A self-employed person must contribute the employer and employee shares. Currently, that

means a self-employed person would have to contribute 9.9% of his or her pensionable

earnings. A self-employed person must submit his or her contribution by installment or when filing his or her annual tax return.

Example Kosho is the sole proprietor of a small carpentry business, that, this year, has net

business income of $32,000. Kosho must make a CPP contribution of $2,821.50, calculated

as [((the lesser of net business income and YMPE) – YBE) x contribution rate for

self-employed individuals] or [((the lesser of $32,000 and $52,500) – $3,500) x 9.9%].

The table shows recent CPP contribution rates.

Contribution Rates as a % of Contributory Earnings

Year For Employers For Employees For Self-employed

2001 4.30% 4.30% 8.60%

2002 4.70% 4.70% 9.40%

2003 - present 4.95% 4.95% 9.90%

CPP Statement of Contributions

Through the Service Canada Web site, an individual can access his or her CPP Statement of

Contributions. This document maintains a record of an individual's contributory earnings

and CPP contributions and provides an estimate of what the individual can expect to receive in CPP retirement benefits.

Click here to learn more about obtaining your CPP Statement of Contributions from Service

http://www.servicecanada.gc.ca/eng/isp/common/proceed/socinfo.shtml



Canada.

Exercise: CPP Contributions

Retirement Benefits

To be eligible for a retirement pension under the CPP, an individual must have:

made at least one valid contribution to the CPP

reached the minimum age of 60

wholly or substantially ceased working, if under 65 years of age

The retirement pension is payable for the lifetime of the contributor. The pension ceases with the payment for the month in which the contributor dies.

Wholly or substantially ceased working

In order for an individual to commence receiving CPP retirement benefits prior to age 65, he

or she must meet the definition of wholly or substantially ceased working.

Wholly or substantially ceased working means the CPP applicant has met one of the

following conditions:

stopped working: the applicant has terminated employment by the last day of the

month prior to the month the CPP retirement pension commences and is not working

during the month the pension commences.

has earnings below a specified amount: for the month prior to the

commencement of the CPP retirement pension and in the month the pension

commences, the applicant earns less than the maximum monthly CPP retirement

pension payable at age 65

Once the individual has been approved to receive CPP retirement benefits prior to age 65

based on the wholly or substantially ceased working definition, benefits will not be impacted

if he or she subsequently resumes working or earns income in excess of the monthly retirement pension (i.e. as of the month following the month in which benefits commence).

Effective 2012, the work cessation test was eliminated meaning individuals under age 65

are no longer required to meet the definition of wholly or substantially ceased working in order to be eligible to receive CPP retirement benefits.

Post-retirement benefits

Effective 2012, a working beneficiary must continue to make CPP contributions until he or

she reaches age 65 (employers must make a matching contribution). For a working

beneficiary between age 65 and age 70, ongoing contributions can be made at the option of

Retirement Planning


the individual (employers must make a matching contribution if the working beneficiary

elects to make contributions). The trade-off for these additional contributions is that the

individual will be entitled to receive a Post-retirement Benefit (PRB) (even if they are

already receiving the maximum amount payable). Additional benefits will be earned at a

maximum rate of 1/40 of the annual maximum pension amount per year of additional

contribution (the exact calculation will incorporate the earnings of the individual as well as

his or her age). Essentially, the PRB is comprised of contributions made while the individual is receiving retirement benefits.

These additional contributions will only serve to build the PRB—they will not build or create

eligibility for other CPP benefits. Similarly, these additional contributions will not be included

in calculations for credit splitting or assignment (i.e. pension sharing). Each year of work

creates an additional PRB that comes into force the following year and remains payable for

the life of the pensioner.

This change affects individuals who have pensionable earnings after 2011 and who drew a

retirement pension prior to 2012.

Retirement at Age 65

The standard retirement age under the CPP program is 65.

The CPP is designed to provide a maximum monthly retirement benefit at age 65 of 1/12 of

25% of the YMPE, which is approximately equal to the average industrial wage in Canada.

Specifically, the maximum benefit is based upon the average of the YMPEs for each of the

five years before reaching age 65. The benefit is fully indexed for changes in the Consumer Price Index.

For an individual, the yearly retirement benefit at age 65 is 25% of his or her average

pensionable earnings adjusted for inflation. Pensionable earnings for each year are adjusted

for inflation by multiplying the average of the YMPEs for the last five years by the ratio

of the pensionable earnings in the year being adjusted divided by the YMPE for the year being adjusted.

For 2014, the maximum monthly CPP retirement benefit is $1,038.33.

Example Fred had pensionable earnings of $4,700 in 1972 when the YMPE was $5,500. He

will begin collecting his CPP retirement benefit in 2014 during which time he will turn 65

years of age. The average of the YMPEs for the previous five years is $48,600, calculated as

[($46,300 + $47,200 + $48,300 + $50,100 + $51,100) ÷ 5]. His adjusted pensionable earnings for 1972 are $41,531, calculated as [$48,600 x ($4,700 ÷ 5,500)].

General low earnings drop-out

CPP retirement benefits are calculated as 25% of an individual's average career earnings

over his or her contributory period. If an individual begins receiving benefits at age 60, his

or her contributory period would span 42 years calculated as (age at which CPP benefits

commence - commencement of contributory period) or (60 - 18). If an individual begins

receiving benefits at age 65, his or her contributory period would span 47 years calculated

as (age at which CPP benefits commence - commencement of contributory period) or (65 - 18).

The general low earnings drop-out provision allows for 15% of the years in which an

individual had no earnings or low earnings to be dropped from the calculation of his or her



benefit entitlement. For an individual who applies for benefits at age 65, this effectively

means approximately 7 years of low or zero earnings, calculated as (contributory period x

15%) or [(65 - 18) x 15%], can be dropped from the calculation of his or her average career earnings.

Earnings for up to 15% of the contributory period may be dropped from the calculation to

cover periods of unemployment, low income, time spent raising children (i.e. the

child-rearing dropout) or periods during which the individual was collecting CPP disability

benefits. Individuals approaching retirement may contact the Income Security Programs

division of Human Resources and Social Development Canada (HRSDC) to obtain an estimate of their average monthly benefit entitlement.

