Pension Survivor Benefits are one of those morbid topics every couple needs to investigate. No matter how happy a marriage may be, at some point the phrase “till Death do us part” sadly comes into play.
My latest MoneySense Retired Money column looks at the somewhat morbid topic of survivor benefits on employer pensions, savings and especially the triad of the three major Government retirement benefits we’ve looked at in recent Retired Money columns: the Canada Pension Plan (CPP), Old Age Security (OAS) and for some, the Guaranteed Income Supplement (GIS).
You can access the full MoneySense column by clicking on the highlighted headline here: Survivor Benefits: A Guide to CPP, OAS, GIS and more.
The piece begins with a look at the more or less straightforward survivor benefits of employer-sponsored pensions. It notes that pension law requires that you and your spouse be offered a joint-and-survivor pension that makes payouts until both partners die. While pension administrators will likely encourage the pensioner to provide for the spouse, some may offer a spouse the option to waive their pension rights.
Depending on the paperwork signed when you elected to start receiving a corporate pension, your spouse may be entitled to a good percentage of what the lead pensioner is promised: it can range from 50% to two thirds to 75% and may even be 100%.
Things are relatively simply on RRSPs and RRIFs. Ideally you and your spouse have named each other the beneficiary on your RRSPs and eventually RRIFs. If so, the rules are relatively simple: the money in the one spouse’s plan rolls over tax-free to the survivor. It’s only when the second spouse dies that there will be a large tax liability to the government.
Tax-free Savings Accounts (TFSAs), introduced in 2009, have a special wrinkle and here we will refer you to a past Retired Money column. The main thing is to ensure you and your partner do the paperwork and name each other a Successor Holder for your respective TFSAs.
Given the preceding, readers may be surprised to find that survivor benefits for CPP, OAS and GIS are quite a bit more complex, and may be less generous than you may have supposed.
No real OAS Survivor Benefit after 65
For starters, there really is no OAS Survivor benefit after 65, since Ottawa assumes the survivor will have their own OAS benefits. There is an income-tested transitional benefit called the Allowance for the Survivor but it’s only for those aged 60 to 64 and subject to various conditions. Service Canada says once these beneficiaries reach age 65, their benefit is converted to an OA pension and “possibly the Guaranteed Income Supplement.”
Similarly, Survivor Benefits for CPP may be less than couples may have been hoping for, particularly if both had been receiving the maximum. A survivor who is 65 or older and not already receiving CPP benefits qualifies for a survivor benefit of 60% of the deceased spouse’s CPP pension, assuming benefits beginning at 65.
Combined CPP Survivor Benefit and Retirement Pension can’t exceed $1,114.17 a month
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Enhancements to the CPP are always being suggested, largely to address the fact that fewer Canadians now have workplace pensions. The latest deal made by provincial Finance Ministers in June 2016 will boost CPP income from one quarter of pensionable earnings to one-third. The change will phase in slowly from 2019 to 2025 (when the pensionable earnings target will be $82,700), so it will be a while for these changes to be felt by future retirees.
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