HOW YOUR PENSION WILL BE PAID

Federal pension legislation has a direct effect on how your pension is paid to you. If you have a spouse at the time of your retirement, you must choose a form of pension that will continue to be paid to him/her in the event that you die first. This is called the mandatory form of pension (see exceptions in Section B. on this page).

If you do not have a spouse, your pension will be paid to you in one of the optional forms described below.

A. NORMAL FORM OF PENSION

Monthly pension benefits will be payable commencing on your retirement date. The pension consists of a joint and last survivor annuity reducing to 60 per cent on the death of the member and features a guarantee period of five years.

Under this form of payment, you will receive a monthly income as long as you live. Should you predecease your spouse, the payments will continue to him/her at the full amount until the end of the guarantee period, at which time, they will reduce to 60 per cent and continue for the spouse’s lifetime. When both you and your spouse are deceased, payments cease.

In the event that both you and your spouse die within the five-year guarantee period, the payments will continue to your designated beneficiary or estate until the end of the guarantee period.

B. MANDATORY FORM OF PENSION

The federal Pension Benefits Standards Act requires that members with a spouse receive a pension in a form that will continue at a chosen percentage for the spouse’s lifetime on the member’s death.

The law requires that, if you have a spouse, you must take a reduced pension that will continue at a minimum level of 60 per cent on the death of either you or your spouse. If you wish, you can provide a pension income greater than 60 per cent to your spouse (payments of up to 100 per cent are possible), but you cannot provide less.

The only exceptions to this rule are:

1. if you do not have a spouse; or

2. your spouse agrees to waive his or her rights to a survivor pension. This can only be done by your spouse completing a special spousal waiver form that is available from the plan administrator. All spousal waivers must be notarized and bear an official seal. Please refer to page 75 for more information Definition of spouse

For the purposes of the plan, a spouse means a person to whom you are legally married, or if you are not legally married, a common-law spouse means a person who has lived with you for at least one year and whom you have publicly represented as being your spouse.

C. OTHER OPTIONAL FORMS OF PENSION

In cases where the mandatory form of pension does not apply, the plan provides for other optional forms of pension. These include either a life annuity or a life income fund (LIF):

Life annuities

1. Single life annuity with no guaranteed period

Under this form of payment, you will receive a monthly income for as long as you live. The monthly income will cease upon your death. No death benefits are payable to a spouse,

2. Single life annuity with a minimum guaranteed period This form of pension pays a monthly income for as long as you live. Should you die before a specified number of payments have been made (usually five, 10 or 15 years), the balance of the payments will continue to a named beneficiary or to your estate.

Since there is a guarantee that payments will be made for a specified period, the amount of pension income you will receive is less than the life annuity only option.

Example:

If you choose a life annuity with a 10-year guarantee, you will receive a monthly payment as long as you live, with the provision that if you were to die before receiving 120 monthly payments, your named beneficiary or estate will continue to receive the balance of your monthly payments until a total of 120 payments have been made. As an alternative to the continuation of monthly instalments, the present value of the remaining payments may be paid in a lump sum. Once this provision has been met, no further payment will be made.

3. Joint and last survivor annuity

Under this arrangement, you will receive a monthly income as long as you live. Should you predecease the joint annuitant (your spouse), payments will continue to your spouse at the chosen percentage for the spouse’s lifetime. When both you and your spouse are deceased, payments cease.

Your plan will offer a variety of survivor benefits. The most common are 50, 60, 66 2/3, 75 or 100 per cent of the amount payable immediately prior to your death.

4. Joint and last survivor annuity with a guaranteed payment period

spouse, payments will continue to your spouse at the full amount until the end of the chosen guarantee period, at which time, they will reduce based on the level of survivor benefit chosen and continue for the spouse’s lifetime. When both you and your spouse are deceased, payments cease.

In the event that both you and your spouse die within the guarantee period, the payments will continue to your designated beneficiary or estate until the end of the chosen guarantee period.

As there is a provision for payments to continue to a joint survivor for life as well, the amount of pension income you will receive under Option 3 or 4 is less than the single life annuity with or without a guarantee period. This type of annuity can help married couples with their retirement planning.

Life income fund (LIF)

A LIF is an alternative to a life annuity. LIFs provide increased flexibility by enabling individuals to defer the purchase of an annuity to the end of the year in which they turn 80 years of age.

The 2005 Federal Budget proposes to eliminate the requirement to convert federally regulated pension funds held in a LIF to an annuity at age 80. These changes will be reflected in next year’s booklet.

While in the LIF, locked-in monies provide an adjustable flow of retirement income within a specified range of minimum or maximum withdrawals. At the same time, control over the balance of the locked-in capital and its investment is retained by the purchaser. Plus, investment earnings continue to accrue on a tax-sheltered basis.

In essence, the LIF is like a bank account for the time between

One advantage of the LIF is that you may time the purchase of the annuity. Your purchasing power can be greatly affected by the interest rates in effect on the date of purchase. A LIF offers the potential for you to wait for a peak in interest rates while still earning a retirement income.

At death, the surviving spouse is automatically entitled to the balance in the LIF contract. The funds retain their locked-in status and may be used to purchase a life annuity, be transferred to another LIF or transferred to a locked-in registered retirement savings plan (LIRRSP). If you do not have a spouse and die prior to purchasing an annuity, the remaining principal in the LIF is refunded to your named beneficiary or estate, less the applicable taxes.