Thursday, February 18, 2021

Calculating the Amount of a CPP Survivor’s Pension

Some people have heard that when a spouse dies, the surviving spouse gets a survivor’s pension equal to 60% of the deceased spouse’s CPP pension.  Unfortunately, the actual calculation involves many more steps, and the final amount of the survivor’s pension is often much less.  Here I pull together information from 3 sources to piece together how to calculate the amount of a CPP survivor’s pension.

My main source of information is Doug Runchey’s Understanding the CPP Survivor’s Pension.  I used Frederick Vettese’s book Retirement Income for Life (second edition) to corroborate Runchey’s calculations (although they didn’t completely agree), and Kea Koiv’s Shedding Light on the CPP Survivor Benefit added extra detail for young surviving spouses.  In the end there are still some subtleties I’m unsure about.  I have not tried to determine how these calculations change when either spouse is receiving a CPP disability pension.  Expert feedback is welcome.

To be precise and clear, I define several quantities below and how they’re calculated, culminating in the survivor’s pension amount.

D – Deceased spouse’s basic retirement pension

If the deceased spouse has been receiving a CPP pension that started at age 65, then D is just the amount of the pension.  Otherwise, it is what the deceased spouse’s pension would have been if he or she had taken CPP at age 65.  So, if the pension had been actuarially reduced because it started before age 65, or was increased because it started after age 65, D is the amount after taking away this actuarial adjustment (currently 0.6% per month reduction before 65 and 0.7% per month increase after 65).  This is what Runchey calls the “calculated retirement pension.”

If the deceased spouse had not begun taking a CPP pension, there are complex rules for determining D that I won’t try to capture here.

One subtlety I’m not sure about is if taking away the actuarial adjustment is all that is done to calculate D.  One part of the difference in CPP pension levels between taking it at 65 versus taking it earlier is that it changes the number of contribution months that can be dropped out, and it changes the number of contribution months that get averaged together.  It’s not clear to me whether D comes from just removing the actuarial adjustment or whether we go back and completely redo the contribution months calculation based on an age 65 start to CPP benefits.

L – Living (surviving) spouse’s basic retirement pension

This is similar to the deceased spouse’s basic retirement pension D, except that if the surviving spouse had not yet begun to take CPP, we use L=0 for now for calculating the survivor’s pension.  When the surviving spouse starts receiving CPP benefits, this whole calculation is revisited, and the survivor’s pension will likely be reduced.

M – Maximum basic retirement pension

This is the maximum CPP pension when started at age 65.  Currently, this is $1203.75 per month, excluding the recent CPP enhancements.

X – Maximum survivor’s pension

This is the amount of the survivor’s pension if the surviving spouse receives no CPP pension (L=0).  If the surviving spouse is receiving a pension, then this quantity (X) will get reduced as explained below to get the actual survivor’s pension.

If the surviving spouse was 65 or older, then X = 60% of D.  If the surviving spouse is between 45 and 65 or disabled or raising dependent children, then X = (37.5% of D) plus the flat rate benefit.  The current flat rate benefit is $199.31 per month.  If the surviving spouse is between 35 and 45, not disabled, and not raising dependent children, then the age 45 value for X is reduced by 1/120th for each month younger than 45 (dropping to zero at age 35).

R – Survivor’s pension reduction

R = the lesser of (40% of X) or (40% of L).

It wasn’t completely clear in Runchey’s article whether we include the flat rate benefit part of X in this calculation when the surviving spouse is under 65.  I have assumed that it is included in X.

S – Survivor’s pension

S = the lesser of (X - R) and (M - L).

This step is to ensure that the surviving spouse’s total CPP benefits don’t exceed the maximum (M).  Vettese’s book says S is the lesser of (X - R) and (D - L), which would mean that the surviving spouse’s total benefits can’t exceed the deceased spouse’s benefits.  I suspect that Runchey’s version is correct.  Perhaps this is just an oversight by Vettese due to the fact that he gave an example where the deceased spouse’s CPP benefits (D) were close to the CPP maximum (M).

F – Surviving spouse’s actuarial reduction factor

Based on Runchey’s explanation, there is an extra amount for a surviving spouse who started his or her pension before age 65 (see Y below).  If the surviving spouse started CPP at age 65 or later then F = 0.  Otherwise, F is the percentage L was reduced by in the actuarial adjustment to calculate the surviving spouse’s own pension.  Under current rules, this is 0.6% times the number of months before age 65 that the surviving spouse began his or her CPP benefits.

Y – Special adjustment to the surviving spouse’s pension

Y = F * R.  This appears to be considered a separate amount from the survivor’s pension, although it certainly seems like part of the survivor’s pension.  It’s not clear whether this special adjustment is subject to any maximum similar to the way S was capped at (M - L).


Consider a very simple example where both spouse’s receive $800 per month and had started their pensions at age 65.  Then when one spouse dies we have  
D = L = $800, X = $480, R = $192, and S = $288.

If both spouses had received $1100 per month instead of $800, this changes to
D = L = $1100, X = $660, R = $264, and S = $103.75.
In this case, the survivor’s pension is limited by the maximum allowable CPP benefit (M).

It’s clear that in most cases, a survivor’s pension is smaller than the often repeated 60% of the deceased spouse’s pension.  The calculation is complex and there are still some details I’m not completely sure about.

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