CPP Survivor's Benefit calculation methodology somewhat murky, to say the least | General financial discussion | Discussion forum

I have mentioned this issue before in this forum but there was little interest shown in it.

Unfortunately, this article does little to clarify the complex situation, but it does at least give notice that there is a problem. In a way, I don't blame the journalist because the problem is so complex that I doubt very much that she could penetrate it. I have tried, and I can't get to the bottom of it myself.

Basically, what you need to know is that Doug Runchey is correct. Unless surviving spouse was born before a certain year, I think it's 1934, certainly no later than 1936, you should ignore all those projections that you get in your periodic statements from CPP because they are completely misleading. You will never get 60%, and you will likely get substantially less.
After quite a bit of time on the phone and requests for something in writing since it could not be determined by phone, we can't even get Service Canada to tell us what spouse's CPP would have been if applied for at age 65, which is the lynchpin of the calculation. They only calculate this after the person dies, it seems. Only if you'd received one of their statements in that exact month following 65th birthday would you know for sure. We are hoping that we might be able to calculate it retroactively once spouse starts receiving benefits at age 70. Service Canada can't tell us what that figure will be, even though all the info is already available to them for the basic pension, and has been for quite some time. I can appreciate that they may be uncertain about the PRB but the PRB has nothing to do with the Survivor Benefit anyway, and no excuse for not knowing the basic. We have asked specifically what the CPP benefit would have been at age 65. No matter how friendly they are or how much they want to help, they simply don't have the information.

For anyone who really wants to know what to expect, your best bet may be to pay Doug Runchey to figure it out for you. I believe he charges about $100. He is retired from working for the government in that department and understands how it works. I know that most accountants are flummoxed by it. I've read the legislation and find it impenetrable. Perhaps Norman1 could figure it out. Maybe try your MP's constituency office - this question should keep them busy for a while!

Daryl Diamond, in the second edition of his book, Your Retirement Income Blueprint (2014), noted the ominous nature of the change in Survivor Benefits from the standard 60% which we were all told for so many years that we would receive upon death of spouse. He notes that it's the first time such a benefit has been decreased.
This change happened when they rejigged the CPP contributions. I forget when it was exactly, but must have been between 2010 and 2014, as Diamond's first edition was published in 2011. Prior to that, everyone would get 60% as promised, to maximum of a single person's pension. Now, you don't even get that. CPP and Service Canada have made it very difficult for people to realize what they're in for. If they knew, they might try to effect change.
If you are concerned, complain to your MP.
I still have the documents that promised me 60%, although spouse's have been lost. I hope somebody finds a way to take them to court. Should be a class action suit as the people who need the benefit won't be able to pay for the lawyers to do it. However, I don't know if it would be considered a sound case or not as I am not a lawyer. I'd certainly join any class action though. In my language, I'd call it breach of promise.

It's a much bigger hit than just not getting more than one person's maximum pension at age 65. That's not the real scandal and is the least of it.

If both partners are receiving near-maximum CPP, then the Survivor Benefit won't be a significant concern other than the fact that survivor won't get any benefit to speak of.
Where it matters most is where one partner has a much lower CPP pension, typically the woman, who is then widowed. As I recall, the average CPP pension is somewhere around 600/month, well below the max.
There were a couple of stories about this, with specific frightening examples, in the paper a year or two ago. I think they were in the Toronto Star but not sure. I thought I'd posted links to them, but can no longer find them or the thread.

I have, in the past, read the entirety of Runchey's postings, and it's very clear that it's much worse. And, even having done that, I was not able to follow the calculation. I might have if I'd taken more time - a day or so!

Rick said

SOUNDS like another incentive to take CPP @ 60??  

I'm not sure it makes any difference. The starting amount of the survivour pension is based on the hypothetical age 65 CPP retirement pension of the deceased. So, it doesn't matter whether the deceased had actually started collecting his/her CPP retirement pension at age 60, 65, or 70.

Norman's link doesn't work for me. 504 error.
However, I get the drift.

In the examples that I remember reading about, the survivors were women, and they were not receiving anywhere near the maximum, either before or after their spouses died. It came as a great shock to become so impoverished so quickly under the new formula.

