Understanding Your Pension Options
When you retire with a defined benefit plan you can choose from a selection of pension options including normal, guaranteed term, single life or joint life pension. All pensions are paid for your lifetime, and are based on the same actuarial value. The monthly payments vary because of the differences in the optional features.
A normal pension is the basic pension offered under your plan and is guaranteed for your lifetime. Typically, plans provide members with a five or ten-year guarantee for your pension. If you die before the guaranteed term is over, the pension will be paid to your beneficiary for the remainder of the term. If you do not have a beneficiary, your estate will receive a one-time payment equivalent to the value of the remaining term.
Guaranteed term pensions
You can choose a pension guaranteed for either five, ten or fifteen years. Guaranteed term pensions are paid for your lifetime. If you die before your guaranteed term of five, ten or fifteen years has expired, your pension is paid to your beneficiary for the remainder of the term.
For example, if you choose a ten-year guaranteed term pension and die four years later, the pension will be paid to your beneficiary for the remaining six years. Your beneficiary may apply to have the remainder paid out as a one-time payment. If you outlive the guaranteed term, the pension will continue to be paid until your death.
Joint life pension
A joint life pension is paid as long as either you or your spouse continues to live. If you choose a joint life not-reduced pension, on your death or your spouse’s death, the survivor will be paid the same amount you were paid for as long as the survivor lives. If you choose a joint life reduced-by-one-third pension, the pension paid to the survivor will be reduced by one-third after your death or the death of your nominee.
Joint life pensions can typically be guaranteed for a five or ten-year term. This means if both you and your nominee die before the guaranteed term is over, the pension will be paid to your beneficiary or estate for the remaining years. Your beneficiary may apply to have the remainder paid out as a one-time payment. The amount of monthly payment is tied to your age, and the age and gender of your nominee.
Single life pension
A single life pension is paid for your lifetime only and stops at the time of your death, regardless of the number of payments made. If you have a pension partner when your pension starts, you must choose a joint life pension, unless your pension partner signs a pension partner waiver form giving up their right to require you to select a joint life pension, meaning your pension partner gives up his or her entitlement.
Pension partner protection
If you have a pension partner when you begin your pension, you must choose a joint life pension with your pension partner as your nominee, which guarantees an income for that individual in the event of your death. You can choose either a joint life not-reduced or a joint life reduced-by-one-third pension, each typically has a five or ten-year guaranteed term.
It is also important to understand who qualifies as a pension partner, how he or she can waive his or her rights to this pension partner protection, and other factors that might affect your choice.
Weighing Your Pension Options
Before choosing one of these pension options, you should consider your needs as well as the needs of your pension partner and other concerns such as the state of your health, personal savings, family circumstances, life insurance, Canada Pension Plan and Old Age Security benefits.
Discuss your pension options with your Human Resources office or your pension administrator to help you make the best decision.