Calculation of the result of a CPP credit-splitting action
The Canada Pension Plan (CPP) has a feature known as the division of unadjusted pensionable earnings (DUPE), sometimes called credit splitting, the intent of which is to achieve an equitable sharing of CPP credits after a separation or divorce.
Unfortunately, despite the intent, the result is that almost half of the credit splits that are processed cause a net loss of benefits to the "couple" and a net savings to the CPP.
In a recent case that DR Pensions Consulting encountered, this net loss to the couple was more than $150 per month. The average loss is about $100 a month. This can amount to a loss of tens of thousands of dollars over the years that the couple will collect CPP benefits.
What causes this net loss to the couple?
The main cause of this net loss to the couple is the lack of integration between credit splitting and another feature of the CPP known as the child-rearing provision (CRP), sometimes called the child-rearing dropout (CRDO). Where a spouse stayed home to raise children, the child-rearing years may be dropped out from that spouse's CPP calculation. Where CPP credits were split for some or all of those years, the child-rearing spouse may not use those credits and they are lost to the couple.
What can be done?
DR Pensions Consulting offers a service in which we calculate the impact of a credit split in advance. If a credit split will result in a net loss of benefits, we can generally recommend an alternative, the goal of which is to maximize benefits to the couple. Knowing the impact of a credit split in advance may allow the couple to reach a mutual agreement to avoid the credit split and to both be further ahead financially as a result. (See a sample report: DR Pensions Consulting Sample Credit-Split Report (PDF).)
Note: An agreement not to do a credit split may be recognized only if the agreement was entered into before June 4, 1986, or if the couple resided in the province of Quebec, Saskatchewan, British Columbia, or Alberta at the time of the agreement.
What is needed for a DUPE report?
For DR Pensions Consulting to produce a DUPE report, we will need:
- Copies of recent CPP Statements of Contributions, for both husband and wife (available from the Service Canada website at www.servicecanada.gc.ca/eng/online.mysca.shtml)
- Information about anticipated future earnings until retirement, for both husband and wife
- Dates of birth for any children
- Date of marriage, or date the couple started living together, if earlier than the date of marriage
- Date of separation
- Date of divorce
- Details of any CPP disability, survivor's, or retirement pensions for either spouse
How quickly can a DUPE report be produced?
Once all of the above details have been provided, a DUPE report can generally be available within two to three business days.
What is the cost of a DUPE report?
The standard fee for a DUPE report is $250. This cost covers the before and after credit-split calculations if the couple has one retirement scenario each (a set of dates when the partners plan to stop working and start taking their CPP). Each additional retirement scenario (a different set of dates) increases the cost of the report by $50.