24.5.6 Canada And Quebec Pension Plan Sharing

Overview

The Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) legislations permit spouses to share their pension benefits. If both parties agree, they can split the portion of the retirement pension they are receiving according to the length of time they lived together and the amount they contributed during that period. Additionally, if both parties are eligible for a pension and want to share benefits, then both pensions must be shared.

Eligibility Criteria

To be eligible for pension sharing under the CPP and QPP:

1. Both spouses must be eligible: Both individuals must be receiving their respective pensions or be eligible to receive them.
2. Cohabitation Period: The couple must have lived together for a significant period. The pension benefits are split according to the time they cohabited and contributed to either the CPP or QPP.
3. Mutual Agreement: Both parties must mutually agree to share their pension benefits.
4. Legal Constraints: Couple must not be legally separated or in the process of divorce, although in Quebec, sharing can still be requested during separation if allowed by a judge.

Calculating the Pension Split

Formula

Let’s assume that Alice and Bob lived together for 15 years. During those 15 years, Alice contributed to the CPP for 10 years, from age 30 to 40, and Bob contributed to the QPP for the full duration. The split of their pension benefits will be apportioned based on their contributions during their cohabitation period.

To express this mathematically:

Example:

Let’s calculate this using Alice’s contributions and benefits as a working example:

$$ \text{Alice’s Contribution Portion} = \frac{10}{10} \times \text{Alice’s Pension} $$ $$ \text{Bob’s Contribution Portion} = \frac{15}{15} \times \text{Bob’s Pension} $$

Both Alice and Bob will contribute according to the years when they have contributed during their joint cohabitation.

Benefits and Drawbacks

Benefits

• Financial Fairness: Ensuring that both parties receive fair financial credit for contributions during their time together.
• Simplicity: Provides a structured way to handle complex financial assets like pensions.
• Retirement Planning: Helps in better personal retirement and financial planning for each individual.

Drawbacks

• Legal Restrictions: Both the mutual agreement and legal eligibility constraints can sometimes make pension sharing difficult.
• Change of Financial Status: Introducing shared pensions might lead to changes in financial status that each party needs to manage.

Application Process

1. Contact CPP or QPP: Reach out to the relevant authorities indicating the intent to share the pension benefits.
2. Submit Required Forms: Complete and submit the CPP/QPP pension-sharing application forms.
3. Await Approval: The application will be reviewed, and both parties will receive a formal decision along with any altered pension figures.
4. Adherence to Decision: Post-approval, the pensions are split and received according to the cracked structure approved by the authorities.

Frequently Asked Questions (FAQs)

1. Can we stop sharing our pensions once we start?

Yes, either party can request to discontinue pension sharing if they no longer wish to share the pension benefits, subject to CPP/QPP regulations.

2. Do we need legal assistance to file for pension sharing?

While not mandatory, seeking professional consultation for proper financial planning is often advisable.

3. How does pension sharing affect other benefits?

Pension sharing largely affects the retirement benefits, but the share distribution might affect income tax liabilities.

Charts and Diagrams

Pension Sharing Process Flowchart

    graph TD
	   A(Start) --> B(Contact CPP/QPP)
	   B --> C(Submit Application Forms)
	   C --> D(Approval Process)
	   D --> E(Pensions Shared and Received)

Key Takeaways

• Eligibility for both individuals means mutual sharing: Both must be receiving or eligible for pensions to opt for sharing.
• Calculated Based on Living Together: The duration the spouses lived together significantly influences the pension share.
• Mutual agreement is essential: The sharing process mandates that both parties consent, except in specific cases in Quebec.
• Structured Approach Required: Approach must be methodical, coordinating with CPP/QPP and handling necessary paperwork.

Glossary

• Canada Pension Plan (CPP): A contributory, earnings-related social insurance programavailable for Canadian workers, which provides retirement pensions and other benefits.
• Quebec Pension Plan (QPP): It operates similarly to the CPP but is only for Quebec residents. Contributions are through Quebec and managed provincially.
• Pension Sharing: Refers to the division of retirement pension benefits between spouses while they are still living.
• Cohabitation Period: The duration where two parties lived together and contributed to the pensions.

This makes the process and essential considerations around sharing the Canada and Quebec Pension Plan benefits clearer and actionable for intending participants.