Can you simplify RRSP, OAS, and Pension rules please? | Page 3 | RRSPs and RRIFs | Discussion forum

Good point, Loonie, T1032 pension splitting is not available for CPP (or OAS), so CPP sharing would be the only way to split for a lower-income couple where neither has much/any RRIF and/or employment pension income eligible for splitting via T1032. The CPP sharing I believe is set at 50/50 of the CPP earned during the spousal the relationship, so another difference from pension income splitting which allows any percentage up to 50%, if I recall.

I checked on CPP early payment penalty. The changes started in 2012. It was phased in over 5 years from 2012 to 2016. The penalty was increased from .5% per month to .6% per month for every month taken before age 65.

Alexandre said
Looks like nobody in this conversation, other than myself, consider GIS or is eligible for GIS.

Good news for Canadian government.   

I qualified for GIS for one year. The following year I took money out of my RRSP so I no longer qualify.

Bill said
Good point, Loonie, T1032 pension splitting is not available for CPP (or OAS), so CPP sharing would be the only way to split for a lower-income couple where neither has much/any RRIF and/or employment pension income eligible for splitting via T1032. The CPP sharing I believe is set at 50/50 of the CPP earned during the spousal the relationship, so another difference from pension income splitting which allows any percentage up to 50%, if I recall.  

CPP pension sharing is not necessarily for low income without RIFs etc. In fact, it may not be suitable for them at all if their incomes are similarly low.

It's useful for situations where there is income disparity, both from CPP and overall, between the two partners which can be assumed to continue for the foreseeable future. It really depends on who has which sources of income and how much each has in relation to the other. It is more useful if one took CPP early and the other delayed to 70. It also matters how close to the line they are in terms of tax brackets and OAS clawbacks, similar to pension splitting.
The actual amount of their total income as a couple is irrelevant.

Pension sharing is not 50:50 at all. No specific ratio is accurate because it's a complicated calculation.
The major factors are:
1. The pension that is shared can only be the portion that represents earnings after the marriage or common law began. Most people do not marry at 18, so it's reduced accordingly. If common law for any portion, must provide some kind of written documentation of month and year, which can be difficult for many as it may have been a long time ago, so that cuts some people out of some years.
2. It's not structured as a split. That's why they call it sharing. Each annuitant donates to the other a specified (consistent - I think it's 40%, not sure) percentage of their applicable CPP income. Both must do this. Whatever that works out to is added to the remaining portion that they did not share. The end result is that they do not get equal amounts, but they are closer to equal than they were before.
3. Once you both sign up for this, CPP works it all out and you get whatever it works out to, no further adjustments except CPI. Contrary to what is said on several websites, there is a form you can submit if you wish to end this arrangement, but it has to be approved.
4 If this is not sufficient to create the incomes they are aiming for, they can split RIFs or company pensions on an annual discretionary basis.

CPP pension sharing is only going to be useful for some people, probably a minority. The calculation is difficult, and you may be guessing when you decide whether to apply. I had time to think about it for several years because we retired at different times, but it has been worthwhile for us. I estimate it saves us about $250 in taxes annually with a CPP income ratio of 45:55 . it adds up.

Alexandre said

This is exactly the point: if someone like OP plans to keep taking from RRSP/RRIF after hitting 65, they may be missing $1,000+ monthly payments through GIS.

Taking from RRSP/RRIF when collecting GIS is equivalent to almost 50% income tax, as for every dollar of income (RRSP withdrawal included) GIS is reduced by about 50 cents.
After small base income amount of a few thousand dollars annually.  

I surely hope those receive and qualify for GIS is because they need it. Its a income supplement, meant for those who can not fund their retirement otherwise. In other words, one should not plan their retirement income / time to quit work just so they can qualify for GIS ....

savemoresaveoften said

I surely hope those receive and qualify for GIS is because they need it. Its a income supplement, meant for those who can not fund their retirement otherwise. In other words, one should not plan their retirement income / time to quit work just so they can qualify for GIS ....

The 50% GIS clawback and the resulting income thresholds are not that desirable.

According to Guaranteed Income Supplement: How much you could receive, GIS is currently

• $919.12/month ($11,029.44/year) for a single person or
• $553.28/month ($6,639.36/year) for each person when spouse also qualifies.

With the 50% GIS clawback, there isn't going to be much GIS left unless (excluding OAS and GIS)

• the single person's income is significantly less than $18,648/year or
• the couple's combined income is significantly less than $24,624/year, when they both qualify, or $44,688/year, when only one qualifies.

savemoresaveoften said
Someone that qualifies and requires GIS to bridge the gap should not even have an advisor to begin with. Their net worth is just too small to make the advisor fee worthwhile...  

A Canadian couple in retirement could have $100,000 in savings, own a house and a car, yet might still qualify for GIS, after receiving OAS.

With OAS+GIS they could live modest but decent life, without need to visit food banks.

I am not judging, but if government provides, this couple should plan their finances correspondingly, before retirement age. For them it could make a difference in their finances if out of their $100,000 they keep most of it in RRSP Savings by the time they hit 65, instead of regular Savings account.

I am also not saying they could afford to employ a financial advisor, but someone who is fit for that role and volunteers to help others should be able to give proper financial advise to these folks. Even if for free.

When people work for modest wages all their lives and find that CPP and OAS and whatever they've managed to save are not adequate for a decent life in retirement, it is other Canadians who supplement their income with GIS etc.

It would make more sense to ensure they had a better wage in the first place, so that they could save more, have RSPs and/or TFSAs, so they wouldn't be dependent on the rest of us later.

But the same people who dislike their taxes being spent on GIS also tend to dislike raising the minimum wage to a more livable rate. They say it's "bad for business", but some of those businesses are not really viable. The rest of us are supplementing them by supplementing their retired employees.

I live in Toronto. There are lots of jobs here that we apparently want someone to do that don't even pay enough for people to have anything like a decent life, nevermind buy any kind of house or car or save for retirement, so we end up paying for their old age.

Loonie, higher minimum wages have more than a single (i.e. good for the locally employed) effect. Such anti-business attitudes and policies have a range of negative consequences too; just one example being that multinationals instead decide to locate where they're welcomed and thus (some recently obvious examples) we have little or no domestic vaccine production facilities, no domestic ppe production facilities, etc. Same people who are anti-business tend to be upset later at the consequences, seems to me.