Beneficiary for a deferred pension

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CROCKD
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Beneficiary for a deferred pension

Post by CROCKD » 28 Jul 2017 11:52

I have been asked this question by a friend.
What I know.
She has a deferred pension from a former employer. She is not yet 65, still works - no pension where she is currently. She is divorced, single and does not have a spouse.
She wants to know if it is better to designate a beneficiary who would be a family member or the estate for her pension plan.
I presume the situation is different if she were to die before reaching pensionable age versus after she starts receiving a pension. I have always thought that work pensions were like life annuities which cease paying out once the person receiving them dies unless there is a spouse to receive a survivors pension.
Any thoughts appreciated.
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AltaRed
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Re: Beneficiary for a deferred pension

Post by AltaRed » 28 Jul 2017 12:04

My understanding is the commuted value is paid out to beneficiar(ies) if one dies before a pension commences, or in the absence of beneficiaries, the estate. I am not certain if it is indeed fully commuted value (employer and employee contributions) or just employee contributions.

Added: I guess whether it should be named beneficiaries, or the estate, is partly probate fee cost which I suspect would be applied if it went to the estate.
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OhGreatGuru
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Re: Beneficiary for a deferred pension

Post by OhGreatGuru » 28 Jul 2017 16:30

Regarding the payout: it would vary with the the type of plan. There could be a minimum return of some kind even after the pension starts, similar to a guaranteed annuity. She should ask the pension administrator for details.

Whether to pay to estate or to a beneficiary is an estate planning question, and the answer is "it depends".

Advantages of a named beneficiary:
passes outside of the estate;
is not subject to the delay of probate or the cost of probate;
is usually pretty fast & simple to arrange.

Disadvantages:
Will there be sufficient funds in her estate to settle her just debts, taxes, and fees, without the pension payout?
Will there be enough money in the estate to pass on to her intended beneficiaries without the pension payout?
Will any of her beneficiaries feel short-changed if the pension payout bypasses the estate?
If the pension payout is changing in value with time, does she need to keep track of it and adjust her will periodically, or is the payout not relevant to how she wants to divide her estate?

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CROCKD
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Re: Beneficiary for a deferred pension

Post by CROCKD » 30 Jul 2017 11:49

Thank you AR and OGG for your replies. I have passed on the info to my friend.
This sort of informed help is what I like about FWF and why I am still a member.
" A verbal contract isn't worth the paper it is written on " Samuel Goldwyn
"The light at the end of the tunnel may be a freight train coming your way" Metallica - No Leaf Clover

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