CPP and OAS after the death of a spouse

Q: I am 84 and many years ago my wife and I arranged to receive equal payments of CPP and OAS for tax benefit purposes. She has now died and of course her payments are cancelled.

As I paid more into the system when working, I was entitled to larger payments.

Now that her payments are stopped am I eligible for receipt of larger payments than the equalized payments received while she was still alive?

—Keith

A: I’m sorry for your loss, Keith. The death of a spouse can be a difficult time, both emotionally and financially.

With regards to your pensions, I’ll try to clarify the options and implications going forward.

You mention that you arranged pension sharing when you applied for your government pensions. Pension sharing is an option available to spouses applying for their Canada Pension Plan (CPP) retirement pensions. The intention is to reduce tax payable as a family by equalizing taxable incomes.

Due to Canada’s marginal tax system, with higher tax rates payable on higher incomes, to the extent that you can have a comparable income to your spouse in retirement, you can pay less combined income tax.

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Pension sharing allows you to receive a share of both of your CPP retirement pensions based on the numbers of months you lived together during your contributory period between the ages of 18 and 65. For example, if you married at age 18, you would be eligible to split your pensions equally. If you were married after you started working, part of your pension would be ineligible for splitting. Pension sharing is particularly helpful when one spouse worked more and will have a higher pension than the other spouse.

Old Age Security (OAS) is not eligible for pension sharing, Keith. Your entitlement depends on your years of residency in Canada between the age of 18 and 65, so has nothing to do with your past earnings. If you both lived in Canada your whole life, your pensions would have been equal anyway – not because you applied to share them, but because you were both entitled to the maximum pension.

Of note is that CPP pension sharing is different from pension income splitting. Pension income splitting allows you to split eligible pension income, which generally includes income like defined benefit pension benefits, RRIF withdrawals, etc. Pension income splitting can be done on your annual tax filing with your spouse to equalize income and reduce family tax.

It sounds like you may have received a lower CPP retirement pension over the years, Keith, because you were sharing your higher pension benefit with your wife. Now that she has died, you are not penalized, but you may not be made fully whole.

You will be entitled to a CPP survivor benefit equal to 60% of your wife’s CPP retirement pension, but only to the extent that this survivor benefit and your own retirement benefit do not exceed the maximum CPP retirement benefit payable.

This limitation often results in a reduction in pension income after the death of a spouse.

There is also a CPP death benefit payable of 6 months of your wife’s retirement benefit, Keith, up to a maximum of $2,500. This benefit is a one-time payment.

OAS does not have a survivor benefit in your case, though there is an Allowance for the Survivor payable to people between 60 and 64 with a low income.

Survivor pensions are an important consideration when you are planning your retirement. When your spouse dies, don’t forget to apply for a CPP death benefit, a CPP survivor’s pension and, if eligible, an OAS Allowance for the Survivor. An executor should apply for these benefits within 60 days of the date of death.

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Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

MORE ABOUT CPP:

• Paying into CPP when you work past your 60s
• How business owners should time CPP and OAS
• New CPP, same concerns it will run out of money
• What you need to know about CPP reform
• Most Canadians can’t afford to save more for retirement
• How much should I have in my RRSP?
• When it pays to take CPP early
• Why is CPP betting on active management?

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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