Transfer of Pension Benefits

 

Transfer of Pension Benefits

If your spouse passed away and was a member of a pension plan, you will be entitled to benefits. What you can receive depends on the type and terms of the pension.

Defined Contribution Plan

This is the type of pension plan where the amounts being contributed each year are known but the amount being paid out on retirement depends on the growth of the money contributed over time. At retirement the member’s portion of the pension will usually be paid out through a life annuity provided by an insurance company that guarantees set payments for the beneficiary’s life.

The amount of pension you will receive depends on whether your spouse died before or after they started receiving their pension:

a. Death before pension payments began. If your spouse died before he/she started receiving their pension then you can choose to receive the pension in any form that they would have been entitled to, for example, a monthly pension guaranteed for 15 years. Alternatively, if you are less than 71 years of age you may be allowed to receive the pension benefits as a lump sum. You could choose to transfer the lump sum to an RRSP on a tax-free basis. The lump sum value received today instead of an ongoing regular payment is called the ‘commuted value’.

b. Death after the start of the pension. Some jurisdictions require a pension to be joint and last survivor with the widow/widower being the remaining beneficiary. In this case, the pension will continue to be paid to the surviving spouse for their lifetime but at a reduced amount, perhaps 60%.

Some plans will permit a lump sum amount to be paid to the widow/widower. If he or she is less than 71 the lump sum can be transferred to an RRSP on a tax-sheltered basis.

 

Defined Pension Benefit Plan

This is the type of plan where a formula outlines how much you will be paid at retirement.As with Defined Contribution plans, the benefit received by the widow/widower depends on if the death occurred before or after the pension payments begin.

a. Death before pension payments begin. Two options may be available. The commuted value (present value of what the pension would have been at normal retirement date) of your spouse’s pension at the time of death can be paid to you. You can choose to transfer the commuted value to a tax-sheltered plan such as an RRSP or RRIF. Or, instead, the plan may allow you to start receiving an immediate, ongoing pension at a maximum amount of 2/3 of your spouse’s pension. Barbara Reid’s Wealth Management Team RBC Dominion Securities Inc.

b. Death after the pension begins. In this case you can choose to receive an ongoing pension that will not exceed 2/3 of the pension paid to your spouse.