Effective 2012, the general low earnings drop-out rate was increased to 16% (translating

into a maximum drop-out of approximately 7.5 years); in 2014, the rate will increase to 17% (resulting in a maximum drop-out of 8 years).

Retirement Before Age 65 As much as the standard age to collect CPP retirement

benefits is age 65, a contributor can elect to receive his or

her CPP pension as early as age 60. Prior to 2012, to collect

benefits prior to the standard age, an individual was

required to have wholly or substantially ceased working.

As previously defined, for CPP purposes, an individual has

wholly or substantially ceased working if his or her earnings

are less than the current monthly maximum CPP retirement

pension payment in the month before the pension begins

and in the month it begins or if he or she has stopped

working by the last day prior to the month in which the

pension begins and in the month the pension begins. This

work cessation test was discontinued as of 2012 thereby

enabling any contributor who has attained age 60 to apply for a pension.

Reduction in benefits prior to age 65

By opting to collect CPP retirement benefits prior to the standard age (i.e. early take-up of

benefits), a senior will receive a reduced benefit relative to commencing his or her

retirement benefit at age 65. Prior to 2012, the reduction amounted to 0.5% for each

month the start date preceded the senior's 65th birthday, to a maximum reduction of 30%

(if he or she began receiving benefits at age 60). Effective 2012 and until 2016, the

percentage reduction for the early take-up of CPP retirement benefits was incrementally increased. As of 2016, the monthly reduction will be 0.6%.

The reduced pension remains fixed for the life of the senior other than annual

adjustments for inflation. Therefore, an individual approaching retirement must weigh the

benefits of collecting a pension early (thereby receiving it for up to an additional five years)

with the drawback of receiving a smaller monthly benefit. From a financial planning

perspective, as the percentage reduction has become more punitive, the decision for early take-up has become more complicated.

Example In 2014, Richard elected to apply for his CPP retirement benefits upon attaining age

60. Richard received 66.40% of the benefit he would have received had he applied for

Retirement Planning


benefits at the normal retirement age of 65 calculated as [100% - (((standard retirement

age - age prior to standard age at which benefits commence) x 12 months in a year) x

monthly penalty for collecting benefits early)] or [100% - (((65 - 60) x 12) x 0.56%)].

The percentage reduction for the early take-up of CPP retirement benefits is indicated in the

table.

Percentage Reduction for Early Take-up

Year Monthly Reduction

prior to 2012 0.50%

2012 0.52%

2013 0.54%

2014 0.56%

2015 0.58%

2016 0.60%

As of 2016, an individual who begins collecting CPP retirement benefits prior to age 65 will

incur a monthly reduction of 0.60% for each month prior to his or her 65th birthday.

Assuming the individual begins collecting benefits at age 60, this equates to a maximum

reduction of 36%.

Retirement After Age 65

As of age 65, a CPP contributor can begin collecting his or

her retirement pension without any restrictions. However,

the pensioner also reserves the right to delay

the commencement of benefits beyond the standard

age (i.e. late take-up). Prior to 2011, in such a case,

the pension would have been increased by 0.5% for every

month the start date exceeds the pensioner's 65th birthday,

up to a maximum of 30% at age 70. This increased pension,

fully indexed for inflation, will be paid for the remainder of the pensioner’s life.

Effective 2011, an individual who applies for CPP retirement benefits after the standard age

will receive incremental increases as follows:

Percentage Increase for Late Take-up

Year Monthly Increase

prior to 2011 0.50%

2011 0.57%

2012 0.64%

2013 0.70%

As of 2013, an individual who begins collecting benefits after age 65 will receive a monthly

increase of 0.70% for each month following his or her 65th birthday. This equates to a maximum increase of 42% assuming the individual begins collecting benefits at age 70.

Example Having sufficient income to meet her lifestyle expenditures from other sources,

Mable has opted to delay applying for her CPP retirement benefits for three years at which

time she will celebrate her 70th birthday. At that time, Mable will receive 142% of the



benefit she would have received had she applied for benefits at the normal retirement age

of 65 calculated as [100% + (((age following standard age at which benefits commence to a

maximum of age 70 - standard retirement age) x 12 months in a year) x monthly premium for collecting benefits late)] or [100% + (((70 - 65) x 12 months) x 0.70%)].

There is no additional increase if he or she does not choose to begin receiving benefits at

age 70. In the case of an applicant over age 70, the pension can be paid retroactively to the month after his or her 70th birthday, up to a maximum of 12 months.

Assignment of Retirement Pensions Through a process called assignment or pension sharing, spouses and

common-law partners can choose to share their CPP retirement

pensions provided both individuals are at least 60 years of age and

both individuals are together (i.e. they are not separated or

divorced). This strategy could help the couple reduce its total income

taxes by effectively shifting income from the spouse or common-law

partner in the higher tax bracket to the spouse or common-law

partner in the lower tax bracket.

When a retirement pension is assigned, each spouse or common-law

partner will receive a portion of the retirement pension of the other

person. The portion will be based on the length of time they

have lived together (i.e. their period of cohabitation) in relation to the contributory period of each spouse or common-law partner.

To exercise this option, couples must complete a formal application for assignment. If the

spouses or common-law partners choose to assign their pensions, both pensions must be

shared, not just the pension of the person with the higher income. Pension sharing starts as

soon as the application is approved. The sharing of CPP benefits cannot be backdated. So, if

they retire at age 60 but do not apply for pension sharing until age 65, the couple will not

be able to share CPP benefits received between ages 60 and 65.

Example Kristopher and Ingrid have been married for 15 years. Coincidentally, both

individuals have been working for 20 years and therefore, have the same number of years

of contribution to the CPP. Kristopher is entitled to a CPP pension of $600 per month, while Ingrid is entitled to $300 per month.

They can assign 75% of their pensions, calculated as (years of marriage or cohabitation ÷

years of contribution) or (15 ÷ 20). Their new pensions would be calculated as:

Kristopher's monthly CPP pension consists of two parts:

$450, calculated as (CPP × assignment ratio) or ($600 x 75%), that can be assigned

$150, calculated as (CPP - assignable CPP) or ($600 - $450), that cannot be

assigned

Ingrid's monthly CPP pension consists of two parts:

$225, calculated as (CPP × assignment ratio) or ($300 x 75%), that can be assigned

$75, calculated as (CPP - assignable CPP) or ($300 - $225), that cannot be assigned

The total assignable CPP is $675, calculated as (Kristopher's assignable CPP + Ingrid's

assignable CPP) or ($450 + $225). This amount is split equally with half being paid to each

spouse. The assigned portion paid to each spouse is $337.50, calculated as (total assignable CPP ÷ 2) or ($675 ÷ 2).

