An administrator cannot assist in dividing pension benefits unless there is a court order, or a written agreement between the parties, expressly providing for the benefits to be divided. [FLA, s 134]
If the parties choose, they can make an agreement using Form P9, “Agreement to Have Benefits Divided Under Part 6”.
The member and former spouse can modify some aspects of pension division under Part 6 of the FLA by agreement. [FLA, s 127] They can, for example, vary the spouse’s share or waive division entirely.
But, for the most part, how pension division works is determined by the legislation.
| 11.1 The spouse wants a compensation payment | The spouse wants a compensation payment in exchange for waiving entitlement to a share of the benefits. Can the member require the benefits be divided under Part 6 instead? |
| Probably. If the member will not agree to make a compensation payment, the spouse’s only alternative is to seek a court order. [FLA, s 111(1)] In some other provinces (Ontario, for example, until 2012) the payment of compensation was the usual approach for adjusting pension entitlement. B.C. case law suggests, however, that B.C. courts are reluctant to order a compensation payment. Except in a few circumstances, requiring a member to use current assets to purchase pension entitlement that the member may never live to enjoy is viewed as being unfair. [See para 2.25] Another problem in dividing benefits using a compensation payment is arriving at a fair value. In N.A.J. v P.L.J., 2014 BCSC 948, for example, an actuary valued pension benefits assuming retirement at different ages (a factor that results in placing quite different values on the benefits). The non-pensioned spouse applied to court for an order that the member pay compensation assuming the member’s pension commenced at 55 (which placed the highest value on the benefits). The court declined and ordered division under Part 6. What this adds up to is that a compensation payment is usually available only with the member’s consent. There are cases, however, where the courts have awarded compensation instead of dividing the benefits based on special circumstances (typically where the value involved is low, or the parties are many years from reaching a retirement age). |
| with specific issues, so there can be Property Agreements, Pension Division Agreements, Support Agreements, and so on); agreements made to resolve litigation (which can take the form or “Minutes of Settlement” which are usually intended to be followed by a consent order). The important thing is not what the agreement is called, but that it represents a final settlement of the terms for dividing the pension benefits. So Reasons for Judgment would not be enough (the reasons must be incorporated in a court order), nor would draft agreements prepared to negotiate the issues. Technical areas that the agreement must address will usually arise from making sure the remainder of the financial affairs of the spouse and member are resolved in ways that are consistent with the pension division arrangements. This is particularly true, for example, when determining when a support obligation should end. The FLA provides that support is reviewable when a member starts receiving pension benefits and when a supported spouse becomes eligible to receive benefits. [FLA, s 169] This is helpful, and certainly an improvement over the FRA, where these events often were not factors a court could consider when determining support obligations. In most cases, however, it will be better for the parties to consider and address these questions in more detail, so that there is no doubt over what is to happen if, for example, a former spouse paying support decides to take early retirement, or a supported spouse decides to defer using a share of pension benefits. In some cases, the default rules under the legislation need to be adjusted for the particular plan. See paras 8.4 and 11.13. Many plans are able to provide information on these issues. See para 2.34. If the agreement was made after July 1, 1995 (the date Part 6 of the FRA came into force) it is not even necessary (although still good practice) for the agreement (or order) to refer to the Part 6 rules. Simply providing that the benefits are to be divided is sufficient to trigger the operation of pension division rules (under the FRA, and also under the FLA). Part 6 applies unless (a) the parties waive its application, or (b) the agreement or order is silent about pension division. [FLA, s 111(1). See paras 1.6, 1.8 and 12.2] | |
| 11.4 Oral agreement and beneficiary designation | When the member and spouse divorced, the member agreed to keep the former spouse as beneficiary of the benefits so that the spouse would get whatever benefits were available on the member’s death. This |
| arrangement was never written down, but the member kept his word and, when the member died (before pension commencement) the former spouse (“spouse1”) was still the beneficiary. However, the member had formed a marriage-like relationship in the meantime, with a person who is claiming the benefit as the member’s new spouse (“spouse2”). What rights does spouse1 have in this case? | |
| The PBSA gives priority in this case to spouse2. [PBSA, ss 79(1)(a), 1(3) definition of “spouse”; Re Hodgens Estate (1996), 11 CCPB 109 (BCSC)] Had the agreement to maintain the spouse as a beneficiary been proved, however (which is easier to do if it is in writing), spouse1 might have been able to enforce entitlement to benefits accruing up to the date the new relationship commenced. Section 70(3)(c) of the PBSA prohibits assignments of benefits but recognizes an exception for agreements made as a result of the breakdown of a relationship. See also para 13.15. It is not uncommon, in these cases, to find that spouse1 and spouse2 are prepared to divide the benefit. The plan administrator can follow their joint directions if they are able to reach a settlement. | |
| 11.5 Departures from Part 6: Effect on administrator’s responsibilities | If the spouse and member make an agreement under FLA, s 127, can they require the plan administrator to allocate to the former spouse the share they agree upon? |
| Yes. Under the old FRA, the share specified by an agreement could not exceed 50% of the benefits. To receive more than 50% of the benefits required a court order. In contrast, the FLA provides that the parties can specify any share, even one that leaves the member with none of the benefits. [FLA, s 127] Experience under the FRA shows that members give up pension entitlement only reluctantly, so that the requirement for a court order merely introduced unnecessary costs into finalizing pension division arrangements. Moreover, the policy of the FLA is to encourage parties to resolve disputes by agreement or dispute resolution methods other than through litigation. |
