# CPP credit split (DIPE) is unfair if you have children



## Dogger1953 (Dec 14, 2012)

This message is intended to alert you, that the results of a CPP credit split, (which is officially known in the legislation as a division of unadjusted pensionable earnings (DUPE)) can produce very unfair results when the period of the DUPE overlaps with periods of eligibility for the Child Rearing Dropout (CRDO) provision. Ideally, the CRDO allows the main "child-rearing parent" to "drop out" any periods of low earnings while they were raising children under age 7.

The unfairness occurs because although the DUPE equally shares the "unadjusted pensionable earnings" (UPE) of the "couple", it allows the "child-rearing parent" to retain sole eligibility to the protection of the CRDO.

This unfairness has two impacts, as follows:
1) Although they have equal UPEs for the period of time that they lived together, the child-rearing parent's CPP benefit calculation for that period of time may be greater than the working parent's CPP benefit for the same period. This is because the child-rearing parent can drop out the CRDO period, whereas the working parent can't.
2) The net result when a DUPE overlaps with the CRDO is that there is a net loss of benefits to the "couple", and a net savings to the CPP account. This occurs because the working parent "loses" UPE that the child-rearing parent doesn't even use.

Statistically, this issue affects almost 50% of the DUPEs that occur each year. I have lots more to say on this issue if anyone is interested.

NOTE 1: This issue concerns the division of unadjusted pensionable earnings (DUPE) under the CPP, which is sometimes called "credit splitting. A DUPE occurs after a separation or divorce, and it is a permanent adjustment to both of the "couple's" CPP record of earnings. A DUPE by itself does not create any immediate benefit, but will affect the amount of any current or future benefit received by either party.

NOTE 2: This issue does NOT concern the assignment of pensions under the CPP, which is sometimes called "income splitting". An assignment occurs only in on ongoing relationship and when both of the couple are at least age 60 and have both applied for their own CPP retirement pension. The assignment equalizes their retirement pension for the period of their relationship, for the purpose of reducing their joint tax liabilities. An assignment will end if the relationship ends.


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## OptsyEagle (Nov 29, 2009)

I would be interested if you could re-explain it with a few less dupes and upes.


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## none (Jan 15, 2013)

People with kids get a ridiculous amount of support from the government (I know, I have a kid). Thank you tax payer!


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## OptsyEagle (Nov 29, 2009)

and they wonder why the average person doesn't want to see the CPP doubled or increased at all. If it wasn't affected by politicians, I would be all for it.


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## MoneyGal (Apr 24, 2009)

A much bigger issue, one that affects every single CPP recipient, is the use of unisex mortality tables.


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## RBull (Jan 20, 2013)

^that's a very good point.


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## Dogger1953 (Dec 14, 2012)

OptsyEagle said:


> I would be interested if you could re-explain it with a few less dupes and upes.


Perhaps if I use my situation as an example, the issue will be clearer. I had a 19-year marriage, and 2 children born 3.5 years apart. Prior to the credit split, I had 40 years of max contributions, and would have been eligible for a 100% max CPP pension (40/40), as I could drop out the other 7 years under the general dropout (was 15%, now 16%, soon 17%). My ex never worked until the end of the marriage, but she worked fulltime since, at max earnings, so she had about 21 years of max contributions. Because she could drop out 10.5 years under the CRDO plus her general dropout of about 6.5 years, she would have been eligible for a CPP pension of approx 70% of max (21/30).

Since the credit split however, I now have 19 yrs of 1/2 max contributions and 21 yrs of max (plus 7 yrs of minimal contributions which I will drop out). This gives me a pension of approx 76% (21 + 19 x 1/2)/40. Even though we now have equal CPP credits for the period of our marriage, she retains sole rights to the CRDO. She will therefore still drop out those 10.5 years of 1/2 max, but she'll use the other 8.5 years of 1/2 max to qualify for 84% of max (25.5/30).

The 2 ways that this is unfair is that:
1) her pension ends up being more than mine, even though our CPP contributions are equal both during and outside of our marriage, due to the CRDO. and
2) The CPP is the net winner, we went from pre-DUPE combined benefits of 170% (100% for me and 70% for her) to combined net benefits of 160% (76% for me and 84% for her).

This may not sound like a lot, but if I would be able to claim the CRDO also (since our CPP earnings are now identical for the child-rearing period), I would be eligible for another approx $80/mth ($960/yr) for life.

And if you look at the net savings of 10% that the CPP "saves" as a result of the credit split, and multiply that by the approx 4,000 - 5,000 people that this affects each year, and multiply that by a 20-year life expectancy, you have a lot of net savings!!!