Retirement Planning


Kristopher's monthly pension after assignment is $487.50, calculated as (Kristopher's

non-assignable portion + Kristopher's assigned portion) or ($150.00 + $337.50).

Ingrid's monthly pension after assignment is $412.50, calculated as (Ingrid's non-assignable

portion + Ingrid's assigned portion) or ($75.00 + $337.50).

CPP Credit Splitting Upon Divorce or Separation

The CPP keeps a record of the taxpayer’s pensionable earnings, and the contributions the

taxpayer pays on them over the years. These become CPP pension credits. The CPP

recognizes that in a legal marriage or common-law relationship, both spouses or

common-law partners share in the building of their assets and entitlements. When a

relationship ends, the CPP pension credits which the couple built up during the time they

lived together can be divided equally between them. This division is called credit splitting.

Credits can be split even if one spouse or common-law partner did not pay into the CPP.

Generally, the credits of one person are increased, and the credits of the other are reduced

by the same amount. CPP splits only the credits for the time that the couple cohabited. So,

with credit splitting between former spouses or common-law partners, CPP credits can be equalized for the period that they lived together.

Splitting credits with a former spouse or common-law partner is generally to an individual’s

advantage if he or she was the lower wage earner during their years together. It would

increase his or her CPP credits, meaning that he or she would get a larger benefit when he or she becomes eligible (or if he or she was receiving one now).

It is also to the taxpayer’s advantage if he or she has never been a wage earner. In this

case, credit splitting could give him or her CPP credits that he or she has never had before. These new credits could make him or her eligible for his or her own CPP benefits.

Credit splitting is generally to the taxpayer’s disadvantage if he or she were the higher wage

earner. It would reduce his or her credits, meaning he or she could get a smaller benefit when he or she becomes eligible (or if he or she was receiving one now).

Credit splitting is mandatory upon divorce or annulment of a marriage in most provinces.

The CPP administrators will automatically send an application for the division of pension credits to the former spouses upon receiving notification about the divorce or annulment.

In most provinces, the family law legislation expressly prohibits spouses or common-law

partners from opting out of the mandatory CPP credit splitting even with a valid separation

agreement. However, the family law legislation in British Columbia, Saskatchewan, and

Québec permits former spouses to opt out of the mandatory CPP credit splitting as long as

the agreement clearly specifies that it is the intention of both spouses that the credits not be split.

If the taxpayer has left a common-law relationship, he or she must apply for a credit split

within four years. There is no time limit for spouses. If either party applies for a split, it must be implemented.



Exercise: Calculating Retirement Benefits

Reflection

Take a moment to reflect on this lesson and identify three main points. It could be

information you can apply when serving a client, or it could be something that surprised you, or something you feel you should review.

You may want to add these points to your study notes, so that you can review them at any

time.

Review

You have completed Operation of the Canada Pension Plan. In this lesson, you have

learned how to do the following:

describe the eligibility requirements

explain how contributions are calculated

describe the retirement benefits available, including early and delayed pension

options

describe how retirement pensions can be shared between spouses or common-law

partners for income splitting purposes

describe how CPP pension credits can be split upon divorce or separation

Assessment

Now that you have completed Operation of the Canada Pension Plan, you are ready to

assess your knowledge.

You will be asked a series of 5 questions. When you have finished answering the questions, click Submit to see your score.

When you are ready to start, click the Go to Assessment link.

Go to Assessment

Retirement Planning



Welcome to Survivor and Disability Benefits. In this lesson, you will learn who is eligible for

CPP survivor benefits and disability benefits. You will also learn about the indexing of CPP benefits and the tax treatment of CPP benefits and contributions.



determine the eligibility of survivors after the death of a CPP contributor

calculate and identify the survivor benefits available after the death of a CPP

contributor

calculate and identify the benefits available to disabled contributors and their

children

identify specific indexing of CPP rates and benefits

Eligibility for Survivor Benefits

While the primary benefit offered under the Canada Pension Plan is obviously a monthly

retirement pension, the program also offers supplemental benefits to eligible contributors and family members in the form of CPP survivor benefits and CPP disability benefits.

CPP survivor benefits

CPP survivor benefits consist of the death benefit, the survivor’s pension and the orphan’s

or children's benefit. Survivor benefits are payable to the survivors of a deceased CPP

contributor provided the deceased contributor made CPP contributions for the minimum qualifying period calculated as the lesser of:

one-third of the total number of years included within his or her contributory period

(excluding from the calculation of that contributory period any month in a year after

the year in which he or she reaches 65 years of age and for which his or her

pensionable earnings were equal to or less than the basic exemption for that year),

but in no case for less than three years and

ten calendar years



Death Benefit

The lump sum death benefit was introduced to help the families of deceased contributors

deal with funeral expenses. However, the benefit can be used for any purpose.

The amount of the benefit is the amount that the deceased's CPP retirement pension is, or

would have been if he or she had been age 65 when death occurred. The death benefit is

equal to six months' worth of this calculated retirement pension, up to a maximum of $2,500.

According to the legislation, the death benefit is payable to the estate of the deceased. In

practice, it is often paid directly to the surviving spouse or common-law partner, or other

surviving relative in charge of the deceased’s final expenses. The beneficiary must file a

formal application, which must include a copy of the death certificate, in order to receive

this benefit.

Most Canadians are unaware of the availability of the CPP death benefit, and every year the

death benefit is paid to only a small fraction of all eligible deaths.

Survivor's Pension

An individual, who at the time of death, was the legal spouse or common-law partner of a

deceased CPP contributor and who also meets the minimum eligibility qualifications, may be eligible for a survivor's pension.

For purposes of the CPP, a spouse refers to an individual to whom you are legally married. A

common-law partner refers to an individual—regardless of sex—with whom you live in a conjugal relationship for at least one year.

The value of the pension and the timing of pension payments depend on the age of the

surviving spouse or common-law partner, his or her personal CPP retirement or

disability benefits and whether or not the survivor has dependants.

