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Lecture 9

Actuarial Science 1021A/B Lecture Notes - Lecture 9: Basic Income, Canada Pension Plan, Old Age Security

Actuarial Science
Course Code
AS 1021A/B
Steve Kopp

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What happens upon retirement: (Pg. 47-56)
All pension plans must define what the normal form of pension benefit is
-all pensions are payable for the life of the retiree
If the employee is married
-pension must be a joint-and-survivor life annuity
-100% benefit to retired employee, 60% to the spouse if employee dies before spouse
-If spouse dies first, the benefit drops to 0% on death of employee (New spouse gets shit-all)
-Can you opt-out? Yes, with spouses permission
100%-60% joint life pension
Suppose NRA=65, the pension benefit for the husband is calculated to be $5000 per month
-If wife dies 1st, husbands benefits remain at $5,000. When he dies, $0 benefits
-If husband dies first, pension benefits to wife drops to $5000(0.6)=$3000 for the rest of her life
If instead, the husband opts out of the 100%-60% joint life pension and buys a single life pension.
-His monthly pension will be >$5000
If employee is not married
-Must purchase life annuity
-Either without a guarantee period
-Or with a guarantee period of no more than 15 years
-If you buy a life annuity with a 15 year guarantee period, this means that if you die before the end
of the 15 year period, your monthly pension benefit will continue to be paid (at 100%) to whoever
you have designated as your beneficiary
What happens on death before retirement?
If employee dies before being vested
-Only employee contributions are refunded, with interest, to beneficiary (Employer contributions
If employee dies after being vested
-Most provinces require 100% of the commuted value of the pension to be paid to the spouse or
beneficiary (or estate) if there is no spouse
-Lump sum
-Deferred pension
-Immediate pension
-Spouse has option of taking commuted value as :
What happens upon death after retirement?
Joint and survivor annuity
-The spouse receives a minimum of 60% of the monthly pension if spouse is still alive
Life annuity
-If death occurs after guarantee period, nothing further is paid
-If death occurs before guarantee period ends, remainder paid to beneficiary
In some cases, a lump sum payment can be made (taxable)
Module 2: Oct 1st
Wednesday, October 1, 2014
3:30 PM
Actuarial Sciences Page 1
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