Question Period Note: CPP COMBINED BENEFITS – PENSION AND SURVIVOR BENEFITS

Why is there a limit on the survivor’s pension when the person is receiving a retirement pension?

• The CPP survivor’s pension is one of the Plan’s social insurance benefits. Like most form of insurance, the Plan provides protection by spreading risks and costs across all contributors. This allows, on average, a higher level of protection at a lower cost.
• The CPP was designed to be part of an integrated network of benefits.
• There is a limit on the survivor’s pension paid to an individual also receiving a retirement pension. This limit reflects the fact that, in retirement, the majority of survivors have access to other benefits, such as the Old Age Security Pension and the Guaranteed Income Supplement.
• However, under the enhanced portion of the CPP, there is no cap on the combined benefit. This reflects the design of the enhancement to have a stronger link between benefits and contributions.

The CPP is a social insurance plan to which virtually all Canadian workers outside Quebec earning above $3,500 a year contribute. The intent of the CPP is to provide contributors and their families with minimum basic income replacement upon the retirement, disability or death of a wage earner. The amount of benefits payable is generally based on wage earners’ contributions to the CPP and the length of their contributory periods.

As a social insurance plan, the CPP is not made up of individual savings accounts. Rather, the Plan operates under the insurance principle of pooled risk. The pooling of contributions allows beneficiaries to receive a higher level of income protection than they would have if their benefits were solely based on their own contributions kept in individual accounts. Pooled risk also implies that eligible individuals benefit from insurance coverage in the event of the death of a contributor, but not all contributors will necessarily benefit to the same extent from this coverage. In designing the CPP, it was recognized that there would be some contributors who would not benefit as much as others from the full range of benefits provided under the Plan.

The survivor’s pension is a monthly benefit paid to the surviving spouse or common-law partner upon the death of the contributor. It can be combined with a CPP retirement pension. However, there are specific rules that apply when calculating the base portion of combined CPP benefits. When a person receiving a CPP survivor’s pension becomes eligible for his or her own retirement pension, or vice versa, the survivor and retirement pensions are combined into a single benefit. This benefit, however, cannot exceed the maximum retirement pension. Consequently, it does not necessarily represent the sum of the two pensions. The rationale for establishing a limit on combined benefits reflects the principle that no one person should receive a pension, or combination of pensions, that is greater than the amount that would be paid to an individual who worked and made the maximum contributions to the Plan throughout his or her working life.

The limit also reflects the fact that, in retirement, the majority of surviving spouses are eligible for other forms of income, such as the Old Age Security (OAS) pension, the Guaranteed Income Supplement, private pensions and income from savings and investments in addition to their CPP retirement and survivor’s pensions.

Increasing or removing this cap would increase Plan expenditures, which would increase the contribution rate paid by all workers in Canada and their employers.

However, it is important to note that the enhanced portion of CPP of a combined benefit is calculated differently and is not subject to this cap. That is because the CPP enhancement was designed to have a closer link between contributions and benefits, and less of a social insurance component, than the base CPP. The enhanced component of CPP benefits are based only on work and contributions made in 2019 or later, when the enhancement began.

Since the federal and provincial Ministers of Finance are joint stewards of the CPP, major changes to the Plan require the approval of two thirds of the provinces representing at least two thirds of the population.

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