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CPP - Some Comments on Waiving or Deferring Credit Splitting

CPP - Some Comments on Waiving or Deferring Credit Splitting. Facts: Both parties have CPP, but wife has no contributions from 1986 to 1994. Parties have two children, born 1985 & 1988. Cohab. commenced in 1981 Married in 1990 and separated in 2007 S. 57 declaration in 2008.

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CPP - Some Comments on Waiving or Deferring Credit Splitting

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  1. CPP - Some Comments on Waiving or Deferring Credit Splitting Facts: • Both parties have CPP, but wife has no contributions from 1986 to 1994. • Parties have two children, born 1985 & 1988. • Cohab. commenced in 1981 • Married in 1990 and separated in 2007 • S. 57 declaration in 2008 Anderson Pension Law Consulting

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  6. Questions to consider: 1. Should they divide CPP? What will they get? 2. Is a disability relevant to the decision to divide? 3. How is CPP divided? _______________________________ Anderson Pension Law Consulting

  7. Credit split? • assume both benefit from equalization? • Carol’s CPP estimated $325/mo. less than husband’s B.’s. ($538 v. $863) • common sense guess: equalization should leave each with about $700/mo. in CPP. • common sense guess incorrect. • likely result: Dennis gets $750/mo. and Carol gets $733/mo. Which she would receive even if no split. Anderson Pension Law Consulting

  8. (Credit split?, cont.) • CPP adjusts for low earning years • 2 main adjustments CPP makes are (a) drop out 15% lowest years, and (b) drop out years child under 7 Anderson Pension Law Consulting

  9. (Credit split?cont.) • Carol’s lowest years were 1986 to 1994. • the 2 children were born in 1985 & 1988. • Carol had $0 pensionable earnings only in years caring for a child under 7. • Carol can apply for child rearing drop out for those years Anderson Pension Law Consulting

  10. (Credit split?cont.) • Result? Carol still gets max even if no splitting • Dennis’s CPP reduced to $700/mo. • Result? overall loss of value ($115/mo.) without any compensating benefit. • in this case, therefore, parties should probably not credit split Anderson Pension Law Consulting

  11. (Credit split? cont.) • usually, credit splitting makes sense. • Take up rate is very low. • Lawyers should make sure clients are aware of credit splitting. Anderson Pension Law Consulting

  12. (Credit split? Cont.) • Some cautions: • Analysis assumes both parties continue to work based on past history. • Future events can change everything • lost employment, disability, choosing to take CPP early, all would affect decision. Anderson Pension Law Consulting

  13. (Credit split? Cont.) • Often makes sense to defer decision until close to collecting benefits • Caution: • limitations on when can apply • Caution - legislation may change • Not all provinces permit waiver. None permit deferral. Anderson Pension Law Consulting

  14. (2) Significance of car accident? • even if equalization did make sense, the injuries are reason to postpone • Dennis will probably qualify for CPP disability benefit Anderson Pension Law Consulting

  15. (car accident, cont.) • CPP disability benefit based on 2 components: (a) flat rate, and (b) an amount based on unadjusted pensionable earnings. • currently Dennis would probably be entitled to max. benefits ($1077.52/mo) Anderson Pension Law Consulting

  16. (car accident, cont.) • equalization would immediately reduce CPP disability benefit. • Carol is 52 and could not apply for max. CPP benefits for another 13 years. • result? overall loss of value without any compensating benefit. Anderson Pension Law Consulting

  17. (car accident, cont.) • alternative? • defer credit splitting until Dennis reaches 65 • at 65 disability benefits replaced by CPP pension • if Carol would otherwise elect CPP before that date? support order (Coulter) Anderson Pension Law Consulting

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