Click this icon for an overview of CPP survivor entitlements.

A survivor's pension is not impacted if the surviving spouse remarries or enters

into a common-law relationship. Similarly, benefits will continue to be paid to a

surviving common-law partner even if he or she gets married or enters into a new common-law relationship.

A legal spouse who was separated from the contributor at the time of the contributor's

death, may be entitled to a survivor's pension provided the contributor is not survived by a

common-law partner with whom the contributor cohabited.

A same-sex common-law partner may also be eligible for CPP survivor benefits provided his or her deceased partner contributed to the CPP for the minimum qualifying period.

Note: The Québec Pension Plan differs somewhat in the flat rate component of survivor's

pensions, and the age brackets are also further subdivided between ages 45 to 54, and 55

to 64.

http://courses.cifp.ca/Media/Version14/C10V14/Images/rp-pdf-1571.pdf

Retirement Planning


Click here to view current and historical benefit rates and limits according to Service

Canada.

Orphan's Benefit

An orphan of a deceased CPP contributor may receive a monthly children’s benefit up to 18

years of age, and up to 25 years of age if he or she is enrolled full-time in an approved

educational institution. A child refers to a natural or adopted child of the deceased

contributor or a child in the care and control of the deceased contributor at the time of death.

The surviving spouse or common-law partner of a deceased contributor may receive the

equivalent of the orphan’s benefit for each eligible dependent child.

Orphan’s benefits are suspended if the child reaches 18 years of age and is not in school

full-time, apart from normal vacations or brief absences. However, benefits may be

reinstated without retroactivity if a child over 18 years of age returns to school full-time.

The marriage of a child does not interrupt payment of the benefit, provided all of the other eligibility requirements are maintained.

The CPP and QPP orphan's pension is a flat monthly rate, indexed annually by the Consumer

Price Index. A child may receive up to two flat rate pensions if both parents were

contributors and are either deceased or disabled.

Click here to view current and historical orphan's benefit rates.

Exercise: CPP Survivor Benefits

Disability Benefits

Contributors who become disabled may be eligible to receive a disability pension. Their

children may also be eligible to receive a Disabled Contributor’s Child’s Pension.

Eligibility for disability pensions

Under the Canada Pension Plan, a person is considered to be disabled only if he or she

suffers from a prolonged and severe medical impairment of a physical or mental nature,

such that he or she is medically incapable of regularly pursuing any substantially gainful employment. The disabled qualification must be supported by medical evidence.

For claims made in 1998 and later years, disability benefits are payable only if the

contributor has made contributions for at least four of the last six calendar years.

Eligibility requirements for a disabled pension under the Québec Pension Plan are slightly

more flexible for persons aged 60 and over.

http://www.servicecanada.gc.ca/eng/services/pensions/infocard/index.shtml




A person applying for a disability pension must supply the Income Security Programs

division of Human Resources and Social Development Canada (HRSDC) with information

regarding his or her disability, and may be required to undergo a special medical

examination. Furthermore, once benefits commence, he or she may be required to undergo

periodic reassessment and rehabilitation as a condition for continued receipt of these payments.

Pension for a Disabled Contributor

The monthly disability pension consists of a flat rate component + 75% of the contributor's

retirement pension, to a combined yearly maximum. The maximum disability benefit is greater than the maximum retirement benefit.

Combined with retirement benefits

At age 65, the disability pension is automatically converted to a retirement pension.

A contributor aged 60 to 64 cannot receive both a retirement pension and a disability

pension. If a person who has commenced his or her retirement pension between these ages

subsequently becomes disabled, he or she can no longer apply for cancellation of his or her

retirement pension and apply for a disability pension instead.

Combined with survivor's benefits

A disabled contributor may receive both a disability benefit and a survivor's benefit. If the

disabled survivor is under age 65, he or she will receive the larger of the disability and

survivor's flat rate portions. In addition, any earnings related benefits may be added

together, but their total cannot exceed 75% of the maximum retirement pension payable for

the year. The total amount of the combined survivor/disability pension cannot exceed the maximum disability benefit for the year.

Pension for the Children of a Disabled Contributor

A child of a disabled contributor may receive a monthly pension up to 18 years of age, and

up to 25 years of age if he or she is enrolled full-time in an approved educational institution, provided his or her disabled parent contributed to CPP for the minimum qualifying period.

The flat rate pension for children of a disabled contributor is the same as the orphan's

benefit, under both the CPP and the QPP. Provisions for receiving up to two flat-rate

benefits, for returning to school after 18 years of age, and for remarriage are the same as those for the orphan's benefit.

Retirement Planning


Exercise: CPP Disability Benefits

Indexing of CPP Benefits

All CPP benefits are fully indexed annually by the Pension Index, which is the average of the

changes of the annual Consumer Price Indices for each of 12 consecutive, 12-month periods, ending with October of the preceding year.

To see how rates and benefits are indexed annually, click here to view current and historical

maximum CPP rates and benefits as per HRSDC.

Tax Treatment of CPP Benefits and Contributions

Benefits received under either the Canada or Québec Pension Plans are taxable income to

the beneficiary.

Contributions by employees result in non-refundable federal and provincial tax credits.

Employers can deduct their contributions as a business expense. CPP contributions do not

reduce amounts otherwise permitted as contributions under registered pension plans or RRSPs.

Self-employed individuals are allowed to:

claim non-refundable federal and provincial tax credits on the amount of their

contributions as an employee

deduct the portion of Canada Pension Plan and Québec Pension Plan contributions

that represents the employer’s share (ITA 118.7)

Example Alberto is self-employed. His combined marginal tax rate (MTR) is 45%. He lives in

a province with a conversion rate for provincial tax credits of 9.80%; the federal conversion

rate is 15%. Assume the YMPE is $52,500, the YBE is $3,500 and the employer and

employee CPP contribution rates are both 4.95%.

Alberto's net business income this year will be $72,000. The maximum employee

contribution for the year will be $2,425.50 calculated as [((the lesser of pensionable

earnings and YMPE) – YBE) x contribution rate for employees] or [((the lesser of $72,000

and $52,500) – $3,500) x 4.95%]. The maximum employer contribution will also be $2,425.50.

Because Alberto is self-employed he will have to pay $4,851.00 in CPP contributions

calculated as (employee contribution + employer contribution) or ($2,425.50 + $2,425.50).

