Support for Your Family if You Die after Retirement
- February 18, 2019
- Posted by: olinsadmin
- Categories: Insurance Toronto, Medical Insurance Ontario, Retirement
If you have a spouse when you retire, and you are receiving a pension from the pension plan, he or she is automatically entitled to a death benefit that is paid in the form of a joint and survivor pension.
The only exceptions are if and your spouse complete a waiver of the joint and survivor pension, or you are separated from your spouse, before the date when your first pension payment is due.
Some pension plans may offer more than one option. Your actual options will depend on your specific situation and the terms of your pension plan.
Joint and Survivor Pensions
A joint and survivor pension will provide your spouse – if he or she is still living after your death – a pension for his or her lifetime that is at least 60 per cent of the monthly pension that was paid to you while you were alive. Your surviving spouse would also continue to receive these payments even if he or she later became the spouse of another person.
The dollar amount of your monthly pension may be reduced to fund the payments that will continue throughout both of your lifetimes. Keep in mind that if your spouse dies before you, your pension will continue to be paid at the reduced amount.
If you have the option of transferring the commuted value of your pension benefits out of your plan when your employment ends, and you want to purchase a life annuity, it must be at least a joint and 60 per cent survivor annuity if you have a spouse when the annuity payments begin. The only exception is if you and your spouse waive this right.
If Your Spousal Relationship Breaks Down After You Retire
Note that if your spousal relationship breaks down (e.g., you get divorced or separated) after you retire, the person who was your spouse when your first pension payment was due is still entitled to receive a survivor pension. This applies even if you later enter into a new spousal relationship. The only exception is if your former spouse waives this right as part of your divorce or separation settlement with him or her.
If your former spouse dies before you, and he or she is entitled to a survivor pension, your new spouse (if you have one) would not be entitled to receive a survivor pension—unless the terms of your pension plan allow this.
If You Do Not Have a Spouse
If you do not have a spouse when you retire, or if your spouse is not entitled to receive a survivor pension, the death benefit (if your plan provides one) that will be paid to your beneficiary when you die will depend on:
- the guarantee that is provided by the pension plan; or
- which options you selected at retirement.
Waiver of the Joint and Survivor Pension Benefit
If you and your spouse want to waive the joint and survivor pension benefit, you must provide the plan administrator a written waiver:
- FSCO’s Form 3: Waiver of Joint and Survivor Pension; or
- a certified copy of a domestic contract, such as a pre-nuptial or cohabitation agreement as defined by the Ontario Family Law Act.
It is important to know that the waiver under Form 3 or the domestic contract is effective only if it is delivered to the plan administrator within the 12 month period before your pension payments begin. This waiver can be jointly withdrawn up until the date your pension payments begin.
Before waiving the right to a joint and survivor pension benefit, both you and your spouse are encouraged to separately obtain independent legal and financial advice about your individual rights and the effect of the waiver.
The requirement for a joint and survivor pension does not apply if you and your spouse are not living together, due to a spousal relationship breakdown, on the date your first pension payment is due.
Payment of the Survivor Benefit
Your pension plan may decide to pay your surviving spouse the commuted value of the joint and survivor pension as a cash lump sum — instead of paying your spouse a survivor pension — if the criteria for the survivor pension small amount is satisfied. However, the cash lump sum payment option is only available if you are a retired member when you die and your plan’s terms provide this option. Otherwise, your spouse must receive the survivor benefit as a pension from your pension plan.
If your surviving spouse is entitled to receive the survivor benefit as a cash lump sum payment, he or she has the option to request that the pension plan pay the money directly into a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF). To make this arrangement, your surviving spouse must instruct the plan administrator to transfer the payment to a RRSP or RRIF within 90 days of receiving his or her option statement. If a payment option is not chosen within 90 days of receiving the option statement, the plan administrator must pay the survivor benefit as a pension from the pension plan.