Canada: Beneficiary Issues In Retirement Plan Administration

Last Updated: March 16 2007

Article by Susan Slattery & Elizabeth Boyd, © 2007, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Pension & Employee Benefits, February 2007

A beneficiary designation is a method of effecting a transfer of property on the death of the grantor. The right to make a beneficiary designation is a statutory right prescribed by provincial legislation.

In Ontario, the primary statutes relevant to beneficiary designations in respect of benefits under a pension or other retirement savings or retirement income plan are the Succession Law Reform Act (the SLRA), the Insurance Act (the Insurance Act) and the Pension Benefits Act (the PBA). The SLRA authorizes beneficiary designations to be made in respect of certain types of listed plans. It specifically excludes a contract to which the Insurance Act applies, as the regime for beneficiary designations with respect to insurance contracts is dealt with exclusively within the Insurance Act. In contrast, while the PBA contains provisions which deal with beneficiary designations for pension plans, the provisions in the PBA must be melded with the provisions of the SLRA, which also applies to pension plans or, if the pension plan is funded by insurance contract, with the Insurance Act. While a discussion of the relevant legislation in provinces other than Ontario is outside the scope of this article, where a plan has members in other provinces, the administrator will need to consider the laws of the member's province of employment and/or residence with respect to beneficiary designations.


The SLRA permits a participant to designate a person to receive a benefit payable under a plan on the participant’s death. The designation may be made by a simple instrument in writing or by will. The definition of "plan" in the SLRA encompasses pension and employee benefit arrangements provided by an employer to employees, directors or agents and specifically includes RRSPs, RRIFs and annuities. To the extent a beneficiary designation is not made in respect of a plan or if the designated beneficiary has predeceased the participant, the property will be transferred to the personal representative of the participant upon death.

A beneficiary designation made under the SLRA is always revocable while the participant has capacity and can be revoked by instrument in writing or by will. If a later designation is inconsistent with an earlier designation, the later designation will revoke the earlier to the extent of any inconsistency. A beneficiary designation or revocation of a beneficiary designation made by will, will be effective on the date of signing the will, not the date of death. Although the terms of the plan may require notice of a beneficiary designation to be provided to the plan administrator, there is no requirement in the SLRA that any designation or revocation of designation be filed with the administrator of the plan. A beneficiary designation which is made in accordance with the provisions of the SLRA will be valid even if notification of the administrator as required by the plan is not made. It is therefore possible that the beneficiary designation on record with the administrator may have been revoked either expressly or implicitly by execution of a later inconsistent designation made in accordance with the SLRA but not filed with the administrator. To ameliorate the risk to the administrator in this regard, the SLRA provides that the administrator of the plan is discharged on paying the benefit to the person designated under the latest designation made in accordance with the terms of the plan, provided that the administrator has no actual notice of a later designation or revocation. If the plan does not require notification of beneficiary designations to be made to the administrator, or does not otherwise presumptively permit the administrator to regard the beneficiary designation held by it as the final and valid designation, then this protection may not be available.


Similar to the provisions of the SLRA, the Insurance Act permits an insured to designate a beneficiary to receive insurance money, meaning the amount payable by an insurer under a contract of insurance. In many respects, the provisions dealing with beneficiary designations in the Insurance Act are substantially similar to those in the SLRA; however, there are a few notable differences. In contrast to the SLRA, a beneficiary designation under the Insurance Act may be made irrevocable. In order to make an irrevocable beneficiary designation, the designation must not be made by will and must be filed by the insured participant during his lifetime with the insurer at its head or principal office. An irrevocable beneficiary designation cannot later be revoked without the beneficiary’s consent. As well, the Insurance Act provides more detail on the designation of multiple beneficiaries. If the designation names multiple beneficiaries and one of the beneficiaries predeceases the insured participant, the proceeds will be payable on the death of the insured participant to the surviving beneficiaries in equal shares unless the designation provides otherwise. Finally, the Insurance Act specifically provides that insurance proceeds payable under a beneficiary designation are not subject to claims of creditors of the deceased insured participant.


