Deferred pension

A plan provides that the normal age of retirement is 65, but that a member who stops working to retire whereas he or she is at least aged 60 is entitled to an unreduced early pension. Moreover, the member whose active membership ends without retiring before that age is entitled to an actuarially equivalent reduced pension for the period between the beginning of payment and the normal age of retirement.

In such a case, the early benefit is exclusive to the early pension. The deferred pension will have to be valued on the basis that payment will begin at age 65.

A plan provides that the normal age of retirement is 65, but that a member is entitled to an unreduced pension as of age 60, regardless of the date on which the member stopped working or ceased to be an active member. If the member retired before age 60, his or her pension would be reduced by actuarial equivalence.

In such a case, the early benefit is included in the deferred pension and its value will be equal to the average of the following 2 values:

• Value considering that payment of the pension will begin at the age that maximizes the value, that is, age 60 (for the member aged 60 or under)
• Value considering that payment of the pension will begin at the normal retirement age, that is, age 65

The exception only applies to the calculation of a deferred pension (and not an early pension), regardless of whether or not the member is active at the date of the valuation. However, it does not apply if the member has begun receiving a pension, since, in that case, the beginning of the member's service is no longer an assumption.

In 2018, Matthew and Catherine apply for a statement establishing the value of Matthew's benefits at the end of their conjugal relationship on 31 December 2004. Matthew was age 45 at that time and would have been entitled, if his active membership ended, to a deferred pension of $12 000 a year, payable as of the normal retirement age of 65. If the pension begins being paid between ages 60 and 65, the amount is then reduced by 4% per year of anticipation. If the pension begins being paid before age 60, the amount is then adjusted based on an actuarially equivalent pension.

Matthew began membership in his employer's defined-benefit plan on 1 January 1993, that is, after his marriage to Catherine.

What is the value of Matthew's pension benefits that must be taken into account for the purposes of partition?

In order to determine the value, the plan administrator has access to the following information:

For the purposes of partition, the value of Matthew's pension, excess member contributions and the value of the additional pension benefit must be determined.

The value of Matthew's pension is equal to the average of $39 700 and $46 680, that is, $43 190.

For the calculation of excess member contributions, member contributions cannot provide more than half the value of the pension, that is, 50% × $43 190, or $21 595. The excess contributions amount determined for the purposes of partition is thus $19 905 ($41 500 − $21 595).

The value of the additional pension benefit is equal to the difference between the following 2 elements:

• Element A, which is equal to the sum of the value of the indexed pension for service after 31 December 2000 and the excess member contributions.
• To determine the excess member contributions, the value of the pension for the period from 1 January 1993 to 31 December 2004 must be determined. For the period prior to 1 January 2001, the value is equal to the average of $26 467 and $31 120 ($28 794), which is added to the value of the indexed pension for the period following that date ($15 260), which gives a total value of $44 054. Since member contributions cannot provide more than half the value of the pension, (that is, 50% × $44 054, or $22 027), the excess member contributions amount is thus $19 473 ($41 500 − $22 027). Element A is therefore equal to the sum of the excess contributions ($19 473) and the value of the indexed pension ($15 260), that is, $34 733.
• Element B, which is equal to the sum of the value of the deferred pension for service from 1 January 2001 to 31 December 2004, and the excess member contributions determined for the purposes of partition. The value of the deferred pension is equal to the average of $13 233 and $15 560, that is $14 397. Element B is therefore equal to the sum of $14 397 and $19 905, that is, $34 302.

The value of the additional pension benefit is therefore $431 ($34 733 − $34 302).

The total value of benefits for the purposes of partition is thus determined as follows: