Forms pensions can take
Your
defined contribution pension plan is required to offer you certain forms of pensions. The may may also offer other forms as additional options.
Your plan
must provide all of the following:
* If the normal retirement age under the plan is 65.
Your plan
may provide:
Your plan has a form of pension that is the standard, default form. It is called the "normal pension". However, it is possible for you to take instead another form of pension. If you do, usually the amount of your 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 you have a
spouse, your plan may pay a 60% joint and survivor pension instead of the plan's normal pension.
Notethat...
With the exception of a temporary pension, all the pensions offered under your plan must be life pensions, that is, pensions that will be paid until you die.
Joint and survivor pension of at least 60% to provide protection for your spouse if you die
If you have a spouse, he or she will be entitled to a pension if you die. This form of pension is called a "joint and survivor pension". The amount of your spouse's pension will be at least 60% of the retirement pension that you were receiving when you died.
Usually, the qualifying spouse is the spouse you had when you retired. However, you plan may provide that the qualifying spouse is the spouse you had when you died.
Your spouse can renounce his or her entitlement to a pension.
A helpful example...
Suppose that your account balance could entitle you to a pension of $1000 a month that would not be a joint and survivor's pension. Since you have a spouse and he or she has not renounced a survivor's pension, your account balance will entitle you to a 60% joint and survivor pension of $900* a month for as long as you live. When you die, your spouse will be entitled to a pension of $540 a month (60% of $900).
If your spouse renounces her right to a survivor's pension before payment of your pension begins, you will be entitled to a pension of $1000 a month. However, when you die, your spouse not receive anything.
* This is a hypothetical amount. The actual amount would be based on actuarial assumptions that include interest rates, your sex and your age at the time the value of your benefits is calculated.
The rule requiring a joint and survivor pension of at least 60% also applies to a temporary pension during the period during which you receive it.
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 you die before the end of the guarantee period of 10 years. The payment may be made to your designated beneficiary or your heirs, in one or several payments, according to the provisions of your pension plan.
Your pension plan must offer a life pension with a 10-year guarantee, unless the pension to which you are entitled already has a guarantee of at least 10 years.
If your spouse has not renounced to a joint and survivor pension and you choose 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 that you receive a retirement pension of $1000 a month with a 10-year guarantee. If you die 3 years after payment of your pension begins, your designated beneficiary (or heirs) will receive a sum corresponding to 7 years of pension payments, that is, $84 000 ($1000 × 12 × 7).
Your spouse is not automatically entitled to the guaranteed payments. They are payable to your designated beneficiary (or heirs).
For example, suppose that your spouse renounces his or her right to a joint and survivor's pension and that you choose a pension with a 10-year guarantee. You have designated your children as beneficiaries. If you die 6 years after payment of your pension begins, your children (and not your spouse) will be entitled to a sum corresponding to 4 years of pension payments.
Temporary pension: an advance on your retirement pension
If you begin drawing your retirement pension within 10 years of the normal retirement age, you can also apply for a temporary pension.
A temporary pension will provide you with an additional income until age 65 (or before, if you so desire) regardless of the normal retirement age under the plan. However, since the temporary pension is an advance on your retirement savings, the pension payable to you as of age 65 will be reduced to take into account the early payment as well as to take into account the amount of temporary pension received.
Attention
...
The pension that you will receive from a public plan (Old Age Security and Québec Pension Plan) will partially offset the reduction of the retirement pension under your 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 your pension begins. Furthermore, you must not 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 that you are 58 years old and the your account balance would allow you to receive an early retirement pension of $12 000 a year. You apply for a temporary pension of $8000 a year for 2 years. Thus, you will have a yearly income of $18 716 at ages 58 and 59, that is, an adjusted amount of $10 716* for your early retirement pension plus $8000 for your temporary pension. As of age 60, the temporary pension will end and you will continue to receive an early retirement pension of $10 716* a year.
* This is a hypothetical amount. The actual amount would be
based on actuarial assumptions that include interest rates,
your sex and your age at the time the value of your 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 form of 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).
Notethat...
Your plan is not required to index your pension or to offer an indexed pension as an option. Consult the summary of your plan to find out whether or not your plan has indexation provisions.
The formula used for indexation cannot have the effect of reducing the the amount of your pension.
A helpful example...
Suppose that you are 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, your 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, your plan can offer other forms of guarantee, for example, a pension with a 5-year guarantee or a pension that ensures the reimbursement of your member 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 that you are single and receiving a life pension of $1000 a month. Suppose that the pension guarantees the reimbursement of your member contributions with interest, which are $12 000 (corresponding to 12 monthly pension payments). You will receive $1000 a month for life. However if you die after receiving only 8 payments, your designated beneficiary or your 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 your spouse if you die
In addition to a 60% joint and survivor pension, your plan may offer a joint and survivor pension with a rate less than or greater than 60%. If you want to choose option that is less than 60%, your 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 that you choose a life pension of $1000 a month that is a 50% joint and survivor pension and your spouse give his or her consent. You will receive a pension of $1000 a month until you die. Then, your 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 your spouse. Your plan may allow you to choose someone who is considered to be your spouse for income tax purposes under the
Income Tax Act but who is not your spouse for the purposes of your retirement pension (under the
Supplemental Pension Plans Act. If there is a person considered to be your spouse under your pension plan, he or she must renounce to a pension.
When consent must be given : 3 situations to aid your understanding ...
Suppose that you have a de facto (common law) spouse but are still married (or in a civil union) with another person, from whom you are de facto separated (i.e., without a judgment of separation). Your legal spouse (by marriage or by civil union) must renounce his or her pension for you to be able to designate your de facto spouse (common law) as the beneficiary of a joint and survivor pension.
Your are neither married nor in a civil union. You have been living in a conjugal relationship with another person for 2 years. That person is considered to be your spouse under the
Income Tax Act, but not under the
Supplemental Pension Plans Act. No renunciation is required for you to be able to designate the person with whom you have been living for 2 years as the beneficiary of a joint and survivor pension.
You are seperated from bed to board from someone and another person is your de facto (common law) spouse. In such a case, under the
Supplemental Pension Plans Act, the person from whom you are seperated from bed to board is not entitled to a joint and survivor pension as your spouse. Therefore, the person from whom you are legally separated does not have to renounce his or her pension for you to be able to choose a joint and survivor pension payable to your de facto (common law) spouse.
Joint and survivor pension reduced upon first death to provide another form of protection for your spouse if you die
Your plan can offer a pension whose amount is reduced following your death or the death of your spouse, regardless of which one of you 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, your spouse must give his or her consent.
A helpful example...
Suppose that you are receiving a 60% joint and survivor pension of $1000 a month that will be reduced upon the first death. If you spouse dies before you do, your own pension will be reduced to $600 a month for the rest of your life. If you die first, you spouse will receive $600 a month until he or she dies.
Generally, the qualifying survivor cannot be anyone but your spouse. Your plan may allow you to choose someone who is considered to be your spouse for income tax purposes under the
Income Tax Act but who is not your spouse for the purposes of your retirement pension (under the
Supplemental Pension Plans Act. If there is a person considered to be your spouse under your pension plan, he or she must renounce to a pension.