| 11.6 Proportionate share | If the spouse and member have entered into an agreement that specifies the spouse’s share using a formula that differs from the Division of Pensions Regulation, what is the “proportionate share”? |
| If the agreement or court order adopts Part 6 of the FLA without modification, the Division of Pensions Regulation defines the “proportionate share”. [Reg., ss 17(2) and 20(2)] But this applies only if the agreement or court order does not set out a specific share or formula for determining the former spouse’s entitlement. If an agreement or court order does set out a specific share or formula, that would be the proportionate share (which could also be amended by a later agreement or court order). [FLA, ss 127, 129 and 110, definition of “proportionate share”; Reg., ss. 17(2), 20(2)] | |
| 11.7 Spouse’s share exceeds the share under the Regulation | The plan has received the prescribed Forms, and an agreement that gives the spouse a larger proportionate share of the benefits than set out in the Division of Pensions Regulation. Does the administrator have to use the agreed-upon proportionate share, or is the excess something the member must pay directly to the spouse? |
| The administrator must use the agreed-upon proportionate share. [See para 11.5] | |
| 11.8 Compensation payment | Can the benefits be divided partly by the member making a compensation payment and partly by requiring the administrator to administer the division of a specified share? |
| Yes. This is quite a common arrangement, particularly where both spouses have separate pension entitlement: see para 11.14. If benefits are being divided through a compensation payment, it would usually be prudent for the parties to either retain an actuary to calculate the payment or consult a lawyer to make sure that the compensation payment is reasonable in the circumstances. It would be a mistake for the parties to pull a figure from the air. (In many cases, for example, parties mistakenly assume that a statement about contributions is a reasonable estimate of the value of the benefits. In fact, the commuted value of a pension is often much more valuable than the contributions.) | |
| 11.9 Trust clauses | Should the agreement provide that the member is a trustee for the limited member? |
| Many lawyers think that it is a good idea to do so. Agreements and court orders made before July 1, 1995 usually provided that the member was a trustee for the spouse as an aid to enforcing the terms for dividing the pension benefits. But Part 6 allows the limited member to enforce all of these rights directly against the plan administrator. Part 6 also provides that in various situations where the member, or another person, receives benefits belonging to a former spouse, the recipient holds those benefits as a trustee for the spouse. Similarly, a former spouse who receives more than a specified share holds the benefits in trust for the member, or other person entitled to the benefits. [FLA, s 144] Nevertheless, as a matter of drafting, including a clause like this would help in those cases where the administrator, relying on apparently valid materials, pays the spouse’s share to the member, or allows the member to make an election that prejudices the spouse. The trust provision served an important protective function, for example, in Munro v Munro Estate, 1995 CanLII 1396, 4 BCLR (3d) 250 (BCCA). | |
| 11.10 Right to buy out spouse | We have received a Form P2 and an agreement dividing unmatured benefits determined under a benefit formula provision. We have registered the spouse as a limited member. One of the terms of the agreement provides that the member has the right to buy out the spouse. What obligation does this place on the plan administrator? Can the parties agree to such an arrangement? |
| Yes, the parties can enter into this agreement (in the original pension division arrangements and even at a later date). It is open to the spouse to waive an interest in the benefits and there is no restriction on when the waiver may be made, provided the benefits have not yet been divided. [FLA, s 127] The spouse would do this by filing a Form P7 with the plan administrator. See also paras 13.10 and 15.45. The plan is protected in any event by the obligation to send a Form P6 notice to the member when the limited member decides to take the share of the benefits. | |
| 11.11 Agreement divides benefits on a net basis | The agreement dividing the pension entitlement sets out the interests of the spouse and member based on the assumption that the member will pay tax on the whole amount. But the legislation requires the administrator to |
| pension entitlement and neither has retired | both parties’ benefits have to be divided? What options are available to them? |
| No, it is not necessary to divide both parties’ benefits. Rather than divide both parties’ pension entitlement, it might make sense to take both interests into account but divide only one party’s benefits. For example, calculating a limited member’s entitlement based on average age of retirement means that in some cases setting off pension entitlement might preserve more overall pension value than dividing each party’s pension entitlement separately. (For example, a party intending to retire before the former spouse reaches the average age of retirement will often be better off keeping as much of that party’s pension as possible rather than exchanging it for a share of the former spouse’s benefits.) Allowing both parties to keep as much as possible of their respective benefits may also promote more flexibility for retirement planning. For example, an older spouse losing half of a pension may want to retire at a date before it is possible to use the share of the younger spouse’s benefits (because the younger spouse has not yet reached an age at which a pension could commence). Setting off entitlement and adjusting for any difference by a compensation payment may be a better option for one (or both) spouses. | |
| 11.15 Waiving division | The parties’ agreement waived division of a matured pension. The pension is a joint and survivor pension that provides the spouse with a 60% survivor benefit. The agreement doesn’t say anything about the survivor benefit. Does the waiver affect the survivor benefits, or is the spouse still entitled to them? |
| The spouse is still entitled to the survivor benefits. The waiver relates only to the pension payable during the member’s lifetime. In this context, the survivor benefits are the spouse’s separate property. [FLA, ss 124(5), 126; Tarr Estate v Tarr, 2014 BCCA 315] See para 5.21. Even if the agreement expressly specified that the survivor benefits were waived, it would be ineffective. |
The question of waiver arises in two cases:
- entitlement to survivor benefits; and
- division of the pension entitlement on the breakdown of a relationship.
