Factors to consider when choosing a pension option

The pension option you choose when you retire will affect you for the rest of your life. It is one of the most important financial decisions you will make.

Your choice of pension option will determine the amount paid to you each month. It also determines the amount paid to your spouse or beneficiaries after you die.

To decide which pension option is best for you, you'll want to consider:

• Your age and your spouse's age
• The health and life expectancy of you and your spouse
• Your dependants and their financial needs
• Your family’s financial situation
• Your income needs and future plans
• Other factors that may apply to your personal situation
• Ways you want to provide for others

Use the Pension Estimator in My Account to help you plan for your future. You can compare different pension options, see how your pension changes at different retirement ages, and know what your surviving spouse could receive.

Single life versus joint life pension options

You need to choose either a single life or joint life pension. Your decision will depend on whether you have a spouse and if they are relying on having your pension income after your death. With a joint life option, if you die before your spouse, they will receive a portion of your monthly pension payment for the remainder of their life. Each joint life option has a different percentage and may have a guarantee period (5, 10 or 15 years).

Still if you have a spouse, they are entitled to receive a portion of your pension after you die. By law, you must choose a minimum 60 per cent joint life pension. You may choose a single life option or joint life option less than 60 per cent only if your spouse signs a waiver. By signing the waiver, your spouse is agreeing to give up (waive) or reduce their right to your pension benefit after you die.

You can choose a single life option only if one of the following applies:

• You do not have a spouse
• Your spouse has signed a waiver giving up their right to a minimum of a joint life 60 per cent pension

Guarantee periods

A guarantee period is how long your pension will be paid to a beneficiary. If you die within the guarantee period, the remaining benefit will be paid to your named beneficiary(ies).

You can choose:

• A guarantee period of 5, 10 or 15 years - for a single life pension or any joint life pension under 100 per cent
• No guarantee period - for a single life pension or joint life option under 100 per cent

The guarantee period does not apply to a 100% joint life pension because your lifetime pension will continue to be paid 100 per cent to your spouse after you die.

If you choose a single life pension option with no guarantee period, you will receive a monthly pension until you die.

If you choose a joint life pension option with no guarantee period, you will receive a monthly pension until you die. After you die, your spouse will receive a continuing pension equivalent to the joint life percentage you chose until their death.

If you choose a single life pension option with a guarantee period:

• If you die within the guarantee period, your pension benefit will be paid to your beneficiary (or beneficiaries) until the end of that period. This may be paid as monthly payments or as a lump sum.
• If you live beyond the guarantee period, you will continue to receive your monthly pension for the rest of your life, but no pension will be paid to your beneficiary (or beneficiaries) when you die.

If you choose a 60% joint life pension option with a guarantee period:

• If you die within the guarantee period, your spouse will receive 100 per cent of your pension until the guarantee period ends. After the guarantee period, your spouse's pension payment will be reduced to 60 per cent for their lifetime.
• If you die after the guarantee period, your spouse will receive 60 per cent of your pension for their lifetime.

A pension with no guarantee period will result in higher monthly pension payments than a pension with a guarantee period. A shorter guarantee period will also result in higher monthly payments.

Important things to keep in mind

You have 60 days after your pension is granted to change your pension option After that time, your selection is final and cannot be changed. If you have a spouse, you may not be able to change your pension option after your pension has been granted.

If you have a former spouse, you may be required to provide some of your pension to them under the terms of a separation agreement or court order.

We recommend you speak with an independent financial adviser before making your pension option decision.