Forms pensions can take
A defined benefit pension plan is required to offer certain forms of pensions. The plan 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.
Your 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, it is possible for a member to take instead another form of pension. In that case, usually the amount of the pension will have to be changed so that the value of the pension in its alternate form will be the same as the value of the normal pension.
If the member has a spouse, the plan may pay a 60% joint and survivor pension instead of the plan's normal pension.
Life pension
With the exception of a temporary pension, all the pensions offered under a plan must be life pensions, that is, pensions that will be paid until death.
Joint and survivor pension of at least 60% to provide protection for a member's surviving spouse
If the member has a spouse, he or she will be entitled to a pension if the member dies. This form of pension is called a "joint and survivor pension". The amount of the surviving spouse's pension will be at least 60% of the retirement pension that the member was receiving when he or she died.
Usually, the qualifying spouse is the spouse the member had when he or she retired. However, if a conjugal breakdown occurs during the member's retirement, the spouse when the member retired generally loses his or her entitlement.
However, a plan may provide that the qualifying spouse is the spouse the member had when he or she died.
A member's spouse can renounce his or her right to receive a pension.
If a member receives a joint and survivor pension, his or her own pension may be reduced to take survivorship rights into account.
A helpful example...
Suppose a member is entitled to a pension of $1000 a month that would not be a joint and survivor's pension. Since the member has a spouse and he or she has not renounced a survivor's pension, the member will be entitled to a 60% joint and survivor pension of $900* a month for as long as he or she lives. When the member dies, his or her spouse will be entitled to a survivor's pension of $540 a month (60% of $900).
If the spouse renounces 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, his or her surviving spouse will not receive anything.
* This amount is given for illustrative purposes. 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 or a bridging pension
The spouse will receive at least 60% of the temporary pension or bridging pension for the remainder of the period for which the member would have received it and then at least 60% of the member's life pension until the spouse dies.
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 begin drawings 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 him or her with an additional income until age 65 (or before, if desired) regardless of the normal retirement age under the plan. However, since the temporary pension is an advance on retirement savings, the pension payable will be reduced to take into account the early payment as well as to take into account the amount of temporary pension received.The pension that the member will receive from a public plan (Old Age Security and Québec Pension Plan) will partially offset the reduction of the retirement pension under the member's pension plan.
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 member's pension begins. Furthermore, a member cannot receive a temporary pension from any other pension plan or annuity contract. In 2024, a temporary pension cannot exceed $27 400.
A helpful example...
Suppose a member is 58 years old and is entitled to an early retirement pension of $12 000 a year. He or she applies for a temporary pension of $8000 a year for 2 years. Thus, the member will have a yearly income of $18 716 at ages 58 and 59, that is, an ajdusted amount of $10 716* for an early retirement pension plus $8000 for a temporary pension. As of age 60, the temporary pension will end and the member will continue to receive an early retirement pension of $10 716* a year.
* This amount is given for illustrative purposes. 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.
Indexed pension: a pension with periodic increases to offset in whole or in part increases in the cost of living
The normal pension may be indexed or indexation may be offered as an option. An indexed pension increases periodically, either according to a fixed rate (for example, 3% a year) or based on an index (for example, the consumer price index).
A plan is not required to index a pension or to offer an indexed pension as an option. The member can consult the plan summary to find out whether or not the plan has indexation provisions.
The formula used for indexation cannot have the effect of reducing the amount of the pension.
A helpful example...
Suppose a member is receiving a life pension of $1000 a month and the pension is indexed annually to the IPC less 3%. Suppose that the IPC is 3% the first year, 4% the second year and 2% the third year. The first year, the pension would remain at $1000, the second year it would increase to $1010 and the third year, it would continue without change at $1010.
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 the 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.
A helpful example...
Suppose a member is single and receiving a life pension of $1000 a month. Suppose that the pension guarantees the refund of the member's contributions with interest, which amount to $12 000 (corresponding to 12 monthly pension payments). The member will receive $1000 a month for life. However if the member dies after receiving only 8 payments, the designated beneficiary or heirs will receive an amount corresponding to 4 monthly payments (4 x $1000).
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 the 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 his or her spouse gives 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 qualifying survivor cannot be anyone but the member's spouse. A plan may allow the member to choose someone who is considered to be his or her spouse for income tax purposes under the Income Tax Act but who is not a spouse for the purposes of your 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 survivor's pension .
When consent or renunciation must be given : 3 situations to aid your understanding ...
- Suppose a member has a de facto (common law) spouse but is still married (or in a civil union) with another person, from whom the member is de facto separated (i.e., without a judgment of separation). The legal spouse (by marriage or by civil union) must renounce his or her pension for the member to be able to designate his or her de facto (common law) spouse as the beneficiary of a joint and survivor pension.
- A member is neither married nor in a civil union. He or she has been living in a conjugal relationship with another person for 2 years. That person is considered to be the member's spouse under the Income Tax Act, but not under the Supplemental Pension Plans Act. No renunciation is required for the member to be able to designate the person with whom he or she has been living for 2 years as the beneficiary of a joint and survivor pension.
- The member is seperated from bed to board from someone and another person is the member's de facto (common law) spouse. In such a case, under the Supplemental Pension Plans Act, the person from whom the member is seperated from bed to board is not entitled to a joint and survivor pension. Therefore, the person from whom the member is seperated from bed to board does not have to renounce his or her pension for the member to be able to choose a joint and survivor pension payable to the member's de facto (common law) spouse.
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.