Pension Payments

If you are in a defined benefit plan, you will be entitled to a monthly pension income at retirement. Your pension will be paid from the same fund to which you and your employer contributed during your employment and will be paid to you for your lifetime. Although you will no longer contribute to the pension plan, it is your employer's responsibility to fund the plan so that there is enough money to pay ongoing pension benefits.

Pensions can be paid from a pension plan in various forms. At a minimum, it must be paid to you for your lifetime. You will have the option to choose which form of pension you want to receive when you retire.

Forms of Pension

All pension plans define a normal form of pension. The normal form can not be less than a pension payable for your lifetime, where payments stop when you die. The amount of pension you receive is equal to the dollar amount of pension you have earned under the plan. The normal form of pension is sometimes a life pension with a 5 year guarantee. In that form, a pension is paid to you while you are alive, and if you die within 5 years after you retired, the payments would continue to your beneficiary for the remainder of the 5 year period. All other forms of pension offered to you are calculated based on their value relative to the normal form, these are called "optional forms of pension."

Some pension plans have a normal form for married members and common-law partners as well as a normal form for single members. In this case, you will be paid the dollar amount of pension that you have earned under the plan with one of two forms of pension, depending upon your marital or common-law status.

For example:

When Julie retired from ABC Company, she had earned a total pension of $1,200 per month.

The normal form of pension in her pension plan is a life pension with a five year guarantee. Her choices were:

  1. Life pension, guaranteed 5 years (normal form): $1,200; or
  2. Life pension, guaranteed 10 years (optional form): $1,150; or
  3. Life pension, guaranteed 15 years (optional form): $1,100.

Pensions with guarantee periods longer than 5 years are expensive to provide and pay smaller monthly payments than under the normal form of life guaranteed 5 years. Optional forms of pensions providing joint and survivor benefits are more expensive. Some pension plans offer members optional forms that have both a joint and survivor benefits as well as a guarantee period.

If you have a spouse or common-law partner when you retire, your pension must be payable as a joint and survivor pension. Your monthly pension may be reduced to provide for this spousal protection, unless the plan provides for a joint and survivor pension as the normal form for members with a spouse or common-law partner. If the normal form of pension is joint and survivor, your pension will be payable in its full value up to your death. When you die, a specified percentage of your pension will continue to be paid to your spouse or partner up to their death. This percentage is set out in your plan, but must be at least 60 per cent. You may have the option to choose a 75% or 100% survivor pension. Your spouse may waive this right to a joint and survivor pension by completing Form 4 (PDF: 43k): "Waiver of Joint and Survivor Pension". If your spouse waives the joint and survivor benefit, and you don't elect any other guarantees, the pension will stop when you die.

Indexed Pensions

Some pension plans offer pensions that increase each year with inflation. These are more expensive than non-indexed pensions, but give you greater security because payments increase with the cost of living. A plan may provide this indexation as part of the normal form of pension or may offer it as an optional form of pension.