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Pension Issues Upon Relationship Breakdown

Kasey Anderson

In 2020, there were over 16,000 registered pension plans in Canada, who had over 6.5 million active members. In 2019, about 37% of all paid workers in Canada were covered by a registered pension plan. Given their prevalence, it is important to understand the rights and obligations of the pension member and their partner upon a relationship breakdown.

A pension is family property just like any other asset and must be divided in accordance with the legislation. This may come as a surprise to some, and perhaps an unpleasant one. Pension members can feel a deep sense of ownership with respect to their pension, often earned over many years or even decades through their hard work. This, combined with the fact that the pension is often the primary, and sometimes the only, retirement savings for the pension member and their partner, can cause discussions surrounding division of the pension to be emotionally charged.

The best way to allay concerns is to have a comprehensive understanding of the options available to you with respect to pension division upon relationship breakdown. Those options are to:

  1. divide the pension equally for the period of the relationship at source; or
  2. have the pension member retain the pension wholly without division, and offset the value of the pension against other assets.

In both scenarios, an understanding of the value of the pension is necessary.

There are a few sources from which a value for the pension can be determined – the first is from the pension plan itself, who can and are required to provide a pension entitlement estimate to the pension member and spouse when requested. The value from the pension plan will indicate the amount the pension plan will make available for division between the member and partner. The second source is from an actuary by obtaining a pension valuation report, which involves the actuary taking the relevant information from the pension plan and using statistical assumptions to come up with a few different lump sum values of the pension entitlement based on different retirement scenarios.

Rarely will the two sources of information provide you with the same or even similar results. It is therefore imperative to know on which source you should be relying when negotiating and determining which option is best.

If there is no reasonable prospect that the value of the pension will be offset against other assets, then there is little reason to obtain a pension valuation from an actuary. The pension plan is restricted to using their formula, often prescribed by legislation, to determine the amount to be made available for division between the member and partner upon marriage breakdown. To obtain a valuation in this scenario will only waste money and potentially cause frustration if the actuarial valuation differs from that provided by the pension plan.

If, however, there is even a small chance that the pension will be kept whole and the value offset against other assets, it is highly recommended to obtain an actuarial valuation. The primary reason for this is that in many circumstances, it is beneficial to both the member and partner to keep the pension whole. Very often, the pension plan’s determination of entitlement will be lower, sometimes far lower than the actual value as determined by an actuary. As a result, when the pension is divided at source, the pension partner will have less transferred to them as compared to what the pension is or could really be worth, and the pension member will lose half of the pension they accrued during the period of the relationship.

2022-05-31T13:47:31+00:00May 31, 2022|Family Law|
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