Types of plan pensions
Your
defined benefit pension is required to offer you certain types of retirement pension. The plan may also offer types as additional options.
Your plan
must provide all of the following:
-
Normal pension: the pension payable at the normal retirement age (65 unless the plan provides otherwise)
-
Deferred pension: the pension you to which you are entitled but which must be paid later because it is still too early for you to receive your pension
-
Early pension: a pension paid before the normal retirement age (between 55 and 65 unless the plan provides otherwise)
-
Postponed pension: a pension paid after the normal retirement age (after 65 unless the plan provides otherwise)
-
Additional pension: a supplement to your retirement pension
Your plan
may provide:
Your plan may also entitle you to
cash payments (refunds).
Age is a deciding factor
Your age and the normal retirement age under the plan are taken into account. The
normal retirement age is indicated in the plan summary for your plan.
The younger you are when you retire, the lower your retirement income will be. Be sure that you have enough income for your retirement needs. You may want to see a financial planner.
Worth
knowing about ...
- You cannot be forced to take your retirement when you reach the normal retirement age under your plan.
- However, payment of your retirement pension must begin no later than 31 December in the year in which you reach age 71, even if you continue to work.
- Pensions are not paid automatically. You must apply to your plan administrator.
Normal pension: the pension payable at the normal retirement age
Your plan must provide for the payment of a "normal pension", that is, a pension payable as of the normal retirement age under the plan. It must be a life pension, that is, payable until you die.
The normal pension is payable when you stop working at the normal retirement age that is set under your plan (usually 65). It will not be paid automatically. You must apply for it to your plan administrator.
A helpful example...
Suppose that Donna stopped working at age 65, which is the normal retirement age under her plan. She made an application to receive herr pension as of age 65. She will receive the normal pension under the plan.
Deferred pension: payment of a pension is delayed if it is too early for payment to begin
If your active plan membership ends and you are not yet old enough to receive a pension under your plan or if you are old enough but you do not want to begin receiving your pension right away, you are entitled to a deferred pension, whose payment will begin at a later date.
You can request payment of your pension when you are 10 years or less away from the normal retirement age under the plan (for example, at age 55 if the normal retirement age is 65) whether you continue to work or not. However, if you begin drawing your pension
before the normal retirement age, the pension amount will generally be reduced since the pension will be paid for a greater number of years. On the other hand, if you begin drawing your pension
after the normal retirement age, the amount of your pension will not necessarily be increased. For more information, consult the plan summary.
A helpful example...
Suppose that the normal retirement age under Michael's plan is 65 and that he leaves his job and is no longer an active plan member as of age 48. He has accumulated a pension of $1000 a month.
He can apply for payment of his pension as early as age 55.
- If he applies before 65, his pension payment may be less than $1000 a month since he will receive the pension for a longer period of time.
- If
he applies at age 65, he will receive $1000 a month.
- If
he applies after age 65, he will receive $1000 a month as of the date of his application. Note that he will not necessarily receive the monthly payments he did not receive between age 65 and the date his pension begins.
Early pension: a pension paid before the normal retirement age
You are entitled to an early pension if you stop working during the 10 years that precede the normal retirement age under the plan (whether or not your active plan membership has ended).
If you choose an early pension, the amount of your pension will usually be reduced since the pension will be paid for a greater number of years.
A helpful example...
Suppose that John entitled to a pension of $1000 a month as of age 65, which is the normal retirement age under his plan. He applies to begin receiving his pension at age 62. The plan provides that his pension will be reduced for life by ½ % a month for each month between the starting date and his 65th birthday. Thus, he will be entitled to an early pension of $820 a month, beginning at age 62.
A pension plan may give you entitlement to an early pension at an earlier time, that is, before you are at least 10 years away from the normal retirement age. For information about your plans rules, consult your plan summary.
Note
that...
If your active plan membership ends more than 10 years before the normal retirement age and you want to receive your pension before the normal retirement age, you can ask for payment of your
deferred pension at any time provided you are no more than 10 years away from the normal retirement age.
A helpful example...
Suppose that the normal retirement age is 65. Frank's active plan membership ends before age 55. He can apply for payment of his deferred pension as of age 55.
Postponed pension: a pension paid after the normal retirement age
You are entitled to a postponed pension if, when you reach the normal retirement age, you continue to work for the same employer. The payment of your pension will be delayed unless you and your employer agree otherwise. Payment of your pension will begin when you stop working or no later than 31 December of the year in which you reach age 71.
The amount that you receive will be higher than the amount paid at the normal retirement age since by being paid later, your pension will be paid for a shorter period of time.
Worth
knowing about ...
- If you have been working for the same employer since the normal retirement age, you will not lose the pension payments that would ordinarily have been paid as of the normal retirement age if you had stopped working at that age. However, when you retire, you will not receive a retroactive payment. Instead, the amount of your pension will be increased by an amount corresponding to the value of the payments that were not made.
- If you continue to work but your pay is reduced permanently, for example, because you have reduced your work hours, you can request that a portion of your pension be paid immediately as a way to offset your lost employment income.
- As soon as you are no longer working for the employer that you have at the normal retirement age, your pension's benefits become payable. If it is taken at a later date, it will
not be increased to take into account the payments that ordinarily would have been paid since the end of your employment, unless the plan provides otherwise.