The PBA provides certain special entitlements to spouses of pension plan members irrespective of any beneficiary designation in accordance with the SLRA or the Insurance Act. For example, subsection 44(1) of the PBA provides an automatic spousal survivor pension where the spouse and the member are living together in a spousal relationship on the date the first installment of the member’s pension is due and subsections 48(1) and (2) of the PBA provide a choice of a spousal survivor pension or a lump sum where the spouse and the member are living together in a spousal relationship when the member dies, if the member’s death occurs before his or her pension becomes payable. The PBA permits a spouse to waive his or her entitlement to a special spousal benefit under section 44 or section 48 provided the waiver complies with certain prescribed requirements.

A member may designate a beneficiary to receive a preretirement death benefit under subsection 48 of the PBA and, depending on the form of a member’s pension, the member may also designate a beneficiary to receive a lump sum death benefit or survivor pension where the member dies after retiring. These designations will only be effective if, at the date the member dies in the case of the pre-retirement benefit under section 48, and at the date of the member’s pension commences in the case of the post-retirement benefit, the member did not have a spouse, the member had a spouse but was living separate and apart from him or her, or the member had a spouse but the spouse had validly waived his or her entitlement to the special spousal death benefit under section 48 or section 44, as applicable. In addition, a beneficiary designation with respect to amounts payable to a non-spouse in connection with a pension plan will be subject to the requirements of the SLRA where the benefits are payable from a trusteed plan and the requirements of the Insurance Act where the benefits are payable under a plan funded by way of an insurance policy or an annuity contract purchased with the commuted value of the member’s benefits under the pension plan.

It is also important, in applying the spousal and non-spousal beneficiary provisions of the PBA, to consider the implications of domestic contracts and court orders under the Family Law Act dealing with equalization of net family property and/or support in connection with the breakdown of a spousal relationship. In this regard, the PBA generally prohibits the assignment of, or execution, seizure or attachment in respect of, money payable under a pension plan or money transferred from a pension plan to certain prescribed retirement arrangements. There is an exception to these general prohibitions for assignments pursuant to an order or domestic contact under the Family Law Act, and execution, seizure or attachment in satisfaction of an order for support enforceable in Ontario. However, the PBA limits assignments pursuant to an order under Part I of the Family Law Act (i.e., relating to equalization of property) or a domestic contract under Part IV of that Act to not more than 50 per cent of the member’s pension benefits accrued during the spousal relationship and limits execution, seizure or attachment in respect of a support order to a maximum of one-half of the money payable under the pension plan or prescribed retirement arrangement.


The most common issue faced by plan administrators is what to do when faced with competing beneficiary designations where it is not clear which, if any, is the valid claimant. In general, there are three alternatives upon which payment can appropriately be made:

  1. upon settlement of the dispute among the claimants. In this event, the plan administrator should require a copy of the notice of settlement and a fully executed release from all claimants;
  2. an order of the court requiring payment to be made to one or both claimants; or
  3. an order of the court requiring the funds at issue to be paid into court. Although this alternative is usually the result of an application made by one of the claimants, it is also possible for a trustee or administrator of a plan to seek an order to pay contested funds into court.

In addition to the possibility of competing beneficiary entitlements, another difficulty experienced by plan administrators has been claims by creditors of the participant to the property designated under the plan, where the plan falls within the ambit of the SLRA. Unlike the Insurance Act, the SLRA makes no specific provision for the protection of the property of a plan from creditors of the participant. Where the plan is a pension plan, protection from creditors is provided under the PBA for certain types of benefits; however, until recently, employee benefit plans, group RRSP plans and benefits under pension plans not specifically protected remained an issue. This issue seems to have been resolved by the 2004 decision of the Ontario Court of Appeal in Amherst Crane Rentals Ltd. v. Perring. Mr. Perring had two RRSPs in which he had designated his wife as beneficiary. On his death, a competing claim for the RRSP funds was made by a creditor of Mr. Perring on the basis that the funds conceptually formed part of Mr. Perring’s estate and were therefore subject to the claims of his creditors.

The court found, based on the ability of the administrator to make payment directly to the designated beneficiary under the SLRA, that the SLRA intended for the proceeds of the plan to flow directly as a transfer from the deceased participant to the beneficiary and not to form part of the participant’s estate. Leave to appeal to the Supreme Court of Canada was denied. Although the case deals specifically with RRSPs, there is no reason why it should not equally apply to the proceeds of other plans encompassed within the SLRA and not otherwise protected by the PBA.

