Where does your income come if you’re faced with a disability? In this episode we explore long-term options including Canada Pension Plan – Disability (CCP-D), provincial disability plans, ODSP, and Long-term disability insurance.
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Text Transcript of Episode
Hello and welcome back to Simple Money Podcast, Canada’s own personal finance podcast that covers those personal finance questions that are important to you and your family. I’m your host, Matthew Siwiec, also known as the friendly financial coach.
Today we continue our discussion about streams of income that are available to those disabled. Last week we discussed options available for short-term disabilities, but what happens during long-term situations? The most commonly used income support for long-term disabilities are the Canadian Pension Plan Disability components – also known as CPP-D, provincial disability support programs, and long-term disability insurance.
Unfortunately, all disabilities are uniquely challenging and greatly affect a ones living standards. Words cannot express the daily challenges that are confronted.
Canadian Pension Plan – Disability
So the first income source that we’ll cover is first-up is the CPP-D program. This option offers income support to those that have paid into CPP for a specific period of time. The current maximum amount paid under this program is $1,362.30, but the average is much less at $955.43. This amount is ALSO fully subject to income taxes, so the amount received is less than stated. It is also adjusted annually for inflation.
To qualify, the individual applying must suffer from what is defined as a severe and prolonged physical or mental disability that prevents one from regular work. The individual must have also been contributing to the CPP in 4 of the past 6 years or 3 of the last 6 if you have contributed for over 25 years.
The amount paid is a flat amount of $485 plus 75% of the amount that would have been paid if they had reached 65 in the month when their disability pension became payable. This amount is paid until the individual turns 65 or if they pass away.
An additional child benefit is available if the recipient has a child under 18 or a child that is 18 to 25 and attending a post-secondary institution fulltime. This max monthly benefit under this program is $250.27 but average of $244.64. If a child is under 18 then the amount will be paid to a guardian and will be paid directly to the child if they are 18 to 25.
Provincial Disability Programs and Ontario Disability Support Program
The next option that is available are provincial disability programs. The design of these programs are different across the country but they have many similar features. This includes maximum payment amounts, qualifying criteria, and other rules. The mobility of the plans are limited and usually require a disabled individual to be reapproved if they move to a different province – which obviously can present some serious barriers.
Typical features of these programs are that you have to have a qualifying permanent disability that meets the provincial program’s requirements. Your household’s income needs to be under a threshold and certain total assets would have to be under a set amount.
Often these programs will also offer medical drug benefits, employment supports, and other benefits.
The unfortunate reality about many of these programs is that the income from these programs is typically capped at a fairly low limit. This is tied to the controversial pre-existing belief that having a large enough disability income will be comfortable for the recipient and not encourage them to leave the program. Usually within a province, the benefit payments are typically static, so certain population centres with high living costs can easily force a recipient into reoccurring poverty. Employment earnings are also aggressively clawed back, making it even more challenging to pull oneself out of a situation. To give a real demonstration of a program, we’ll focus on ODSP or Ontario Disability Support Program. ODSP is an available benefit to those that are over 18 and a resident of Ontario. Households must also have financial needs and meet the provincial definition of being disabled.
The maximum amount that is paid under this plan varies heavily on needs, household size, and living arrangements. The payment is comprised of two components – income support and shelter payment. For example, a single person would receive up to $672 in income support and $497 in shelter support – adding to $1,169. Couples with a single disabled spouse and no children can receive up to $1,750.
Additional funds are often provided to those in remote regions.
This payment amount is then clawed back if there is income coming in – unless they are a full-time or income from a youth. How this claw back works is very aggressive. Recipients can earn up to $200 a month and then every dollar after that is clawed back at a 50% rate. This process is however scheduled to change in January of 2020. The new rules will allow recipients to earn $6,000 a year and then any additional income is clawed back at 75%
And it’s very important for us to talk about this a little more. Unfortunately, what we often see is that it’s very common for an individual’s living expenses to be much higher than their income. Like in Toronto where the average cost of a single-bedroom is over $2,000 a month now. The typical solution to this is that you would work more hours to make up the difference, however in this case these earnings are aggressively clawed back essentially keeping the person in poverty. This can translate to an individual earning half of minimum wage or $7 an hour. Under the new rules, this would then turn to $3.50 an hour
Those on ODSP are also restricted with the types of assets that they can own limited to $40,000 or 50,000. Certain assets like primary residence and first vehicle are exempt, however other assets like savings, mutual funds, and more are included.
To qualify under ODSP, one must meet the definition of being disabled or be a member of a prescribed class
The definition is pretty extensive, you have a substantial mental or physical impairment that is continuous or recurrent, and is expected to last one year or more and your impairment directly results in a substantial restriction in your ability to work, care for yourself, or take part in community life and your impairment, its duration and restrictions have been verified by an approved health care professional
There are current discussions to change this definition to the Federal definition that is typically considered to be more challenging to be approved for and is quite controversial.
Applicable paperwork will need to be completed by a medical professional
Long-term Disability Insurance
Finally we have long-term disability insurance and this can be provided either through work or a private plan. The basic idea with this insurance is that once short-term disability insurance ends, one is then able to receive long-term coverage.
The payment under this plan is a percentage of a stated earnings – usually around 50 to 70% of one’s salary and will last for a stated time period or go on indefinitely. Approval conditions of the payout will also be determined by the insurance contract. This process can differ from provider to provider and certain exclusions may exist like pre-existing conditions. So it’s always a great idea to know the details of your policy and if it can offer full coverage.
So that’s it for now – join us next week as we look at tax savings and other tricks for those that suffer from disabilities.
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