Alberto will receive tax credits on the employee contribution in the amount of $601.52,

calculated as [employee contribution × (federal conversion rate + provincial conversion rate)] or [$2,425.50 × (15% + 9.80%)].




Alberto can also claim a business deduction in the amount of $2,425.50 on the employer

portion of his CPP contribution. Based on an MTR of 45%, Alberto will receive a tax

reduction of $1,091.48 calculated as (employer contribution × MTR) or ($2,425.50 × 45%).

Alberto's total tax relief will be $1,693.00, calculated as (tax credits + tax reduction) or

($601.52 + $1,091.48).

Reflection


information you can apply when serving a client, or it could be something that surprised you, or something you feel you should review.


time.

Review

You have completed Survivor and Disability Benefits. In this lesson, you have learned how

to do the following:

determine the eligibility of survivors after the death of a CPP contributor

calculate and identify the survivor benefits available after the death of a CPP

contributor

calculate and identify the benefits available to disabled contributors and their

children

identify specific indexing of CPP rates and benefits

Assessment

Now that you have completed Survivor and Disability Benefits, you are ready to assess your

knowledge.

You will be asked a series of 5 questions. When you have finished answering the questions,

click Submit to see your score.


Go to Assessment

Retirement Planning



Welcome to The Old Age Security System. In this lesson, you will learn how the Old Age

Security System (OAS) operates, the eligibility requirements, the benefits available, and the clawbacks of those benefits.



describe the eligibility requirements for basic OAS benefits, Guaranteed Income

Supplement (GIS) benefits, and Allowance benefits

explain the nature of the benefits provided under the OAS, GIS and Allowance

programs

analyze the impact of other income on the amount of benefits available for clients

receiving OAS

calculate the clawbacks, if applicable, for clients receiving OAS

advise clients on the most appropriate course of action

Program Overview

The OAS program is operated by the federal government in accordance with the Old Age

Security Act. It is essentially a public assistance program, meaning that recipients of the

benefits do not contribute directly to the cost of providing the benefits. Instead, society as a

whole bears the responsibility for covering the costs through federal income taxes. The

pensions provided under the Old Age Security Act are funded directly out of the federal government’s Consolidated Revenue Fund.

Currently, a flat rate, monthly OAS pension is payable commencing at age 65; it is adjusted

quarterly to match changes in the Consumer Price Index.

The Old Age Security Act recognizes same-sex and opposite-sex, common-law partners. A

widow includes a widower and means a person whose spouse or common-law partner has

died and who has not thereafter become the spouse or common-law partner of another

person.

Applying for benefits

A senior must file an application with Service Canada in order to receive an OAS pension. It

is recommended that applications be made six months prior to the desired benefit start

date. If the application is made after the senior reaches age 65, the application may be

approved retroactively to age 65, up to a period of no greater than one year.

Proactive enrollment for OAS benefits

Between 2013 and 2016, proactive enrollment for OAS benefits will be phased-in and will

thereby eliminate the need for many seniors to formally apply to receive their OAS pension.

Individuals who are eligible for this service will be notified by mail; seniors who are ineligible

for proactive enrollment will continue with the current method of submitting a paper application to Service Canada.



OAS Benefits

OAS benefits consist of a flat rate, monthly amount that currently, is payable to eligible

seniors beginning at age 65. Benefits are adjusted quarterly based on changes in the

Consumer Price Index. Over 5.25 million individuals receive OAS benefits. Click here to view current and historical OAS pension rates on the Service Canada Web site.

Changes to the OAS Program under Budget 2012

With a view towards making the Old Age Security Program more sustainable and more

flexible, the Government of Canada introduced significant changes to the Program under Budget 2012.

Increased age of eligibility

Between 2023 and 2029, the age of eligibility for the OAS pension and the Guaranteed

Income Supplement (GIS) will gradually be increased from age 65 to age 67. To facilitate a

smooth transition, the six-year phase-in period will see the age of eligibility increase by one month each quarter effective April 1, 2023.

This change will only impact individuals who were born in 1958 or later. Phrased another

way, anyone who has attained 54 years of age as of March 31, 2012 will not be affected

(i.e. anyone born before April 1, 1958); if otherwise eligible, these individuals will receive

OAS benefits beginning at age 65. Bearing in mind the increased age of eligibility to age 67

will be phased in, the first group of individuals who will have to wait until age 67 to receive an OAS benefit will be those born after January 31, 1962.

The table illustrates the upcoming changes to the age of eligibility.

Age of Eligibility for OAS/GIS Benefits

Period Year

From To 2023 2024 2025 2026 2027 2028

January March 65 65 + 4

months

65 + 8

months 66

66 + 4

months

66 + 8

months

April June 65 + 1

month

65 + 5

months

65 + 9

months

66 + 1

month

66 + 5

months

66 + 9

months

July Septemb

er

65 + 2

months

65 + 6

months

65 + 10

months

66 + 2

months

66 + 6

months

66 + 10

months

October Decemb

er

65 + 3

months

65 + 7

months

65 + 11

months

66 + 3

months

66 + 7

months

66 + 11

months

Voluntary deferral of the OAS pension

Effective July 2013, seniors can choose to defer the commencement of their OAS benefit for

a maximum of five years beyond their year of eligibility. In exchange for a later start to

their payments, seniors will receive an enhanced monthly benefit that will be increased by

0.6% per month of deferral (i.e. 7.2% for a full year of deferral). Other than quarterly

adjustments for inflation, this enhanced monthly benefit will be in force for the remainder of the senior's life.

The voluntary deferral will be available between age 65 and age 70. In keeping with

upcoming changes to the age of eligibility, the deferral period will eventually be adjusted to

age 67 to age 72.


Retirement Planning


Clearly, the deferral option presents a planning opportunity and should only be selected

after various calculations and scenarios have been considered. This said, deferring the

commencement of OAS benefits may be advantageous to seniors who are projected to have

a long life expectancy (based on their own health and their family health history), seniors

who remain in the workforce and/or seniors who have other financial resources and income streams to fund lifestyle expenses.

Basic Eligibility

There are two sets of rules that can be used to determine eligibility for an OAS pension: old

rules and new rules.

