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| Pension Survivor benefits are Important By Louis Erlichman Canadian Research Director |
| Even though the majority of Canadian families now have more than one income-earner, it is still a financial blow when a working member of the family dies. Life insurance can provide a lump sum to compensate, at least in the short term, for the loss of income. For union members, group life coverage is the most common benefit provided in collective agreements. Survivor benefits from pension plans also provide an important source of income protection. CPP/QPP In the public pension system, the Canada and Quebec Pension Plans provide both a lump sum death benefit and a range of survivor benefits. To qualify for these benefits, the deceased contributor had to have contributed to the CPP or QPP for 10 years, or at least 3 years and one third of his/her life after age 18. The death benefit, a lump sum equal to six months worth of earned benefits, to a maximum of $2,500, is paid the estate of the deceased. If someone already retired and receiving a CPP or QPP retirement benefit dies, his/her surviving spouse is eligible for a lifetime survivor’s pension with a benefit which is 60% of the retirement benefit received by the deceased person, indexed to the cost of living. The maximum post-retirement survivor benefit in 2001 is $465.00 per month. If someone who has contributed to the Canada or Quebec Pension Plans dies before retirement, the right to survivor benefits depends on a variety of circumstances. First, the deceased must have met the same contributory conditions as for the death benefit. For the CPP, if the surviving spouse is over 45, or is disabled, or is caring for a dependent child of the deceased, he/she is eligible for a lifetime pension based on a flat amount ($138.07/month in 2001) and 37.5% of the benefit earned by the deceased. The maximum CPP pre-retirement survivor benefit in 2001 is $428.70/month. Each surviving child under age 18, or 18-25 and a full-time student, is also eligible for a monthly benefit ($178.42/month in 2001). If the surviving spouse is under 35 at the time of the death of the plan member, the survivor benefit is terminated when there are no more dependent children, or the survivor ceases to be disabled. If the surviving spouse is under 35 at the time of death, without dependent children, and not disabled, he/she is not eligible for a CPP survivor benefit. If the survivor is between 35 and 45, he/she is eligible for a reduced lifetime survivor benefit. For the QPP, a surviving spouse under age 45 at the time of death, without dependent children, is eligible for a lifetime monthly benefit based on a flat amount ($90.63/month in 2001) and 37.5% of the earned retirement benefit (maximum survivor benefit of $$381.26/month in 2001). If the spouse is under 45, with dependent children, they are entitled to a higher flat benefit (maximum survivor pension $619.17/month in 2001). If the spouse is 45-54, or under 45 and disabled, the flat benefit is slightly higher (maximum survivor pension $644.47/month in 2001). If the surviving spouse is 55-65, the benefit is higher still (maximum survivor pension $690.22/month in 2001). These benefits are all indexed annually to the cost of living. For both CPP and QPP, it is necessary to apply to receive survivor benefits. If the survivor is also receiving a CPP or QPP retirement or disability pension, there are also overall limits on the amount of combined pension payable. PRIVATE (EMPLOYMENT-BASED) PLANS If a member of an employment based pension plan dies, his survivors may also be eligible for survivor benefits. Survivor benefit provisions are laid out in pension plan rules and regulations, but are subject to legislated requirements of the federal Income Tax Act and the various pension benefit standards laws. The Income Tax Act provides that a Registered Pension Plan cannot provide a standard retirement benefit of more than 66 2/3% of the retirement pension, though a higher survivor benefit can be available as an option. For standards legislation covering pension plans, there are 11 different jurisdictions (10 provinces + federal) in Canada. While all of the pension laws are broadly similar, there are considerable differences among the legislated minimum requirements for survivor benefits. All jurisdictions require that a retirement pension be paid in a form that provides a post-retirement survivor benefit of at least 60% (66 2/3% in Manitoba), unless the spouse signs a written waiver. In most plans, the survivor benefit option involves a reduction in the amount of retirement benefit payable, depending on the relative ages of the retiring plan member and the spouse. In deciding what benefit options to select at retirement, it is important to calculate as concretely as possible the complete income situation (including public pensions, life insurance, private savings, other pensions or income, and tax implications) for the surviving spouse as well as long-term needs (ages of dependent children, etc.) in the event of death. For pre-retirement survivor benefits, the minimum legislated requirements vary widely among jurisdictions. In most cases, there are no survivor benefit requirements (beyond the return of member contributions plus interest) for benefits earned before the most recent round of major legislative amendments (from pre-1987 to pre-1997). For more recently-earned benefits, plans are generally required to provide a benefit to the surviving spouse at least equivalent to the value of the earned benefits [only 60% of the value in B.C., Alberta (up to 2000), New Brunswick, Nova Scotia and P.E.I. – P.E.I.’s pension legislation has yet to be proclaimed into force]. In some cases, plans provide the survivor with a retirement pension. In some jurisdictions, these survivor benefits are required to be locked-in and can only be taken in an annuity form. In other jurisdictions, there is no lock in requirement and the survivor benefit may be taken as cash. Look at your pension plan and the relevant legislation to see what the survivor benefit provisions say. Survivor benefits from both public and private pensions can be a significant source of income protection for families. It is important to be aware of what is available, and to take it into account in our financial planning, before it becomes too late to do anything about it. |
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