May 17, 2018 – Recently, CARP was asked to submit its comments on the federal government’s proposed changes to Canada’s Pension Plan (Division 19, Part 6). Specifically, the proposed changes are to increase CPP benefits payable to parents who have taken time out of the workforce to raise children.
In its submission, CARP encourages the government to revise how these increased benefits are calculated, recommending the use of a ‘drop out’ rather than a ‘drop in’ provision.
Addressing impaired earnings arising from child-rearing
Bill C-74 proposes that parents who take time off for child rearing nevertheless obtain credit for these years towards their ultimate CPP payout. This is to be accomplished by a drop-in provision (adding a credit for the average income earned in the five years prior to becoming the primary caregiver for a child under the age of seven). This method contrasts with the method used for base CPP calculations which allows CPP recipients to drop out below-average earnings where they were the primary caregiver for a child under the age of seven. This drop out provision effectively provides a credit equivalent to the average life-time earnings of the contributor.
Given that incomes generally increase as we age, for most parents, the drop-in provision will result in a lower credit than that which would be calculated through a drop-out provision. CARP encourages the government to use a drop-out provision, consistent with the calculation used for base CPP, to maximize the payout to those who have worked and taken time out to raise children.