The specific survivor benefit options often aren’t known until the employee is a few weeks from retirement
Employees can usually choose the survivor benefit amount, but the higher the survivor payout, the lower the monthly pension income.Clients who have defined-benefit pension plans tend to be well aware of their annual payout when they retire. But survivor benefits – the payout for a spouse when the pensioner passes away – are not as well understood.
If the employee picks a lower percentage, the employee’s spouse must sign off on the amount. The higher the survivor benefit payout, the lower the monthly pension income received by the employee. Mr. Muchan starts by calculating what-if scenarios, such as the effect of a pension dropping by 25 or 50 per cent when the pensioner dies, and whether the surviving spouse will have sufficient retirement income with their other assets.
Mr. Chapman encourages clients to contact the pension administrator directly to review their options. In some cases, “options exist even though they don’t necessarily fit on the paperwork received,” he says. Shannon MacDonald, senior financial consultant at IG Wealth Management in Ottawa, says the appropriate percentage for survivor benefits depends on the couple. In some cases, both spouses have DB pension plans, as well as other investments, and may have less need for significant survivor benefits.
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