Module 3 Flashcards
(9 cards)
Antonio retires at the age of 58 and the normal retirement age under his employer’s defined benefit supplemental pension plan is 65. He is eligible for a temporary pension plan. Which of the following is true about this temporary pension plan?
a) Antonio will receive a reduced amount since it is an advance on the pension owed on normal retirement age.
b) Antonio is eligible to receive not more than 20% of the maximum pensionable earnings.
c) The temporary pension ceases when Antonio attains 71 years of age.
d) The amount of the temporary pension may not exceed 70% of the maximum pensionable earnings.
Since it is an advance on the pension owed on normal retirement age, the amount of the pension is reduced. A member who is less than 65 years old and is 10 years or less under normal retirement age may, on certain conditions, be entitled to a temporary pension rather than asking for an early retirement pension. The amount of the temporary pension may not exceed 40% of the maximum pensionable earnings. A temporary pension is not for life; it ceases at the latest when the person attains 65 years of age. Since it is an advance on the pension owed on normal retirement age, the amount of the pension is reduced.
YYR Consultants is a small organization with less than 40 employees. The business neither has a pension plan nor the resources to manage it. However, it wishes to have one with some investment options and would like to contribute to employee retirement. Which of the following plans would be a suitable option?
a) The simplified pension plan (SIPP)
b) The defined profit-sharing plan (DPSP)
c) The defined benefit pension plan (DBPP)
d) The beginners pension plan (BPP)
In 1994, the QPP created the simplified pension plan (SIPP) to better serve small and medium-sized businesses (SME) through less complicated administration rules. A SIPP is a defined contribution pension plan (DCPP) in which the members choose their investments. The investments are offered by the financial institution which administers the plan.
Which of the following is a similarity between a tax-free savings account (TFSA) and a registered retirement savings plan (RRSP)?
a) The financial institution offering the plans must have the contracts approved by the Canada Revenue Agency.
b) Withdrawals made during the year are added to the holder’s unused contribution room.
c) All income earned as well as withdrawals made are tax-free.
d) There is no age limit to contribute.
The financial institution offering the TFSA must have its contract approved by the Canada Revenue Agency, as in the case of an RRSP and an RRIF. All residents of Canada aged 18 years and over have the right to contribute to a TFSA. In order to do so, it is not necessary to earn any income and there is no age limit to contribute, contrary to an RRSP (71 years old). Contrary to an RRSP, all income earned in a TFSA, as well as withdrawals, are tax-free. Moreover, also unlike an RRSP, withdrawals from a TFSA during the year are added to the holder’s unused contribution room and maybe paid back during the following or subsequent years.
Which of the following statements about spousal registered retirement savings plan (spousal RRSP) is FALSE?
a) Both spouses contribute to a joint RRSP account registered under their names.
b) It offers a strategy to split the spouses’ retirement income.
c) It benefits the contributing spouse by providing tax credits.
d) The payor must have accumulated unused RRSP contribution room.
In a spousal RRSP, spouse A (the payor) contributes to an RRSP taken out in the name of spouse B (spouse B owns the RRSP). However, spouse A must have accumulated unused RRSP contribution room. Also, spouse A is the one who receives the tax credits. This strategy is used to split the spouses’ retirement income.
Rachel contributes to a defined contribution pension plan (DCPP) offered by her employer in Québec. As a member, Rachel is allowed to make investment choices within the plan. Which of the following statements accurately describes the investments offered to Rachel within the plan?
a) The investment options must be diversified and involve varying degrees of risk.
b) The insurer decides what investments will be offered under the plan.
c) A minimum of six investment options must be offered to the plan members.
d) The investments options must be risk-free with high guaranteed returns.
The investment options must be diversified and involve varying degrees of risk.
In a DCPP, the pension committee decides what investments will be offered by the plan. When members can make their own investment choices (which is generally the case), the pension committee “must offer a minimum of three investment options which not only are diversified and involve varying degrees of risk and expected return but also allow the creation of portfolios that are generally well-adapted to the needs of the members.
Which of the following statements about the voluntary retirement savings plan (VRSP) is true?
a) Self-employed workers can subscribe to a VRSP voluntarily.
b) Employers are required to contribute to the plan.
c) Eligible employees should complete an application for membership.
d) Workers whose employer has not subscribed to a VRSP cannot subscribe to the plan themselves.
Self-employed workers and workers whose employer has not subscribed to a VRSP can subscribe to a VRSP voluntarily. A VRSP is a voluntary pension plan: employers are not required to contribute to it. Eligible employees do not have to do anything in particular to become a member: enrolment is automatic.
Seventy-five-year-old Cho paid $150,000 towards an annuity contract and started receiving monthly annuity payments from the insurer which will continue until her death. This is an example of a(n):
An immediate annuity contract is a contract according to which the payment phase begins as soon as the constituting capital is paid to the insurer. The capital which constitutes the annuity is alienated to the insurer and placed in its general funds. In consideration thereof, the insurer agrees to pay the annuitant an annuity according to the terms agreed to by the parties. These annuities are guaranteed by the insurer from its own general funds.
Which of the following individuals is LEAST likely to be able to withdraw funds from their locked-in retirement account (LIRA)?
a) 53-year-old Calkin, who won’t be able to return to work for a month due to an injury
b) 66-year-old Seema, whose funds in the LIRA is less than 40% of the maximum pensionable earnings
c) 59-year-old Vikram, who is diagnosed with a terminal illness
d) 51-year-old Salim, who has not resided in Canada for the more than two years
Calkin is least likely to be able to withdraw funds from his LIRA as he does not fall under any of the below-mentioned exceptions.
In a LIRA, there are some exceptions to the funds being locked-in:
* If the member is over 65 years of age, he can withdraw the balance in cash if the total of the sums credited to locked-in retirement instruments does not exceed 40% of the maximum pensionable earnings (MPE) for the year in which he applies for the payment;
* If the member has not resided in Canada for at least two years;
* If the member has a physical or mental disability that reduces his life expectancy.
Ron and Lia are a civil union couple in their late 60s. Ron is a retiree who is currently receiving a pension. The couple decide to end their relationship. If they divorce, what effect can this have on Ron’s pension payments?
a) Ron can ask for a redetermination of his pension as if he had never had a spouse.
b) Lia will continue to have rights to the joint and survivor pension after the divorce.
c) Ron’s payments will be lower than they were before his relationship ended.
d) Ron’s pension that is in the payment phase cannot be partitioned.JKL Insurers is an insurance company that becomes insolvent and is luckily a member of Assuris. Abraham holds an individual variable capital annuity contract with JKL Insurers. What type of protection is Abraham likely to receive from Assuris?
In the case of an individual variable capital annuity contract, Assuris guarantees that the client will retain up to $60,000 or 85% of the promised guaranteed amounts, whichever is higher.
Ref. 3.14
