By ADAM MYERS
Special to SAF
The decision to start taking the Canada Pension Plan at 60, or to wait until as late as 70, is one that requires some thought.
Starting early gives you the satisfaction of enjoying a benefit that you’ve paid into all your working life. Waiting gives you a much bigger payment.
But as the case of two Nova Scotia retirees Winston and Sheila Billard shows, even the best laid plans can go astray.
Winston, 72, is a retired teacher who lives in Cape Breton and paid into the Canada Pension Plan for 37 years. He started drawing the pension when he was 63 and last year was receiving $883 a month.
His wife Sheila, a nurse, made contributions for 44 years. She enjoyed being active and continued to work part-time at a local nursing home into her 60s. This additional income, plus other pensions and savings, meant the couple didn’t need her pension immediately, so she delayed taking CPP.
Last year, when Sheila was 66, she was diagnosed with an aggressive cancer. She applied for CPP and received two monthly payments of $1,053 before she died in June.
In addition to the distress surrounding his wife’s death, Winston received two other shocks when he applied for her survivor pension. Most pension plans have a default survivor benefit, often at 60 per cent which can be adjusted upward. If one spouse dies, the other gets a reduced, but substantial, monthly payment to maintain their lifestyle.
Not so in the case of the CPP. Even if both spouses have contributed all their lives as in the case of the Billards, the survivor is only entitled to the maximum of one full benefit. The rationale is the notion that nobody should be able to get more than the maximum that one person would receive who had worked all his life.
Had Winston not worked he would have been entitled to 60 per cent of his wife’s benefit.
“I was shocked,” Winston says. “I thought this must be a mistake.”
The second shock was the size of the benefit he would receive. He is getting just $22.75 more a month, which doesn’t bring him up to the maximum. When Winston appealed the payment they showed him the details of the calculation and said he could not be paid any more.
He’s now getting $933 a month, including the $22.75 versus the 2013 maximum of $1,012.
“It doesn’t seem fair,” he says. “In my case, the extra amount would not buy me a good meal in a restaurant,” he says. “This in effect is another form of taxation with the government the winner.”
It doesn’t seem fair, but it would require a change in legislation to get Winston a better deal. Amélie Maisonneuve with Human Resource & Skills Development Canada (HRSDC) which administers the CPP, could not discuss the specifics of the case. She offered her sympathies, but says HRSDC has strict rules it must apply.
“The rationale for establishing a limit… reflects the principle that no person should receive a combination of pensions that is greater than the amount payable to an individual who made the maximum contributions to the Plan throughout his or her working life,” she said.
She added that survivor’s benefits are meant to provide some help, not a second income.
“The benefits are not intended to replace a second source of household earnings or the retirement income of a dual-earning family,” she said.
The CPP is governed by the principle of pooled risk. This recognizes that some people live longer than others and will get more benefits from the fund. The money that would have gone to pay Sheila Billard’s benefits is now available for another Canadian’s pension.
The Billard’s case might seem to make a good argument for why we should all take CPP early.
But Fred Vettese, chief actuary at human resource consultant Morneau Sheppel, says not. While offering sympathies to Winston Billard, he says the odds are in your favour if you wait. If you’re healthy and can wait, you should, he says.
HRSDC says if you delay CPP until 70 you will receive roughly double the amount that you would have received at age 60 and 42 per cent more than what you would get at age 65.
Statistics Canada says a 65-year-old Canadian can expect to live, on average, another 20 years, so by waiting, you get a bigger payment that is inflation protected for a long time.
The great unknown is longevity. Statistics and probability are one thing, individual circumstances another. While it’s likely that we’ll all live longer and probable that we will, that’s cold comfort when life gets in the way.
— Torstar News Service
By ADAM MYERS