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## Dogger1953 (Dec 14, 2012)

MoneyGal said:


> A much bigger issue, one that affects every single CPP recipient, is the use of unisex mortality tables.


I don't have a problem with that issue, as it is more than just retirement benefits that are paid. If I die at an earlier age, it's more likely that my contributions will also fund survivor benefits for my wife, and there's some value in that also! I can stand some gender-bias in the CPP, it's just that they say that the credit split is intended to "acknowledge the equal contributions that both parties played in the marriage", yet the credit split equalizes only the earnings of the "couple", and leaves one party (almost always the female parent) will sole access to the CRDO for the same period of time.


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## MoneyGal (Apr 24, 2009)

Yes, and this is deliberate, as a way to acknowledge the contribution made by parents (mostly women in practice) who drop out of the paid labour force when their children are small. You may not agree with it (and I may not agree with it), but "aid to women with children" was the very first paid social program to provide an income directly to individuals in Canada, and the CPP dropout provisions are an extension of that program. "Contribution" in this case is intended to encompass both paid labour contributions and unpaid labour contributions.


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## GoldStone (Mar 6, 2011)

Hi Dogger1953,

Can you please explain how CPP handles CRDO when the primary caregiver spouse dies before either of the two spouses reaches CPP eligibility age.

My understanding is that CRDO can be applied to the survivor benefits. What is not clear to me is whether the surviving spouse has an option to apply CRDO to his/her own CPP pension (instead of applying it to the survivor benefits).

Thank you.


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## Dogger1953 (Dec 14, 2012)

MoneyGal said:


> Yes, and this is deliberate, as a way to acknowledge the contribution made by parents (mostly women in practice) who drop out of the paid labour force when their children are small. You may not agree with it (and I may not agree with it), but "aid to women with children" was the very first paid social program to provide an income directly to individuals in Canada, and the CPP dropout provisions are an extension of that program. "Contribution" in this case is intended to encompass both paid labour contributions and unpaid labour contributions.


I don't have a problem with the CRDO provision on its own, but can you really justify why in combination with the credit split; that the stay-at-home parent should be in a better position that the working parent, concerning pension entitlement? And not even CPP is saying that the impact of the overlap of CRDO/DUPE was intentional. They just won't do anything to fix it, and the solution is simple and fair if you just allow both parents to claim the CRDO when it overlaps with a period of DUPE.


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## Dogger1953 (Dec 14, 2012)

GoldStone said:


> Hi Dogger1953,
> 
> Can you please explain how CPP handles CRDO when the primary caregiver spouse dies before either of the two spouses reaches CPP eligibility age.
> 
> ...


For periods up to 1992, the CRDO is claimable by the person who received the Family Allowances (which was always paid to the female parent), unless the other parent was the primary caregiver AND the female parent doesn't claim the CRDO. For periods since 1992, the CRDO is claimable by the person who would have been eligible for the Child Tax Crerdit, which was only marginally less gender-biased.

In the situation that you describe, the surviving male contributor could likely choose whether it's best for him to have the CRDO applied to his own CPP calculation IF he hasn't already claimed it under his wife when he applied for survivor's benefit, AND if he is prepared to say that he was the primary caregiver AND that he remained at home to look after the child(ren) for any/all of the time up to when they were age 7.


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## OptsyEagle (Nov 29, 2009)

So Dogger, to clarify. Many people income split simply for income splitting (tax) reasons. Are you saying with any given married couple where he might be entitled to max. and she might be entitled to 50% max, but now 66% of max because of a couple of kids, that the amount CPP would pay them COMBINED, would be more if they did not credit split?


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## MoneyGal (Apr 24, 2009)

OE: Dogger is talking about credit splitting in the event of separation or divorce (when the households are no longer a single economic unit). Income splitting CPP is a totally different matter and has a tax impact which should be beneficial to the household (otherwise, don't do it). Credit splitting is something different.


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## OptsyEagle (Nov 29, 2009)

Yes. I think I figured out what his example was pertaining to, but unless he thinks that we will somehow be able to convince a politician to come out and publicly state that he/she thinks a mother, who has sacrificied herself to raise some poor innocent children, should get less CPP, then it doesn't really help us that much. Interesting to know, but not too valuable.

Income splitting the CPP, however, is a choice. A choice many people make. It may still be beneficial from a tax perspective to do it, but I would be interested to know if there are any detriments to it, as well.