Old rules

Prior to July 1, 1977, the rules were such that you were either eligible for a full OAS

pension, or ineligible to receive any pension (that is, all or nothing). In order to be eligible for a pension, you had to fulfil one of the following three requirements:

You must have lived in Canada for a full 40 years after the age of 18.

You must have lived in Canada for the ten consecutive years immediately preceding

application for the pension.

If you had not been living in Canada for the ten years preceding the approval of your

application for the pension, you could make up each year of absence by three years

of residence between the ages of 18 and 65, provided you had resided in Canada

during the year immediately preceding your pension application.

New rules

Under the new rules that came into effect on July 1, 1977, you qualify for a full pension

after 40 years of residence in Canada after age 18. If you do not qualify for a full pension,

you may be eligible for a partial or pro-rated pension after a minimum of ten years of residence in Canada after age 18.

Example Harvey, who has lived in Canada for ten years after age 18, would be eligible to

receive 25% of a full pension, calculated as (10 ÷ 40).

Choosing between the new rules and the old rules

If you had reached 25 years of age on July 1, 1977 and had prior residence in Canada,

you are permitted to obtain benefits under either the new or the old rules, whichever are

more favourable. After July 1, 2017, the new rules will apply to everybody.

Example Jacques recently turned 65. He first moved to Canada at age 25. He remained in

Canada for eight years before moving to Brazil. He then returned to Canada and has lived here for the past 12 years.

Under the new rules, Jacques is eligible to receive 50% of a full pension, calculated as ((8 +

12) ÷ 40). However, because Jacques lived in Canada prior to 1977, and because he was

over 25 years of age on July 1, 1977, he may choose to apply for his OAS pension under the

old rules. Because he has lived in Canada for the ten years preceding his retirement, he is

eligible for a full OAS pension under the old rules.



Absence from Canada After an OAS Pension Commences Provided that you have lived in Canada for at least 20 years after reaching 18 years of age,

OAS payments will continue even if you leave Canada.

However, if you are receiving OAS benefits and do not meet this 20 year residency

requirement and then subsequently leave Canada, payment for any period after six

consecutive months, exclusive of the month you left Canada, may be suspended. Payment

will resume in the month you return to Canada.

Tax Treatment of OAS Benefits

OAS pensions are taxable income to the recipient.

Clawback of OAS

A special tax or OAS clawback requires the repayment of OAS benefits by high-income

earners. The OAS clawback threshold is the amount below which the OAS need not be

repaid. The OAS clawback threshold is indexed annually to reflect changes in the CPI. The

OAS clawback rate of 15% is the rate at which net income in excess of the OAS clawback threshold is subject to repayment.

An individual with a net income, including OAS benefits, that exceeds the OAS clawback

threshold is subject to a special tax at the OAS clawback rate on the excess, up to the limit

of the OAS benefits received during the year.

For 2014, the OAS clawback threshold is $71,592.

How much is the clawback?

The repayment calculation is based on the difference between your client's base income and

the threshold amount for the year. The first step is to figure out how much higher the income is than the threshold. The repayment amount is 15% of that amount.

Example Karl's net income for this year is $85,000. Based on an OAS threshold of $71,592,

Karl will incur a clawback of his OAS benefits in the amount of $2,011.20, calculated as [(net income – OAS threshold) x OAS clawback rate] or [($85,000 – $71,592) x 15%].

Income level cut-off

Retirement Planning


The OAS will continue to be clawed back when income is above the OAS threshold, until a

certain level of income is reached and all of the maximum OAS benefit is repaid.

For 2014, the income level cut-off is $115,716.

Example Miloscz earns a high income and is curious to know at approximately what level his

entire OAS benefit will be clawed back. The OAS clawback or repayment is calculated as

[(income level cut-off – OAS threshold) x OAS clawback rate]. The items in the formula can

be rearranged to calculate the income level cut-off as [((monthly OAS benefit x 12) ÷ OAS

claw back rate) + OAS threshold]. Based on an OAS threshold of $71,592 and a maximum

monthly OAS benefit of $551.54 (for the first quarter of 2014), the income level cut-off can be calculated as [(($551.54 x 12) ÷ 15%) + $71,592].

This amount is only an approximation because the maximum monthly OAS benefit is

indexed every quarter and therefore it is unlikely to be the same amount for all 12 months. Calculation of the exact income level cut-off is not necessary for this course.

Mechanics of the clawback

The OAS benefit paid each month is reduced by a clawback based upon net income on the

recipient's previous year's tax return. Thus, the OAS benefit is reduced before it is sent out,

rather than being taxed back after it is received. In addition, non-resident recipients of OAS

benefits are required to file a statement of world-wide income and they are subject to the

clawback if this income exceeds the OAS clawback threshold.

The monthly reduction in the payment of OAS benefits is based upon the recipient's net

income as reported on his or her last tax return. However, the total amount of the clawback

owed is based upon the recipient's income in the year that he or she receives the benefit.

Therefore, an OAS recipient may have to repay an additional amount at tax time if his or

her income increased from that reported for the previous year. He or she may receive an

OAS benefit when he or she files his or her tax return if his or her income decreased.

Exercise: OAS Eligibility



Guaranteed Income Supplement

Overview

The Guaranteed Income Supplement (GIS) is a monthly benefit that may be payable to a

low-income earning senior over and above the Old Age Security benefits he or she is

already receiving. While GIS benefits must be reported for tax purposes, these payments

are effectively tax-free. The GIS benefit can prove to be a valuable income supplement

particularly to seniors who immigrate to Canada relatively late in life and thereby, cannot

accumulate the requisite 40 years of residency in this country prior to age 65 to receive a full OAS pension. Approximately, 1.75 million seniors receive the GIS benefit.

GIS benefits are payable to Canadian residents only. After six consecutive months of

non-residency, payments will be suspended. Subject to the earnings test, the payment of

the GIS benefit may be reinstated once the individual resumes his or her Canadian

residency however, payments missed while the senior was absent from Canada are not repaid.

GIS benefits

To qualify for GIS benefits, in addition to being a Canadian resident and receiving either a

partial or a full OAS benefit, the senior, or in the case of a couple, the senior and his or her

spouse or common-law partner, must also satisfy an earnings test. Given that the GIS is

income tested, individuals must apply for benefits on an annual basis by filing an income

statement or an income tax return. GIS benefits are adjusted to the Consumer Price Index

on a quarterly basis.

