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Facing a terminal illness

If you face a shortened life expectancy, you may be able to withdraw the commuted value of your pension before retirement without having to sever your employment relationship.

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The commuted value (CV) of your pension is the estimated lump sum dollar amount you'd need today to replace your future pension. If you die before receiving a shortened life benefit, pre-retirement death benefits will be paid instead.

Eligibility

To qualify for shortened life expectancy benefits, you must provide complete medical evidence, from a doctor licensed in Canada, of a life expectancy of less than two years. Spousal permission is also needed because a spouse forfeits the right to survivor benefits if you choose this option.

Payment options

Shortened life expectancy benefits can be:

  • Taken in cash (payable in the form of a cheque or direct deposit to your bank account)
  • Transferred to an RRSP, up until the end of the calendar year in which you turn age 71
  • Transferred to a Registered Retirement Income Fund (RRIF)
  • A combination of these options

Tax implications

Cash payments are subject to withholding tax and may require additional tax payments when you file your income tax return.

If you choose to transfer funds to an RRSP or RRIF, it's important to understand that the Income Tax Act limits the amount that can be transferred on a tax-sheltered basis. Any excess amounts are paid in cash and subject to withholding tax.

Consider a disability pension

Instead of taking a shortened life expectancy benefit, you may want to consider a disability pension. When comparing the two benefits, keep the following in mind:

Requirement/Feature Disability pension Shortened life expectancy benefit
Survivor pension provided Yes No*
Must terminate employment in education Yes No
Must stop receiving benefits under an employer-sponsored long-term income protection program Yes No

* The value of the survivor benefit is included in the shortened life expectancy benefit you receive.

If someone is contacting us on your behalf, you'll need to provide one of these two documents:

  • Power of Attorney for Property (if you cannot personally sign the application)
  • Written authorization (to release your personal information to a third party assisting with the application process)