CPP Splitting A Different Process

One of the important things that I learned on my “so you think you can retire” course last week was that if you wish to split your Canada Pension Plan benefits it is a very different kettle of fish than if you wish to split your Company Pension Plan benefits.

A while ago, it was decided that a couple can share Pension income from a company pension plan, thus lowering the effective tax rate on the pension income.  For those with private pensions this was a big deal and could mean a large tax savings for retirees.  To do this you simply submit a T1032 Joint Election to Split Pension Income and away you go (saving tax money hopefully). If you don’t want to do it the year afterwards, you simply don’t submit this form.

Splitting CPP benefits is a very different kettle of fish.

You must submit forms to Service Canada asking to split your CPP benefits with your spouse (or common law partner), and both spouses sign the forms to get this all put in place, relatively straight forward, just a little bit of government red tape (or so you might think).

If you wish to stop sharing benefits with your spouse, both folks that signed the forms to set up the sharing must agree and sign the forms to stop doing this. Doesn’t sound like much, but if you become estranged with your spouse for some reason and don’t wish to share your CPP benefits with them, they have to agree to this as well.

Pensions and Divorce is a very complicated issue, but not just before retirement.

Another important thing to check out if you are lucky enough to have a Private Pension is how does your Pension Plan deal with the following interesting issues:

• Death of the Pension holder. Typically there is a survivor benefit, but what else? Does the surviving spouse get medical benefits? How big is the survivor benefit? 
• Separation of the Pension Holder from their spouse. Remember separation is not the same as divorce. If you get separated, go live common law with someone else and then pass away, who has rights to the Pension? Better go figure that one out.
• What happens if the pension holder dies and there are dependent children, do they receive any survivor benefits?

Lots of interesting questions to go figure out, as having a Pension is a massive benefit for your retirement planning, you would do well to understand all the “ins and outs” of your pension program.

Thanks to Jim Yih also, for his post Differences Between Personal Pension Splitting and CPP, which I cribbed some information from.