Forms pensions can take
A defined contribution pension plan is required to offer certain forms of pensions. They may also offer other forms as additional options.
A plan must provide all of the following:
* If the normal retirement age under the plan is 65.
A plan may provide:
Normal form
A plan has a form of pension that is the standard, default form. It is called the "normal pension". However if the member has a spouse, the plan can pay a 60% joint and survivor pension instead of the plan's normal pension.
The amount of the pension that can be obtained with the balance of a member's account depends, among other factors, on the form of the pension. For example, for the same account balance, the amount of the pension will be less if it is an indexed pension than if it is not indexed.
Life pension
With the exception of a temporary pension, every pension offered under a plan must be a life pension, that is, a pension that will be paid until death.
Joint and survivor pension of at least 60% to provide protection for a member's surviving spouse
If a member dies, his or her spouse will receive a pension. This form of pension is called a "joint and survivor pension". The amount will be at least 60% of the retirement pension that the member was receiving when he or she died.
Generally, the entitled spouse is the member's spouse at the time of the member's retirement. However, if there is a conjugal breakdown after the member retires, that spouse usually loses his or her right to a pension.
The spouse can renounce his or her entitlement to receive the pension.
A helpful example...
Suppose that an account balance could entitle a member to a pension of $1000 a month that would not be a joint and survivor's pension. If the member has a spouse and he or she has not renounced a survivor's pension, the account balance will entitle the member to a 60% joint and survivor pension of $900* a month for as long as the member lives. When the member dies, his or her spouse will be entitled to a pension of $540 a month (60% of $900).
If the member's spouse renounces his or her right to a survivor's pension before payment of the member's pension begins, the member will be entitled to a pension of $1000 a month. However, when the member dies, the surviving spouse will not receive anything.
* This is a hypothetical amount. The actual amount would be based on actuarial assumptions that include interest rates, the member's sex and age at the time the value of the member's benefits is calculated.
In the case of a temporary pension
The spouse will receive at least 60% of the temporary pension for the remainder of the period during which the member would have received the temporary pension and will then receive a life pension corresponding to 60% or more of the members pension.
Pension with a 10-year guarantee to provide protection in the event of premature death
This form of pension has a guarantee of continued payment if the member dies before the end of the guarantee period of 10 years. The payment may be made to a designated beneficiary or to the member's heirs, in one or several payments, according to the provisions of the pension plan.
A pension plan must offer a life pension with a 10-year guarantee, unless the pension to which the member is entitled already has a guarantee of at least 10 years.
If the member's spouse has not renounced a joint and survivor pension and the member chooses a pension with a 10-year guarantee, that pension must also be a joint and survivor pension of at least 60%.
A helpful example...
Suppose a member is receiving a retirement pension of $1000 a month with a 10-year guarantee. If the member dies 3 years after payment of the pension begins, his or her designated beneficiary (or heirs) will receive a sum corresponding to 7 years of pension payments, that is, $84 000 ($1000 x 12 x 7).
Who benefits from the guarantee period?
A member's spouse is not automatically entitled to the guaranteed payments. They are payable to the member's designated beneficiary (or heirs).
For example, suppose a spouse renounces his or her right to a joint and survivor's pension and the member chooses a pension with a 10-year guarantee and designates his or her children as beneficiaries. If the member dies 6 years after payment of the pension begins, his or her children (and not the surviving spouse) will be entitled to a sum corresponding to 4 years of pension payments.
Temporary pension: an advance on your retirement pension
If a member begins drawing a retirement pension within 10 years of the normal retirement age, he or she can also apply for a temporary pension.
A temporary pension will provide the member with an additional income until age 65 (or before, if desired) regardless of the normal retirement age under the plan. However, since the pension received during this period is higher than the pension that the member's account balance would have otherwise allowed him or her to obtain, the pension paid after the temporary period ends will be reduced. Pensions paid by public plans (Old Age Security and the Québec Pension Plan) will partially offset the reduction.
The maximum yearly amount for a temporary pension
The yearly amount of a temporary pension cannot exceed 40% of the maximum pensionable earnings (MPE) under the Québec Pension Plan for the year in which payment of a pension begins. Furthermore, the member must not receive a temporary pension from any other pension plan or annuity contract. In 2024, a temporary pension cannot exceed $27 400.
An indexed pension increases periodically to offset in whole or in part increases in the cost of living
An indexation provision can be included in the normal pension or can be offered as an option. The pension increases periodically according to some set rate (for example, 3% a year) or according to an index (for example changes in the consumer price index).
A plan is not required to index a pension or to offer an indexed pension as an option. Members can consult the plan's summary of your plan to find out whether or not indexation is possible.
The formula used for indexation cannot have the effect of reducing the amount of the pension.
Pension with a guarantee other than 10 years to provide protection in the event of premature death
In addition to a pension with a 10-year guarantee, a plan can offer other forms of guarantee, for example, a pension with a 5-year guarantee or a pension that ensures a refund of a member's contributions with interest.
Such guarantees can be offered as a feature of the normal form of pension or as an options.
Joint and survivor pension with a rate other than 60% to provide protection for a member's surviving spouse
In addition to a 60% joint and survivor pension, a plan may offer a joint and survivor pension with a rate less than or greater than 60%. If a member wants to choose an option that is less than 60%, the member's spouse must give his or her consent. The pension may be the normal form or a form offered as an option.
A helpful example...
Suppose a member chooses a life pension of $1000 a month that is a 50% joint and survivor pension and the member's spouse gives his or her consent. The member will receive a pension of $1000 a month until he or she dies. Then, the spouse will receive a pension of $500 a month for the rest of his or her life.
Generally, the entitled survivor cannot be anyone but the member's spouse. A plan may allow a member to choose someone who is considered to be a spouse for income tax purposes under the Income Tax Act but who is not a spouse for the purposes of the member's retirement pension (under the Supplemental Pension Plans Act). If there is a person considered to be the member's spouse under the pension plan, he or she must renounce the surviving spouse's pension.
Joint and survivor pension reduced upon first death to provide another form of protection for a member's surviving spouse
A plan can offer a pension whose amount is reduced following the member's death or the death of the member's spouse, regardless of which one of them dies first. Unlike most of the other pensions, a joint and survivor pension reduced upon first death cannot be a normal form of pension. It can only be offered as an option.
If the pension is less than a 60% joint and survivor pension, the member's spouse must give his or her consent.
A helpful example...
Suppose a member is receiving a 60% joint and survivor pension of $1000 a month that will be reduced upon the first death. If the member's spouse dies, the member's pension will be reduced to $600 a month for the rest of his or her life. If the member dies first, the surviving spouse will receive $600 a month until he or she dies.
Generally, the qualifying survivor cannot be anyone but the member's spouse. A plan may allow a member to choose someone who is considered to be the member's spouse for income tax purposes under the Income Tax Act but who is not the member's spouse for the purposes of the member's retirement pension (under the Supplemental Pension Plans Act). If there is a person considered to be the member's spouse under the pension plan, he or she must renounce the surviving spouse's pension.