Entitlement to survivor benefits: the PBSA provides that a “spouse” is entitled to survivor benefits unless the spouse signs a waiver. Prescribed Forms must be used for the waivers. (Note, however, that unmarried spouses, after they separate, and married spouses, after living separate and apart for more than 2 years, are no longer considered to be spouses under the PBSA: PBSA, s 1(3).)
It is important to note that parties must be “spouses” under the PBSA in order for the prescribed forms to be valid. It is customary in certain family agreements (made before parties are spouses) that there is an agreement for the parties to complete and file the prescribed forms once they qualify as spouses under the PBSA.
The waiver of a survivor benefit payable after pension commencement must be signed within 90 days before pension commencement. [PBSA, s 80(4)(a)(iii) and (6); PBSA Reg., Form 2 of Schedule 3] This right could be waived at the same time as an agreement is made at the beginning of the relationship, provided the prescribed form is used, but it would be of no use unless the member’s pension commences within the next 90 days. At best the agreement could provide that the spouse will waive at some future date, but there would be obvious questions about the utility and enforceability of such a provision.
The waiver of a survivor benefit payable before pension commencement can be signed at any time. [PBSA, s 79; PBSA Reg., Form 4 of Schedule 3] This right could be waived at the same time that a prenuptial or cohabitation agreement is made, provided the prescribed form is used.
Division of the pension benefits on the breakdown of a relationship: Part 6 of the FLA governs pension division on the breakdown of a relationship. A spouse can waive any right to or interest in a member’s pension or any benefit under it [FLA, s 127], subject to the B.C. PBSA and the FLA restrictions on waiving survivor benefits: see para 11.14. A spouse, therefore, can waive entitlement to have the benefits divided on the breakdown of a relationship in a prenuptial or cohabitation agreement, subject to court review under FLA, s 93.
Part 6 stipulates that if a form of waiver is prescribed, it must be used, but currently no form for waiving pension division is prescribed. [FLA, s 136] (There is a form—Form P7—for withdrawing pension division arrangements previously delivered to the administrator.)
A separation agreement that is silent about pension entitlement functions as a waiver since it is deemed to allocate all of the benefits to the member. [FLA, s 111(2)] However, this is subject to the court’s jurisdiction to review agreements (under FLA, s 93).
