I was recently asked by a client who is getting ready for retirement if there was any way she could optimize her CPP to take into account the years she was raising her children. If you have children born after December 31, 1958, you may qualify to increase your Canada Pension Plan benefit through the child-rearing drop-out provision.
For more information on the Canada Pension Plan (CPP) click here.
Why would caring for my children reduce my CPP?
Simply put, your CPP is calculated based on how long you contributed and how much you contributed. In 1983, it was recognized that parents who left the workforce to care for children under the age of 7 were being penalized. To address this the Child Rearing Drop out provision was put into place.
If you took time off of work or worked less in order to care for young children then you may be able to increase your CPP entitlement using this provision.
Do I qualify for the Child Rearing Drop Out provision (CRDO)?
Child-rearing provisions may apply if:
- you had children born after December 31, 1958
- you had lower earnings because you were the *primary caregiver of a dependent child under the age of 7
- You or your spouse or common-law partner received Family Allowance payments or qualified for the Canada Child Benefit (even if you did not receive the benefit)
*The primary caregiver is the person who was most responsible for the day-to-day needs of the children for the specified period
(text pulled from CRA Website)
How does it work?
If you qualify, the months during which you had lower or no income due to raising your young children will not be included in calculating your CPP benefit. Instead, you will be given pension credits based on the 5 years’ earnings prior to the birth or adoption of your child.
Do I need to apply for CRDO?
Yes, the CRDO is not automatically calculated for you. You will need to apply for CRDO through your My Service Canada Account. The documents required include:
- Completing the child-rearing sections 11A and B in your CPP application
- If you’re already on CPP you can use this form to apply retroactively.
If you need further assistance in understanding this provision or making your application you can contact us to book a call.