An interesting question came up the other day while meeting with a family. Will my wife get part of my CPP benefit now or if I were to die first? Here in the U.S., typically if you qualify for a social security benefit, your spouse qualifies for a benefit as well. Even if your spouse never worked or paid into social security. This would include a social security spousal benefit while you both are living. Also, it would include a survivor benefit, which equals 100% of the higher social security benefit when the higher social security earner passes away. So, does the same ring true for the CPP? This post addresses the CPP survivor and spousal benefit.
The husband was originally from Canada and after working in Canada for 10 years after college, his job moved him to Michigan. He contributed to the Canadian Pension Plan (CPP) in the years that he spent working in Canada. This qualifies him for a partial CPP benefit when he retires here in the U.S. However, he will not be eligible to collect Canadian OAS, because he did not live in Canada long enough before permanently moving to the U.S. For more about qualifying for Canada CPP and OAS read here. After moving to the U.S. he had met his wife and now they are planning on staying here in the U.S. in retirement. His wife has never worked in Canada and has never contributed to the CPP. Now we are doing some retirement planning, and they are trying to determine their income in retirement.
CPP Spousal Benefit
As I mentioned before, if your spouse qualifies for U.S. social security, you typically will qualify for a spousal social security benefit as well. Even if you had never contributed to U.S. social security. However, this does not apply to the CPP. However, you can “share” your CPP with your spouse.
CPP Pension sharing allows you to split your pension between you and your spouse. However, this doesn’t result in a higher benefit. For example, if you are receiving C$1,000 per month on your benefit, pension splitting may allow your spouse to collect C$500 and you collect the other C$500. The amount of the split depends on how long you have been married and contributed to the CPP. With how Canada taxes are set up pension splitting may help reduce taxes. However, here in the U.S., most couples will file a joint tax return, and therefore it doesn’t matter who earns the income. So, you may find doing a pension split in the U.S. doesn’t make sense.
So, there isn’t really a spousal pension benefit while you are both living, but how if the CPP pensioner passes away?
CPP Survivor Benefit
There are two types of benefits a surviving spouse will receive when someone collecting the CPP passes away. First, is the survivor death benefit. This is a one-time lump sum that you will receive when your spouse passes away. As of January 2019, the survivor death benefit was C$2,500.
Also, if your spouse is collecting CPP and passes away, you will receive a part of his or her benefit for the rest of your life. The CPP survivor pension amount depends on a few things:
- The amount of benefit that the deceased spouse was collecting
- The age of the remaining spouse
- If the remaining spouse was also collecting a CPP benefit
Let’s break out the benefit based on the surviving spouse’s age at the time that the CPP eligible spouse passes away.
CPP Survivor Pension if under age 65
If you are under age 65 when your spouse passes away, you will receive a flat rate portion plus 37.5% of the contributor’s CPP if the surviving spouse is not collecting the CPP. For the first quarter of 2019, the flat rate portion of the CPP is C$193.66.
In the example above, the husband had worked and collected a CPP, however the wife he met in the U.S. was not eligible for the CPP. In this example, if he passes away before she turns 65, she would get C$193.66 plus 37.5% of his CPP. If his CPP is C$1,000, then she would collect C$568.66 per month when he passes away.
However, if she was also eligible and collecting her own CPP, she would only receive the flat rate portion of C$193.66.
CPP Survivor Pension if over age 65
The equation is a little simpler if you are over the age of 65 when your CPP collecting spouse passes away. In this scenario, the remaining spouse will collect 60% of the collecting spouse’s CPP as long as the surviving spouse is not eligible for a CPP.
Using the same example as above, if the deceased spouse was collecting a C$1,000 CPP benefit, the remaining spouse would collect C$600 if over the age of 65 and not eligible for her own benefit.
The equation is a lot more complicated if the remaining spouse is also collecting her own CPP. In this example, there may be a reduction to the 60% survivor benefit. The maximum combined benefit, CPP and survivor benefit, in 2019 is C$1,154.58. For a more thorough understanding of the survivor benefit if both spouses are eligible for the CPP, read this article.
CPP Survivor Pension and Windfall Elimination Provision (WEP)
Although the remaining spouse will get a reduced CPP, the survivor pension is not subject to WEP. Therefore, even though it is likely that the survivor pension will only be about 60% of the original CPP, social security will potentially increase because of no WEP.
In the example above, the husband had a higher social security benefit. However, he was also collecting a CPP and didn’t have 30 years of work experience here in the U.S. so his social security was being reduced by WEP. Here is what happens if he were to die first and she is over age 65.
- She will receive 60% of his CPP
- Her lower social security will go away, and she will start collecting his higher social security benefit
- However, his social security benefit will actually increase because it is no longer being impacted by WEP
For more information on WEP and CPP, please read, “How WEP Affects Social Security”.
Determining the exact amount that a surviving spouse will receive once the CPP recipient dies can be complicated. For planning purposes, however, I typically assume that the remaining spouse will collect 60% of the original CPP. This assumes that the remaining spouse is not eligible for the CPP. If the remaining spouse is eligible for CPP also, the reduction can be greater.
Disclaimer: I’m a financial advisor, but probably not your advisor and don’t know your complete financial picture. Therefore, please use this as education only and I strongly suggest talking with your financial advisor or tax preparer before implementing any of the above strategies.