Pension Division Under the Pension Benefits Act in Ontario

When a couple separates and one has a workplace pension, the money does not simply move from one person to another by agreement. The plan administrator has to be involved, and it will only act on the right paperwork.

This article walks through how pension division works under Ontario's Pension Benefits Act framework: who does what, the forms, the lump-sum method and the timelines that are known. It is general information only.

The basic rules since 2012

Under the family law division of the Pension Benefits Act in place since 2012, the former spouse's equalization share is limited to 50% of the Family Law Value. The administrator prepares a Statement of Family Law Value, and the value is fixed at the family law valuation date.

FSRA's pension settlement rules apply to settlements made after 31 December 2011, and the 50% cap applies to those settlements. For retired members, section 67.4(5) of the Pension Benefits Act imposes the same limit.

For a defined benefit plan the family law value is a preliminary value multiplied by a ratio of service during the spousal relationship over total service, capped at 1. For a defined contribution plan, FSRA's forms use the account balance, including earnings, at the valuation date.

Who does what

The order or agreement must state the valuation date, name the plan, and give the spouse's share as a dollar amount or a percentage not over 50%.

Lump-sum transfers

If the plan member has not retired on the family law valuation date, the administrator can only pay the spouse a lump sum for equalization. The lump sum must go to a locked-in account such as a LIRA or LIF.

Many people ask whether a pension can instead be split into a separate credit within the plan. Whether that is possible depends on the plan and the member's status. Ask the administrator what it will do, and have a lawyer confirm before you sign an agreement that assumes a particular method.

• Not retired at the valuation date: lump sum to a locked-in account only.
• Retired members: the same 50% limit applies. How payment is made depends on the plan, so confirm with the administrator.
• Other registered savings are handled differently. For an RRSP or RRIF, the CRA form T2220 transfers all or part of the plan to a current or former spouse or common-law partner on breakdown.

Deadlines and timing

The administrator has 60 days from a correctly completed application to pay the spouse. The word correctly matters: an incomplete form may mean that period does not start.

There is also the court time limit for a property claim. In Ontario you must go to court within six years from the day you separated or two years from the day your divorce is final, whichever comes first. The exact deadline for a spouse to apply to the administrator after an order is made depends on the plan and the paperwork, so confirm it with the administrator and a lawyer rather than assuming.

• Note your separation date and calculate the court time limit right away.
• Make sure the order or agreement names the plan and states the valuation date.
• State the share as a dollar amount or a percentage of no more than 50%.
• Complete Form FL-1 fully before sending it.
• Have a certified copy of the order, award or contract ready for Form FL-5.

What to do next

Contact the pension administrator early. Ask which forms it needs, how it receives them, and how long it expects to take. Keep copies of everything you send.

Before you sign a separation agreement that divides a pension, have a lawyer review the wording. A small drafting mistake can delay payment or change who gets what. A financial professional can also help you understand what a locked-in account means for your retirement planning.

Frequently asked questions