CPP Child Rearing Dropout-The Good
The Child Rearing Dropout (CRDO) provision of the Canada Pension Plan (CPP) isn’t an actual benefit paid on its own, but it is an important provision nonetheless. The CRDO provision is generally helpful, but the actual impacts of it aren’t always fair. This article is the first of a three part series on the Good, the Bad and the Ugly aspects of the CRDO provision.
1. The CRDO can help someone meet the eligibility criteria for disability or survivor benefits (the Good), and it can also increase the amount of these benefits and increase the amount of retirement pensions (also the Good).
2. The legislative provisions governing the CRDO have some flaws and weaknesses that result in some gender inequities (the Bad) and it generally doesn’t work well if both parents share the child-rearing responsibilities (also the Bad).
3. In combination with another feature of the CPP known as the Division of Unadjusted Pensionable Earnings (DUPE) provisions, the CRDO often results in a significant net loss of benefits to the “couple” (the downright Ugly).
Who is eligible for the CRDO and when does it apply?
Service Canada will tell you that the Child Rearing Dropout can be claimed by whichever parent was the “primary caregiver” for a child under the age of seven. I’ll explain in Part II (The Bad) why that isn’t always the case, but for now let’s pretend that’s the truth and let’s call that person the qualified parent.
The CRDO is intended to apply when a qualified parent stays home or works only part-time while raising a child under the age of seven. I’ll explain in Part III (The Ugly) why that isn’t always the case, but for now let’s pretend that’s the truth.
The period of CRDO eligibility starts with the month following the birth of the child, and ends with the month that the child turns seven. If you have more than one child and the children are born less than seven years apart, the period of eligibility starts the month following the birth of the oldest child and ends the month that the youngest child turns seven.
For example, if you had three children born July 1970, April 1973 and May 1976, the period of CRDO eligibility would start August 1970 and end May 1983.
The CRDO is not automatic. The qualified parent must complete a separate form (ISP 1640) when applying for a CPP benefit.
If you are eligible for the CRDO and did not complete this form when you applied for your CPP benefit, it can be submitted later. It is fully retroactive.
How does the CRDO work?
The Child Rearing Dropout is actually a two-step process. The first step (I’ll call this CRDO 1), allows a qualified parent to exclude any years from their contributory period where their earnings were less than the Years’s Basic Exemption (generally $3,500). By excluding these years from their contributory period, CRDO 1 can help someone meet the eligibility criteria for disability and survivor benefits. It will also increase the amount of those benefits and increase the amount of their retirement pension.
The second step (I’ll call this CRDO 2) allows a qualified parent to increase the amount of their CPP benefits by dropping out periods of time where their earnings were less than their “average lifetime earnings.” You may want to check out an earlier article that I wrote on how to calculate your CPP retirement pension to learn more about what your average lifetime earnings means, and how dropouts work.
Now let’s look at a couple of examples that demonstrate how the Child Rearing Dropout works.
Nancy worked part-time while attending university, and then full time for 10 years after she graduated. She then had a daughter and stayed home to look after her until the child started school. At that time she got a part-time job, but was permanently disabled two years later.
Without the CRDO, Nancy would have been denied a CPP disability benefit, because she would not have met the requirement of having made contributions in four of the last six years in her contributory period. However, under CRDO 1, she does meet the requirement because she can exclude the five years that she stayed home to look after her daughter. Furthermore, when her CPP disability benefit is calculated, she can drop out the last two years of part-time earnings under CRDO 2 and thereby increase the amount of her disability benefit.
Susan worked full time for a couple of years after completing high school, and then had two children, born June 1969 and December 1972. She worked part-time until the second child turned seven, and then went back to work full time and earned more than the Year’s Maximum Pensionable Earnings every year until she turned age 60, at which point she retired.
Without the Child Rearing Dropout, Susan’s CPP retirement pension at age 65 would be significantly affected by the 10.5 years of part-time earnings that she had while raising her children, because the general dropout would allow her to drop out only the five years of zero earnings after age 60, plus three of the lowest years of part-time earnings. By dropping out all of those 10.5 years under CRDO 2, however, and by using the general dropout to drop out the five years of zero earnings after age 60, Susan can receive a maximum CPP retirement pension.