For purposes of the GIS earnings test, the income of the senior is calculated in the same

manner as calculating the senior's net income on his or her income tax return with one

notable exception: OAS benefits are excluded from the calculation. For a couple, the

cumulative net income of both individuals is taken into account. If applicable, the senior can

also reduce his or her net income by claiming an employment earnings exemption to a

maximum of $3,500; Canada Pension Plan and Employment Insurance premiums paid by

the individual can also be deducted from employment income. It is important to note that

this exemption applies specifically to employment earnings; it does not apply to other types

of income the senior may have such as investment income.

Provided the net income of the senior (or the cumulative net income of the couple) does not

exceed the clawback threshold, the senior will keep his or her entire GIS entitlement. Where

the net income of the senior exceeds the clawback threshold, he or she will be required to

repay part of his or her GIS benefits. If the net income of the senior exceeds the income

level cutoff, it essentially means the net income of the senior is too high and he or she is

not entitled to receive any GIS benefits–accordingly, 100% of the benefits received must be repaid.

Changes to the age of eligibility

As part of Budget 2012, the Government of Canada introduced mesaures to gradually

increase the age of eligibility for GIS benefits starting in 2023. By January 2029–following a

six-year phase-in period–the age of eligibility will increase from age 65 to age 67. These

changes are in keeping with changes to the age of eligibility for OAS benefits detailed earlier in this lesson.

Retirement Planning


Single Individual

With respect to the GIS, a single pensioner refers to individuals who are not part of a

married or common-law couple. This would include widowed, divorced and separated

persons. The GIS rate for a single individual is higher than the rate for a married or

common-law couple however, since both individuals in a couple will receive benefits, the

combined payment for a married or common-law couple will be higher than for a single

individual.

Clawback for single individuals

For a single individual, the maximum monthly supplement is reduced by $1 for every $2 of

the pensioner's base income. Keep in mind, base income excludes OAS benefits and, if

applicable, includes an employment earnings exemption of up to $3,500. GIS payments

are clawed back in their entirety if the base income of a single individual exceeds the income level cutoff.

From January to March of 2014, the maximum GIS benefit payable to a single pensioner is

$747.86. The income level cutoff for the year is $16,728.

Example Trent is a single pensioner with annual employment income of $2,400. If the

maximum GIS amount for this year is $8,974.32 (i.e. $747.86 per month), Trent is entitled

to receive the full benefit. His benefits will not be subject to a clawback because Trent's employment income is below the $3,500 threshold.

Example Jenna is a single pensioner with an annual employment income of $13,000. She is

entitled to the year's maximum GIS amount of $8,974.32 however, $4,750 of her GIS

benefits will be clawed back calculated as [(base income – earnings exemption) ÷ 2] or

[($13,000 – $3,500) ÷ 2]. Jenna will receive net GIS benefits in the amount of $4,224.32 calculated as (GIS benefit – clawback) or ($8,974.32 – $4,750).

Spouses and Common-law Partners

Relative to their single counterparts, different GIS payment and clawback rates apply to

legally married couples and common-law partner couples where both individuals in the

relationship are pensioners.

Clawback for married and common-law partner couples

If both spouses or common-law partners in a couple are receiving the Old Age Security

pension, the maximum monthly supplement of each pensioner will be reduced by $1 for every $4 of their other combined base income.

From January to March 2014, a person with a spouse or common-law partner who also

receives an OAS pension or an Allowance would receive a maximum of $495.89 per month

in GIS benefits. The income level cutoff for an individual with a spouse or common-law

partner who is a pensioner is $22,080 (combined income). If the spouse or common-law

partner is an Allowance recipient, the GIS income level cut-off is $40,080 (combined income).

A couple receives more GIS benefits in total than a single pensioner or a pensioner with a

spouse or common-law partner who is a non-pensioner but, not twice as much. This policy

reflects the belief that couples have some shared expenses.



Married and common-law partner couples with only one pensioner

For couples in which only one spouse or common-law partner is a pensioner and the other

individual does not receive either the basic Old Age Security pension or the Allowance, the

pensioner can receive the Guaranteed Income Supplement at the higher rate ordinarily

payable to single individuals however, the clawback rate for couples will apply. To wit, the

maximum monthly supplement will be reduced by $1 for every $4 of the combined base income of the couple.

From January to March 2014, a GIS recipient with a spouse or common-law partner who

does not receive either OAS benefits or the Allowance is entitled to a maximum monthly

supplement of $747.86 (i.e. the same rate payable to a single individual). The income level cutoff for a person in this category is $40,080 (combined income).

The Allowance

Additional supplements to ensure retired Canadians do not live in poverty are the Allowance

and the Allowance for the Survivor. These benefits are intended to help low income

individuals meet their lifestyle expenditures until they become eligible to receive Old Age

Security benefits at age 65. As these are income-tested benefits, both payments must be

applied for on an annual basis (typically, by filing an income tax return). Benefits are indexed for changes in the cost of living quarterly.

The Allowance and the Allowance for the Survivor are meant to assist seniors living in

Canada. Accordingly, if a senior is absent from Canada for more than six consecutive

months, his or her payments will be suspended until he or she reinstates their residency in Canada.

The Allowance

The Allowance is payable to low income seniors (subject to an income test) whose spouse or

common-law partner receives or is eligible to receive the Guaranteed Income Supplement. Over 90,000 Canadians receive Allowance benefits.

Under this program, the pensioner will qualify for benefits provided he or she:

i. is between 60 and 64 years of age

ii. is a Canadian citizen or a legal resident of Canada as of the date the application for

benefits was approved

iii. has lived in Canada for a minimum of 10 years after age 18 (taking into account

reciprocal agreements with other countries)

iv. has an annual net income that does not exceed the clawback threshold (the base

income for this test is based on the cumulative net income of the pensioner and his

or her spouse or common-law partner); the income test excludes Old Age Security

payments and the Guaranteed Income Supplement

v. has not been divorced or voluntarily separated from his or her spouse or

common-law partner for more than three months

The Allowance is paid until the senior becomes eligible for Old Age Security benefits and the

Guaranteed Income Supplement.

Changes to the age of eligibility

As per Budget 2012, the age of eligibility for the Allowance will be gradually increased

Retirement Planning


starting in 2023. By January 2029–following a six-year phase-in period–the age at which

the Allowance and the Allowance for the Survivor will be paid will be between age 62 and

age 66.