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## Dogger1953 (Dec 14, 2012)

OptsyEagle said:


> Yes. I think I figured out what his example was pertaining to, but unless he thinks that we will somehow be able to convince a politician to come out and publicly state that he/she thinks a mother, who has sacrificied herself to raise some poor innocent children, should get less CPP, then it doesn't really help us that much. Interesting to know, but not too valuable.
> 
> Income splitting the CPP, however, is a choice. A choice many people make. It may still be beneficial from a tax perspective to do it, but I would be interested to know if there are any detriments to it, as well.


My solution that both parents should be able to claim the CRDO when it overlaps with a DUPE, doesn't result in the female parent losing any CPP! It just levels the playing field!!

In any case, I fought this battle up the the Federal Court of Appeal level, and lost. My goal in starting this message wasn't intended to change anything (although if enough people are aware and complain, who knows?), it was to increase awareness. And yes, there is another solution too. If the "couple", knows that the net impact is less money to them and a savings to the CPP account, they could agree not to apply for a DUPE and reach their own agreement on sharing the CPP. Yes, I know that such an agreement has no effect on the CPP except in 4 provinces (one of which isn't the all powerful Ontario), but that doesn't prevent 2 people from making such an agreement and sticking to it.


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## Dogger1953 (Dec 14, 2012)

MoneyGal said:


> OE: Dogger is talking about credit splitting in the event of separation or divorce (when the households are no longer a single economic unit). Income splitting CPP is a totally different matter and has a tax impact which should be beneficial to the household (otherwise, don't do it). Credit splitting is something different.


Yes Moneygal, you are 100% correct!


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## OptsyEagle (Nov 29, 2009)

So for income splitting, are you saying there is no reduction in the combined amount, whether a couple, with children, split credits or not? I would appreciate an answer to this if you have one. If you do not know, that is fine just let us know.


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## Dogger1953 (Dec 14, 2012)

OptsyEagle said:


> So for income splitting, are you saying there is no reduction in the combined amount, whether a couple, with children, split credits or not? I would appreciate an answer to this if you have one. If you do not know, that is fine just let us know.


"Income splitting" within the CPP is called "Assignment of pensions", and yes there is no reduction in the combined amount when this occurs. The problem is with DUPE (credit splitting), not Assignment (benefit splitting).


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## OptsyEagle (Nov 29, 2009)

Thank you.


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## OhGreatGuru (May 24, 2009)

Dogger, there is something wrong in the way you are calculating this. The aggregate amounts of the two pensions should be the same whether they are split or not. And they were in the case of my spouse and I, with 2 children, and minimal to no earnings for her during child rearing years. In fact when you apply for pension splitting each annuitant gets a statement showing what the monthly benefit was before splitting, and what it is after "assignment" (splitting), including the amount that has been assigned to the other. 

I don't understand how the non-child-rearing parent could expect to benefit from the drop-out provision whether the CPP is split or not.


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## MoneyGal (Apr 24, 2009)

OGG. Because he isn't actually talking about income splitting the CPP. He's talking about splitting CPP *credits* upon separation or divorce. This is a confusing conversation.


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## Dogger1953 (Dec 14, 2012)

MoneyGal said:


> OGG. Because he isn't actually talking about income splitting the CPP. He's talking about splitting CPP *credits* upon separation or divorce. This is a confusing conversation.


MoneyGal - At least you understand the issue!


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## MoneyGal (Apr 24, 2009)

Because I have deep knowledge of the CPP. 

Both here and at the Financial Webring Forum, you have not made it clear what you are talking about - and in both places, people are responding thinking you are talking about income-splitting of the CPP in retirement, not credit splitting CPP credits as part of the financial settlement associated with separation/divorce. 

As you are attempting to build a business providing consulting services w/r/t CPP entitlements, I suggest that you go out of your way to ensure that your intended audience understands the issues you are raising here...right now you are sowing confusion, not certainty.


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## Dogger1953 (Dec 14, 2012)

MoneyGal said:


> Because I have deep knowledge of the CPP.
> 
> Both here and at the Financial Webring Forum, you have not made it clear what you are talking about - and in both places, people are responding thinking you are talking about income-splitting of the CPP in retirement, not credit splitting CPP credits as part of the financial settlement associated with separation/divorce.
> 
> As you are attempting to build a business providing consulting services w/r/t CPP entitlements, I suggest that you go out of your way to ensure that your intended audience understands the issues you are raising here...right now you are sowing confusion, not certainty.


Point taken! - Clarification notes added to original posting!


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## OhGreatGuru (May 24, 2009)

MoneyGal said:


> OGG. Because he isn't actually talking about income splitting the CPP. He's talking about splitting CPP *credits* upon separation or divorce. This is a confusing conversation.


Thank-you for the clarification.


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