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Pension legislation determines who is entitled to your pension funds if you die before starting a retirement income (i.e., a pre-retirement death). Regardless of who you name as beneficiary, your spouse generally has the first entitlement. (*The definition of a spouse varies by province/territory. Please refer to the definition of spouse according to the provincial/federal pension legislation noted on your CSS Pension Plan annual statement or myCSSPEN account.). If your personal circumstances have changed or you wish to name someone other than your spouse, you want to ensure your beneficiary designation is valid.
In accordance with pension legislation, spouses have certain rights and entitlements to pension funds. Should you die before retirement, your spouse (married or common-law) as defined by pension legislation, has first claim to your pension funds and investment earnings, even if you designate a different person as beneficiary. Additional voluntary contributions (AVCs), on the other hand, may be paid to your named beneficiary or estate - if this is not your spouse.
For this reason, it is not necessary to name your spouse as your beneficiary even though it is recommended to name your spouse so that the CSS Pension Plan has your spouse's information. However, most jurisdictions allow your spouse to waive this entitlement.
Should your spouse die before you, any named beneficiary(ies) or your estate will receive your pension benefits (net income tax).
Spousal entitlement to your pension funds on your pre-retirement death is dependent on the peculiarities of the situation and the pension legislation governing your pension funds. Let's examine a few situations:
Situation one: Separated spouse
Louis is separated from his spouse and they have started their divorce procedures. Louis unexpectedly dies before retirement. Before his death, he had named his children as his beneficiaries. Who will Louis' pension funds be paid to?
In this situation, a lot of questions need to be answered to determine who gets Louis' pension funds. What province/territory governs Louis' pension funds? How long have they been separated? Has the spouse signed any documents yet? Where exactly are they in their divorce procedures? Answers to these questions will provide a clear picture to determine who gets Louis' pension benefits. However, his spouse may still have first claim to his pension benefits.
If you are separated and would not want your spouse to have first claim to your pension funds should you die before retirement, contact the CSS Pension Plan Consultants immediately to know your option(s).
Situation two: Second relationship
Susan is in a second relationship and she has named her children from her prior relationship as her beneficiaries. If she dies before retirement, who gets her pension funds?
This situation, like the first has a few unanswered questions.
Which province/territory governs Susan's pension funds? How long has she been in the second relationship? Is it a marriage or common-law relationship? Is Susan still legally married to her former spouse?
The nature (married or common-law) and length of time (in the case of a common-law relationship) of Susan's second relationship will determine if her new spouse has first claim to her pension funds. If Susan's new spouse has first claim to her pension funds, this invalidates Susan's children as the designated beneficiaries, as they won't have the right to her pension funds, except if she has additional voluntary contributions (AVCs), which will be paid to her named beneficiaries.
If you are in a second relationship and would like beneficiaries other than your spouse to get your pension funds if you die before retirement, answers to the questions above will determine what applies in your situation. Contact our Pension Plan Consultants for advice tailored to your specific situation.
Situation three: Married vs common-law spouse
Dorothy recently separated from her husband and started a common-law relationship. She updated her Designation of Beneficiary to include her new common-law partner and removed her estranged husband. Shortly thereafter, she dies before retirement. Who gets Dorothy's pension benefits?
Dorothy's estranged husband may have first claim to her pension benefits.
Depending on the province/territory that governs your pension, the person you call your spouse may not be the one that pension legislation identifies as your spouse. If you have both a married and a common-law partner, contact the CSS Pension Plan Consultants to find out who your provincial pension legislation recognizes as your spouse and who has first claim to your pension funds on your pre-retirement death.
As shown above, your spouse may have first claim to your pension benefits, even when they are not your designated beneficiary. However, in some provinces/territories, your spouse may waive the first claim to your pension funds, and in such case, you can designate a beneficiary (or beneficiaries) or your estate to receive your pre-retirement pension funds. To determine what applies to your specific situation, contact our Pension Plan Consultants.