As I said earlier, the problem goes beyond not being allowed to exceed the maximum for one person. That part actually makes sense to me.

I'm not convinced they want people to be able to do this calculation accurately. THEY can't even figure it out, if you phone and ask, even though they have all the data.
They continue to send out Statements of Contribution, which are misleading in their projections.

Remember, they haven't fixed Phoenix yet, which is urgent, and they've been at that for years!

Yes, we will have to disagree on the death benefit. It's currently $2500, just enough for a very no frills burial; it was previously $2000.
Bottom line, CPP is for the living, not the estates of the dead. If you want it to include the dead, then you'll have to either cut back on other benefits or increase premiums, neither of which will be popular.

I would not accept anything that had a termination or reduction in the survivor benefit.
I don't think you can compare an annuity with a guaranteed term, especially where the 20 year period is less than average life expectancy as with your aunt, to a pension which goes to death and extrapolate from one to the other. The comparison would have to be to a life annuity, at a minimum.

But, beyond that, I disagree with the philosophy behind your idea. In my view, the CPP is intended to contribute to income security for retired persons in such a way that they can get the best return, i.e. the best income. in retirement that is possible considering their contributions. It's not a lot to begin with, but neither are the contributions, relatively speaking. The purpose is not to supplement the estates of the dead who have no dependents, whether they be the single person who dies at 55 or the couple who die together at 55 or anyone who manages to live to 105. They are owed nothing beyond this except perhaps the proper disposal of their remains.
Don't forget too that the employer pays half of the contribution. Your plan would mean that the employers are paying half of the subsidy to the estate, effectively. You would be essentially asking them to provide mandatory life insurance of a sort. That will not fly.

In any event, I'm not really interested in pursuing this further. We are not going to agree on this.

Loonie said
Norman's link doesn't work for me. 504 error.
However, I get the drift.

The Toronto Star link is working just now. HTTP 504 is "Gateway timeout". That's usually from a web server that's temporarily overwhelmed.

In the examples that I remember reading about, the survivors were women, and they were not receiving anywhere near the maximum, either before or after their spouses died. It came as a great shock to become so impoverished so quickly under the new formula.

As I said earlier, the problem goes beyond not being allowed to exceed the maximum for one person. That part actually makes sense to me.

It isn't clear to me how that would be the case. We'd have to look at such an example to see how it would happen.

My understanding is that if the survivor is nowhere near her CPP maximum, then she would receive close to 60% of the deceased's age 65 CPP retirement pension as a survivor pension.

Is it possible that there was a misunderstanding? Perhaps, her partner had deferred his CPP to age 70 and got ½%/month x 12 months x 5 years = 30% more per month and she was expecting 60% of that enhanced payout. Instead, the 60% is of the non-enhanced age 65 payout. So, instead of a 40% cut, she got a 1 - ((0.6 x 1)/(1.3 x 1)) = 53.8% cut.

I did find a case of a widow who got no CPP survivor pension because of something other requirement. Apparently, survivors under age 35 with no dependent children and not disabled do not qualify for a CPP survivor pension right away: Kitchener widow denied CPP benefits because of age takes feds to appeals tribunal

I've now looked at both the 2014 and 2019 editions of Daryl Diamond's books, Your Retirement Blueprint. I didn't find anything particularly useful in either on the subject of CPP Survivor Benefit.
My memory was not completely reliable.
His issue with decreasing benefits was over the mandatory contributions to PRB if you retire before 65 and continue some amount of employment (and, I would add, between 65 and 70 if you decide to postpone CPP to age 70), By requiring this between 60 an 65, the income during that period is reduced. I would add that it's worse than that since there is no Survivor Benefit to the PRB whatsoever. Apart from the new formula as discussed above, this is another way in which the Survivor Benefit is diminished.
Diamond feels that recipients age 60-65 should have been grandfathered, and I agree. There is nothing more disconcerting that having your planning efforts pulled out from under you by arbitrary changes, especially those made in your retirement years.

I didn't notice any significant new content in the 2019 edition, just some updates in figures to bring it up to 2018.