| Special rules apply to waiving CPP credit splitting. [See para 11.19] | |
| 11.18 Waiving entitlement using Form P7 | Can a Form P7 be used to waive future claims to pension benefits? |
| No. A Form P7 is used to withdraw a claim that has been made, and any documents filed in connection with that claim. | |
| 11.19 Waiving CPP entitlement | The spouse and member have agreed that the spouse will not claim an interest in the member’s CPP benefits. What is needed to waive entitlement? |
| There is no prescribed form of waiver, but the waiver must: expressly mention the Canada Pension Plan, RSC 1985, c C-8; andstate that “there be no division of unadjusted pensionable earnings under s. 55, 55.1 or 55.2″ of the Canada Pension Plan, RSC 1985, c C-8. [CPP, s 55.2(3)] Under the CPP, division can’t be waived unless provincial legislation is enacted to allow it. The FRA provided for waiving CPP entitlement, and this policy has been carried forward in the FLA. [FRA, s 62 and s 80(1)(c). FLA, s 127(2)] | |
| 11.20 No CPP waiver | The agreement dividing family property did not divide Canada Pension Plan entitlement. But there was also no waiver of a division of unadjusted pensionable earnings. Is the spouse still entitled to apply for credit splitting? |
| Yes. Division of unadjusted pensionable earnings under the Canada Pension Plan takes place unless there is an enforceable waiver. [See para 11.19] There is no specific need for the agreement or court order to provide expressly for division if that is what the parties want (although it is obviously better practice to include such a reference). [Verbeek v Craig, 1998 CanLII 1683, 37 RFL (4th) 143 (BCSC)] However, an application for credit splitting must be made by one of the former spouses. |
| 11.21 When to waive a division of CPP | Are there any guidelines for determining whether or not to divide CPP in the context of a general division of family property? |
| For information about whether in the specific case it is beneficial to split CPP credits, contact Service Canada[SN1] (their staff are sometimes able to provide some guidance on this question), or consult an actuary or lawyer working in this area. In some cases, equalizing CPP will reduce the entitlement of the spouse with higher contributions without benefiting the other spouse. Example 1: The Canada Pension Plan protects a spouse who is out of the work force for a period of years to look after young children. Specified contribution periods are subject to a drop-out (they do not count against the spouse) when determining CPP entitlement. Equalizing CPP contributions for these periods subtracts entitlement from one spouse but often doesn’t benefit the other (if equalized entitlement is dropped out, it is not available to be used by either party). Example 2: CPP provides for a drop-out of a percentage of the lowest earning years. If these drop-out periods correspond with the relationship period, again the equalization of CPP reduces the working spouse’s entitlement without benefiting the non-working spouse. Example 3: CPP disability benefits are determined by a formula that consists of two parts: component A, which is a fixed amount, and component B, which is an amount based on CPP unadjusted pensionable earnings accumulated by the pensioner. If the party receiving CPP disability benefits has the greater CPP contributions, equalizing CPP contributions in favour of a spouse who will not qualify for CPP for a number of years produces this result: (1) it immediately reduces the disability benefit (by reducing component B), but (2) the spouse of the disabled person receives no offsetting amount (until the spouse qualifies for the normal CPP benefit). For this reason, in Coulter v Coulter, 1998 CanLII 5677, 60 BCLR (3d) 6 (BCCA) the court reapportioned the CPP disability benefit 100% to the member and protected the spouse by awarding support. | |
| 11.22 Compensation payment | Reg., s 27(1)(a) and (b) refer to a “compensation payment”, while Reg., s 27(1)(c) refers to a compensation payment or an “amount to be transferred under s 128(2)” of the FLA. What is the difference between them? |
| The Division of Pensions Regulation sets out some rules and assumptions for valuing benefits for different purposes and in different situations. Reg., s 27(1)(a) and (b) are referring to compensation payments made by a member to a spouse under ss 97 or 127 of the FLA. These compensation payments outside of the registered pension plan can either be on a pre-tax basis (if pre-tax assets such as RRSP funds are used) or a post-tax basis (if post-tax assets are used) In contrast, Reg., s 27(1)(c) is referring to the calculation of a transfer amount from a plan to a spouse under s 128(2) of the FLA. This transfer is coming from a registered pension plan and so is on a pre-tax basis. | |
| 11.23 Valuation assumptions | Reg., s 27 governs calculating compensation payments. It refers to a number of assumptions but only requires the “possibility” of their occurrence to be taken into account. Isn’t “possibility” too vague a word? |
| The formulation is an adequate direction to an actuary to calculate the commuted value taking into account future contingencies. The actuary will not, for example, simply assume changes in contingencies will be fixed on the entitlement date or the retirement date. The calculations will be weighted to take into account possible occurrences at different times, on an actuarial basis. The policy underlying the Division of Pensions Regulation is the expectation that actuaries will apply the Canadian Institute of Actuaries Standards of Practice that relate to the actuarial valuation of pension plan benefits upon breakdown of a relationship. | |
| 11.24 Tax | Reg., s 27 doesn’t refer to the impact of tax on valuing pension benefits. Shouldn’t tax consequences be taken into account when determining the commuted value of the future pension benefits? |
| Yes. Reg., s 27 doesn’t provide a restrictive list of assumptions to take into account when determining the commuted value of future pension benefits. It directs that the prospect of some future events, such as benefit upgrades, should be taken into account to provide direction on an issue of B.C. law that was in doubt before the equivalent of the Division of Pensions Regulation under the FRA was promulgated. Other aspects of the calculation should be carried out in accordance with accepted actuarial practice in Canada. Refer to standards published by the Canadian Institute of Actuaries. See para 11.23. The impact of tax, for example, should be taken into account even though not listed in Reg., s 27. [Park v Park, 2000 BCCA 92] |
[SN1]Updated by Darryl Hrenyk (MAG)