Most Canadians have a poor understanding of CPP, reports reveal

Federal evaluations show Canadians are often confused about what they need when applying for CPP benefits and often have difficulty understanding the information available.

Thestar.com
Jan. 25, 2017
By Jordon Press

Internal evaluations of the Canada Pension Plan show the retirement system is poorly understood by most of the public - a problem retiree Evan Brett avoided only through luck and meticulous record keeping.

The 76-year-old realtor and his wife Latifah dove into their files at their Langley, B.C., home a decade ago when Latifah applied for retirement benefits. The documents they happened to have stockpiled ensured they were able to maximize the benefits they receive today.

Evan Brett said he knew enough about the Canada Pension Plan to avoid tripping over application hurdles.

But he is sure others aren’t nearly as well-versed - and documents obtained by The Canadian Press under the Access to Information Act suggest he is right.

Evaluations drawing from workers, retirees and Service Canada officials show Canadians are often confused about what they need when applying for CPP benefits, have a hard time understanding information on government websites, and don’t completely understand the cornerstone retirement program.

The reports recommend more outreach and advertisements to help seniors navigate the system and avoid frustration and shock when they apply for benefits.

Take the child-rearing provision, which caused the Bretts headaches. The provision allows a retiree to exempt up to seven years that they were out of the workforce raising children so the lower wages during those years don’t bring down how much they are eligible to receive in retirement.

One evaluation suggested Canadians often don’t know the provision helps them earn more in retirement. And when they do realize the difference, they have issues tracking down documentation such as birth certificates from adult children.

The Bretts had enough paperwork handy a decade ago that they were able to convince the government it was using the wrong seven-year period to calculate Latifah’s child-rearing years, eliminating a possible reduction in monthly payments.

The reviews also found that generally, retirees don’t know that CPP retirement and survivor benefits - the latter paid out to widows or widowers - are blended into one capped payment that is usually lower than the sum of the two separate benefits.

Public Opinion Research done as part of the CPP evaluation recommended the government remove the cap on the blended benefit.

Talking to Brett about calculating the blended benefit gives a window into how dizzying the calculation can be, and how he struggled to figure the financial hardship a cap on benefits would have on the surviving spouse.

“As it is, we’re constantly behind in our payments of our rent and our mortgage and our groceries,” he said.

The reviews turned up other troubling issues with Canadians’ knowledge about CPP.

Service Canada officials noted that many clients don’t know they have to ask the government to deduct taxes from CPP payments. “They assume that such taxes are automatically deducted from their CPP benefits,” one report said.

The reviews showed aboriginals who live on reserve often don’t learn until they turn 65 that they won’t receive CPP retirement benefits because employers on reserve aren’t required to contribute to CPP.

It’s not just the existing program that requires more outreach. Public Opinion Research ordered by the Privy Council Office late last year found that few participants recalled that CPP benefits and contributions were going up starting in 2019 as part of an expansion federal and provincial leaders agreed to over the summer.

QUICK FACTS ABOUT CPP

1. The retirement pension is currently designed to replace one-quarter of the earnings on which a person's contributions were based. That changes starting in 2019, when the income replacement rate begins increasing towards one-third of earnings, but the full effect of the change in benefits and contributions won't be felt for another 40 years.

2. Disability benefits are paid to people who are disabled and cannot work at any job on a regular basis.

3. Survivor benefits are paid to a surviving spouse, estate, or dependent children. People receiving survivor and retirement benefits get them blended into one payment that's usually lower than the combined value.

4. A maximum $2,500 death benefit can be made to an estate, surviving spouse or next-of-kin.

5.The value of the retirement benefit changes depending on when you take it: The benefit amount is adjusted downward for each month you took the benefit before age 65. There is an opposite effect if you wait take the benefit after age 65.

6. The program has several provisions designed to compensate for periods when someone wasn't earning much or anything at all.

7. Couples can voluntarily share their CPP retirement pension. Alternatively, separated or divorced couples can equally divide their CPP contributions, even if they remarried.

8. The post-retirement benefit allows Canadians who work while collecting a pension to continue to contribute to CPP and increase their benefits over time. The benefit is payable for life and increases with the cost of living.