- If you and your employer continue to contribute to the plan after you have reached the normal retirement age, the contributions made after the normal retirement age (that is, contributions made during the period of postponement) will entitle you to an additional pension.
A helpful example...
Suppose that if William stops working at age 65, he will be entitled to a pension of $1000 a month.
However, if he stops working at age 67, he will be entitled to a pension of around $1080* a month.
* This is a hypothetical amount. The actual amount would be based on actuarial assumptions that include interest rates, sex and age at the time the value of the benefits is calculated.
Additional pension: a supplement to your retirement pension
You are entitled to an additional pension based on:
- amounts transferred from a previous pension plan that cannot be refunded to you in cash
- additional voluntary contributions (contributions that you made without a corresponding contribution by the employer) that have been converted into a pension
- excess member contributions1, that is, member contributions with interest that exceed 50% of the value of the pension to which you are entitled
- member contributions, with interest, that you made after the normal retirement age (that is, during the postponement of your pension).
If your active plan membership ends more than 10 years before the normal retirement age (for example, before age 55 if the normal retirement age is 65) and your pension has low or no indexation between the date on which you left your job and the date on which you are 10 years away from the normal retirement age, you may be entitled to an additional pension.
The additional pension will be added to your retirement pension.
Bridging pension: a supplement to your retirement pension payable before age 65
A bridging pension is a temporary supplement that your plan may offer and that is usually paid until you begin to receive the public pensions under the Old Age Security program and the Québec Pension Plan. The bridging pension has no effect on the amount of the retirement pension provided under you plan.
Unlike a temporary pension, which is an advance on your retirement income, a bridging pension is a supplement to your retirement income.
A helpful example...
Suppose that Andrew is 62 years old. He is entitled to a retirement pension of $1000 a month ($12 000 a year) and to a bridging pension of $3000 a year until age 65. He will have an annual income of $15 000 ($12 000 + $3000) until age 65 and $12 000 as of age 65.
To those amounts will be added the retirement pension under the Québec Pension Plan and the Old Age Security pension, when you apply for them.
Your plan determines the age limit for receiving a bridging pension. Whether or not you begin receiving the public pensions will not affect that limit.
For example, suppose that your plan offers a bridging pension that is payable until age 65 because that is the age at which you will be entitled to a full pension under the Québec Pension Plan. Even if you apply before age 65 for an early retirement pension under the Québec Pension Plan, your bridging pension will be paid to you until age 65.
Phased retirement benefit: salary supplement to encourage people to continue working or return to work
If your plan allows, you can reach an agreement with your employer to receive a phased retirement benefit under the plan while continuing to work full-time or part-time, if you are:
- at least 60 years old
OR
at least 55 years old and receiving or entitled to receive an unreduced early pension
- under 65 years old
Worth knowing about ...
As of age 65, the provisions for a postponed pension apply.
If the normal retirement age under the plan is under 65, you must choose between a phased retirement benefit and a postponed pension for the period between the normal retirement age and age 65. You can successively receive one then the other but not both simultaneously.
The phased retirement benefit does not reduce the amount of your retirement pension. If the plan so provides, you can also accumulate new benefits during phased retirement, which will increase your retirement pension.
The calculation and payment terms of a phased retirement benefit must be included in the agreement. However, the amount of the benefit cannot exceed 60% of the amount of the pension to which you are entitled or are already receiving, excluding any pension resulting from excess member contributions1, additional voluntary contributions or sums transferred to the plan.
An agreement cannot provide for age conditions or other conditions that would be more advantageous.
To receive a phased retirement benefit, you must make an application with the plan administrator.
- Excess member contributions
Member contributions, with interest, which have been made for work carried out since 1 January 1990 (or before that date, if the plan so provides), cannot be used to fund more than 50% of the value of the pension accrued for that period. Such contributions, with interest, are excess member contributions.
Example: If the value of your pension is $100 000 and your member contributions, with interest, are $60 000, your excess member contributions are $10 000 ($60 000 − 50% × $100 000).
A helpful example...
You are 60 years and entitled to a retirement pension of $2 000 a month. Your excess member contributions provide an additional pension of $200 a month. In addition, the plan provides you with a bridging benefit of $400 a month until age 65. Thus, if you retire, your pension will be $2 600 a month until age 65 and $2 200 thereafter.
The maximum phased retirement benefit is $1 400 a month, that is, 60% of $2 400 since the additional pension of $200 a month is not included in the calculation.
If you are retired member and you return to work for an employer who is party to the same plan and if you receive a phased retirement benefit, your retirement pension will be suspended.
Note that...
There is another phased retirement benefit; it gives entitlement to a cash payment. You cannot receive both benefits for the same period.
Disability pension
If disability forces you to stop working for the employer who offers the plan or to cease your active plan membership, the plan can provide for payment of a disability pension. You can get information about the availability and conditions of a disability pension by checking your plan summary or contacting your plan administrator.
The value of your disability pension must be at least equal to the value of the benefits to which you would have been entitled in the absence of disability. The amount of your disability pension may thus be different from the amount of a member's vested retirement pension.
Note
that...
Disability may also give entitlement to a
cash payment.