THE OCCUPATIONAL PENSION Benefits Act, promulgated on February 1, 2011, introduced the requirement for a spousal pension benefit when preparing to pay new pension benefits from company pension plans.
This article explores in more detail how this benefit may apply.
First, it is emphasised that the requirement for a spousal pension applies only to pension payments which start after the date of the promulgation of the act.
Since February 1, 2011, whenever pension payments are about to start, and the would-be pensioner has a spouse, a specific determination must be made as to whether or not a spousal pension will be due and to what extent.
Also, since that date, if the pension plan member dies before his pension is due to start, the spouse is entitled to receive a lump sum payment of the value of the accumulated vested pension funds along with the accumulated value of any voluntary contributions that were made, plus the actuarial present value of the spousal pension at the date just before the death of the member.
Alternately, the spouse can elect to have this sum (so calculated) converted to a pension payment over the future months and years. Depending on how long the member was contributing to the plan, the spousal benefit that results would tend to be a higher payment than the normal spousal pension payment.
A critical issue arises as to who is a spouse. If the member is living separately from the person who would normally be called his spouse on the date of the first instalment of the pension or death of the member, then there is no entitlement unless the spousal relationship can be clearly shown to exist.
If the member has been living with a significant partner for less than five years, specific evidence would also be required to be provided to the administrator of the pension plan as proof as to whether a spousal relationship exists or not.
A recent ruling in the Court of Appeal is pertinent to the determination of a spousal relationship. It ruled that although a couple had cohabited for well over five years, a spousal relationship did not exist as one of the partners was married to another person for part of the time.
The couple had not cohabited for five years since the divorce of the partner who was married, the minimum period provided by law for establishing a spousal relationship.
When it comes to the waiver of the right to a spousal benefit, this must be delivered to the administrator of the pension plan in a written form before the start of the first pension instalment. The waiver remains valid once it is presented to the administrator within 12 months of the date of the first pension payment.
Should the member of the plan die before the actual start of the pension payment and while a valid waiver is on file with the administrator, then the pension would be dealt with as though the member did not have a spouse. The pension benefit (usually a lump sum payout) will pass to the beneficiaries of the pension plan identified by the member.
A waiver may also be cancelled by a written signed notice of cancellation from the spouse. Again, this cancellation notice must be received by the administrator before the start of the pension instalments.
The administrator can request any information needed to make the relevant computations and can fully rely on the provided information received in processing the pension instalments.
However, if a payment error arises that requires refunding pension payments, any deduction from future instalments cannot exceed one-third of the usual pension instalment.
Finally, it is important to note that the surviving spouse of a member is still entitled to the spousal benefits even if that person remarries.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances.