Similar to your bank statement, you’ll receive a statement each year if you've got a pension. Annual pension statements provide a snapshot of your pension at a specific point in time (usually December 31st). While it’s easy to let your eyes glaze over while reading it, it’s crucial to review your pension statement each and every year – not only to ensure it’s accurate, but to also determine if your retirement dreams will be a reality.
Pension statements come in many different shapes and sizes and go under a host of names, but they all have one thing in common – they help provide the big picture when it comes to your retirement. Employers don’t just provide pension statements out of the goodness of their heart – they are required by law to provide active employees with pension statements on an annual basis. You’ll usually receive last year’s pension statement six months after the end of the year. For example, you should receive your December 31, 2012 pension statement by June 30, 2013.
Not only does your statement provide you with the pension amount you can expect at retirement, it provides important information like the plan formula, early retirement reductions, and plan funding. While some employers dress their pension statements with colourful glossy paper and graphics, others contain just the bare minimum. It’s always possible there could be errors on your pension statement – it’s important to get these inaccuracies corrected as early as possible. You don’t have to be a pension whiz to find errors – something as simple as an incorrect date of birth could affect the amount of pension you’ll receive.
1. The Basic Info: On the first page you should find your "tombstone" information – your name, date of birth, date of hire, and so on. Although some information like your date of birth will stay the same each year, other information like your credited service should change. You’ll want to make sure your date of birth, date of hire, and date of plan entry are correct. When it comes to your date of plan entry, some plans make you wait up to two years before you can join the pension plan.
2. Correct Dates: Three other dates to be aware of are your normal retirement date (the date when you’re eligible to receive an unreduced pension), your earliest retirement date (the earliest date you can take a reduced pension), and your earliest unreduced retirement date. You’ll also want to know your vesting date – the date after which you’re entitled to pension benefits if you leave your employer.
3. Beneficiary Information: Similar to your life insurance, it’s important to review your spouse and beneficiary information to ensure it’s accurate and up to date. A recent case in Ontario, Carrigan v. Carrigan, highlighted the importance of a beneficiary when a common law spouse was awarded the pension death benefits over a married spouse. If anything were to happen, you’ll want to make sure any pension death benefits go those that matter most. If you want to update your beneficiary, you should contact your employer to request a change of beneficiary form.
4. Credited and Continuous Service: Credited service and continuous service are two important numbers to pay special attention to. Although the definition varies by plan, credited service is usually the number of years you’ve been an active member in the pension plan (measured from your date of plan entry), while continuous service is measured from your date of hire. In a defined benefit plan, credited service is used to calculate your pension, while continuous service may be used to determine if you’re entitled to an early unreduced pension. If your pension’s plan formula uses earnings to calculate your pension, you’ll want to make sure your earnings are accurate. It’s important to remember that not all earnings are pensionable, so your pension statement earnings may differ from your T4 slips – when in doubt, it doesn’t hurt to ask your employer for clarification.
5. Accrued Pension: You're probably most concerned about the pension you’ll receive at retirement and rightfully so. Your accrued pension is the amount you can expect at your normal retirement date (commonly age 65). Some pension statements even have projected pension, the amount of pension you’ll earn if you stay employed to retirement, as well as government benefits like CPP and Old Age Security.
Your annual statement contains a wealth of information about your pension plan you should be aware of. It explains how much your pension is reduced if you retire early, death benefits payable to your spouse or beneficiary, and the normal form of pension.
You’ll especially want to pay attention to your pension plan’s funding. A transfer ratio that’s constantly falling year after year could spell trouble for your pension plan (although a profitable employer with an underfunded pension is usually preferred to a struggling employer with a well-funded pension). If you’re a long ways away from retirement you’ll want to know the financial health of your pension plan to make sure it’s still around when it’s time to retire.