Another interesting issue experienced by plan administrators arises where the participant under a plan is incapable and the attorney for property attempts, either directly or indirectly, to change the beneficiary designation under a plan. An attorney for property is generally entitled to deal with the property of the grantor fully, with the exception that he may not make testamentary dispositions. One of the issues considered by the British Columbia Supreme Court in the 2001 decision of Desharnais v. Toronto Dominion Bank was whether a beneficiary designation for an RRSP was a testamentary disposition on the basis that it dealt with the transfer of property of the grantor to be effected on his death. The court agreed with this analysis and therefore the attorney for property did not have authority to alter the beneficiary designation. While this decision may also have applicability for other employee plans dealt with under the SLRA, its applicability to insurance contracts under the Insurance Act and pension benefits under the PBA is less clear. In the latter situations, it is not property owned by the participant which is being transferred to the beneficiary on the death of the participant, rather, the plan or contract provides certain specific rights to the beneficiary which arise only on the death of the participant.

The issue of competing claims also arises frequently in connection with pension plans governed by the PBA. For example, a plan member may designate a person who is not his or her spouse as a beneficiary in respect of death benefits under the plan. Upon the plan member’s death, an individual may claim to be the deceased plan member’s common-law spouse. As outlined above, in the event of a plan member’s death, the PBA provides special benefits to the member’s spouse in priority to the claims of other beneficiaries. In these circumstances, there are a number of issues for the plan administrator to consider, including:

  • how to determine whether the claimant is a spouse under the PBA, as evidence of a common-law spousal relationship may be difficult to obtain
  • are claimants represented by counsel, in which case the plan administrator can generally have more confidence that any settlement reached will be enforceable
  • can a settlement be reached between the parties that the administrator can implement without incurring substantial costs, such as costs associated with obtaining a court order
  • is the settlement compliant with the PBA or, if there is some doubt (for example, if the settlement could be construed as an assignment, which, as noted above, except with respect to certain family law claims, is prohibited), can the administrator adequately protect itself and the plan if it agrees to implement the settlement
  • if a court order is desirable, who should apply for it (i.e., one of the claimants or the administrator) and who should be responsible for the costs (can they be paid from the death benefit or otherwise from the plan or should they be paid by one or more parties personally)
  • are there any issues under the Income Tax Act (Canada) (the ITA) – a pension plan governed by the PBA must also be registered under the ITA and payments out of the pension plan must be permissible distributions for ITA purposes – in general, this means an administrator can only pay benefits provided for under the plan and tax must usually be withheld from such benefit payments unless the payments are made directly to another registered pension plan, RRSP or registered retirement income fund.

Where a pension plan member separates from or divorces a spouse, competing claims between the former spouse and a new spouse or designated beneficiary of the plan member are also common. For example, if the member has a new partner at the time of the member's death, a threshold question is whether that new partner is a spouse under the PBA.

In this regard, the member and his or her partner must (1) be married, (2) cohabit "in a conjugal relationship" for at least three years or (3) cohabit in a relationship of "some permanence" if they are parents of a child (natural or adopted). Even if the new partner is a spouse, in the case of a retired member, he or she will be entitled to the special spousal survivor pension under section 44 of the PBA only if he or she was the member’s spouse on the date on which the member’s pension first became payable and was cohabiting with the member at that time. An individual who was cohabiting with the member at the date on which the member’s pension became payable may not have been his or her spouse at that date if the individual and the member were not married or had not already been living together in a conjugal relationship for at least three years.

In addition, even if the member’s new partner is a spouse for purposes of the survivor pension under section 44 of the PBA, the amount of that pension will be reduced by the portion payable to the former spouse, assuming the former spouse is party to a valid separation agreement or court order requiring the payment of a portion of the member’s pension to the former spouse. Plan administrators will need to have a process in place for dealing with family law claims arising from court orders and separation agreements and ensuring that competing claims are resolved in accordance with the requirements of the PBA.

Beneficiary issues relating to retirement plans can be complex. This is especially the case with registered pension plans, in light of the special benefits provided to pension plan members’ spouses under the PBA and the rules relating to payments to former spouses in connection with family law claims. It is therefore important for pension plan administrators to understand the PBA requirements relating to spousal and non-spousal beneficiaries. However, it is also important for all retirement plan administrators, including administrators of pension plans, to keep in mind the beneficiary designation rules under the SLRA and the Insurance Act, and the corresponding legislation in any other province in which plan members are located.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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