While the Canada Pension Plan’s total assets now stand at $70.5 billion, this amount may include as much as $1 billion in cumulative underpayments to Canadians. That was the conclusion of a report published recently by Canada’s Association for 50-Plus, and the Retirement Planning Institute, or RPI.
Between October 2000 and September 2004, 4,000 pensioners asked the RPI to audit their households’ CPP and Quebec Pension Plan benefit entitlements. Errors were found in 609 audits, or 15 percent of those conducted.
If that error rate holds true for all two million households now receiving CPP benefits, CPP may be on the hook for as much as $1 billion in underpayments.
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CPP has already processed adjustments amounting to $1.3 million for 480 cases out of the 609 found in error. The adjustments have averaged $2,800. In a few cases, the settlements were greater than $20,000, and in one the payout amounted to $55,000.
Almost 500 of the audits were conducted on behalf of QPP contributors but, interestingly, no errors were found in those audits.
About 90 percent of the CPP errors resulted from filing errors and omissions made by the pensioners or failure to complete
an application.
Many of the errors were related to the child rearing dropout provision, or CRD, which allows a parent to drop out of the workforce for seven years in order to raise a child. Those seven years are treated as if the parent was still in the work-force and continuing to make normal CPP contributions.
However, a problem occurs if the parent isn’t aware of the provision or doesn’t apply for it. That’s what happened in about 60 percent of the underpayment cases. Because family allowance records for all provinces except Quebec were destroyed in 1999 for children born before 1992, the government cannot automatically conduct CRD calculations for affected applicants.
Another 30 percent of the calculation errors were connected to contribution credits that were not split after a separation or divorce. The lower income spouse generally benefits from this provision.
Once again, however, spouses must formally apply for the benefit, and if they don’t know about it, the benefit is lost. In the remaining 10 percent of errors, the correct information was supplied but the CPP administration made errors in determining the level of benefit due to the pensioner.
Canada’s Association for 50-Plus believes that simplifying the application and process form would eliminate many problems.
Unlike the QPP application form, the CPP form does not include the CRD provision in the body of the application. The association also thinks that CPP staff should be better trained and more “senior friendly” to assist with the completion of application forms.