Individuals born after January 31, 1967 will become eligible for benefits starting at age 62.

Individuals born between April 1, 1963 and January 31, 1967 will be part of the six-year

phase-in period and, depending on their date of birth, will receive benefits between age 60

and age 62. Individuals who had attained age 49 as of March 31, 2012 (i.e. they were born

before April 1, 1963) will not be impacted by this measure; subject to eligibility, these

individuals can continue to apply for the Allowance at age 60.

Spouse or Common-law Partner

From January to June 2012, the maximum monthly GIS benefit for an individual with a

spouse or common-law partner who is a pensioner or an Allowance recipient is $485.61. The

maximum monthly OAS benefit is $540.12. A spouse or common-law partner under age 65,

but at least age 60, can receive a maximum of $1,025.73 per month as an Allowance. The

monthly Allowance benefit of $1,025.73 is equivalent to the maximum monthly GIS benefit plus the maximum monthly OAS benefit calculated as ($485.61 + $540.12).

The clawback is $3 per month for every $4 of a couple's base income, up to 4/3 of the

amount of the Old Age Security pension. Above that amount, the clawback is $1 for every $4 of the couple's base income.

Assume for the given quarter, the maximum annual OAS benefit is $6,481.44, calculated as

($540.12 x 12). The income level cut-off for the allowance benefit is $31,951, calculated as

[(maximum annual OAS benefit x 4/3) + ((maximum annual Allowance benefit - maximum

annual OAS benefit) x 4] or [($6,481.44 x 4/3) + ((($1,025.73 x 12) - $6,481.44) x 4)].

Example John is 66 years of age and Laura is 61 years of age. They had a base income of

$14,500. The maximum annual OAS benefit is $6,481.44; the maximum annual Allowance benefit is $12,308.76.

Laura's Allowance benefit will be clawed back by $7,945.96 calculated as [((OAS benefit x 4/3) x 3/4) + ((income – (OAS benefit x 4/3)) x 1/4)] or [(($6,481.44 x 4/3) x 3/4) + (($14,500 – ($6,481.44 x 4/3)) x 1/4].



Allowance for the Survivor

Subject to the eligibility requirements for the Allowance, the Allowance for the Survivor

benefit is payable to a senior if his or her spouse or common-law partner is deceased and

the senior has not remarried or entered into a new common-law relationship for more than

12 months. For same-sex couples, an individual may be eligible for benefits if his or her

partner died on or after January 1, 1998 and the individual has not remarried or entered

into a new common-law relationship for more than 12 months.

The Allowance for the Survivor is based on the previous year's income of the applicant. The

Allowance for the Survivor payment is larger than the regular Allowance benefit. Payment of the Survivor's Allowance is terminated before age 65 if the recipient dies or remarries.

For the first three months of 2014, the maximum Allowance benefit for a survivor is

$1,172.65 per month.

The clawback is $3 per month for every $4 of a widowed person's base income, up to 4/3 of

the amount of the Old Age Security pension. Above that amount, the clawback is $1 for every $2 of base income.

Assume for the given quarter, the maximum annual Survivor's Allowance is $13,780.20

calculated as ($1,148.35 x 12) and the maximum annual OAS pension is $6,481.44

calculated as ($540.12 x 12). The income level cut-off is $23,239, calculated as [(maximum

annual OAS benefit x 4/3) + ((maximum annual Survivor's Allowance benefit – maximum

annual OAS benefit) x 2)] or [($6,481.44 x 4/3) + (($13,780.20 – $6,481.44) x 2)].

Summary of Rates

The table summarizes the OAS, GIS, and Allowance benefit rates for the first quarter of

2014.

Monthly Annual Income Level

Cut-off

Old Age security

Maximum monthly benefits $ 551.54 $ 6,618.48 $115,716

Guaranteed Income Supplement

Maximum monthly benefits:

Single individual $ 747.86 $ 8,974.32 $ 16,728

Spouse/Common-law Partner of:

a non-pensioner $ 747.86 $ 8,974.32 $ 40,080

a pensioner $ 495.89 $ 5,950.68 $ 22,080

an Allowance recipient $ 495.89 $ 5,950.68 $ 40,080

The Allowance

Retirement Planning


Maximum monthly benefits:

Regular Allowance $1,047.43 $12,569.16 $ 30,912

Allowance for Survivor $1,172.65 $14,071.80 $ 22,512

Click here to view current and historical benefit rates at HRSDC.

Exercise: GIS and the Allowance

Tax Treatment of GIS Benefits and the Allowance

While the GIS and the Allowance must be reported as part of a recipient’s total income,

these amounts are subsequently deducted in the calculation of taxable income, making

them effectively tax exempt. They are included in the calculation of total income for the purpose of determining if the recipient can be claimed as a dependent by another taxpayer.

Reflection


information you can apply when serving a client, or it could be something that surprised

you, or something you feel you should review.


time.

Review

You have completed The Old Age Security System. In this lesson, you have learned how to

do the following:

describe the eligibility requirements for basic OAS benefits, Guaranteed Income

Supplement (GIS) benefits, and Allowance benefits

explain the nature of the benefits provided under the OAS, GIS and Allowance

programs

analyze the impact of other income sources on the amount of benefits available for

clients affected by OAS

calculate the clawbacks if applicable for clients affected by OAS

advise clients on the most appropriate course of action




Assessment

Now that you have completed The Old Age Security System, you are ready to assess your

knowledge.




Go to Assessment

Retirement Planning


Review

Let’s look at the concepts covered in this unit:




You now have a good understanding of government sponsored retirement income

programs. At this point in the course you can describe how the Canada Pension Plan and

Old Age Security System operate, the eligibility requirements, and the benefits available.

You are now able to help your client make important decisions about the CPP and OAS.

Formal Assessment

Now that you have completed Unit 2: Government Sponsored Retirement Income, you are

ready to assess your knowledge.



Note: Once you submit your answers to the assessment questions for grading, you

will no longer be able to view the questions and the possible responses in their

original format (you will only see the feedback for each question). If you want to

use the assessment questions for study purposes at a later date, print the questions before you submit them for grading.


Go to Assessment

unit 2: government sponsored retirement income...

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