Pension Plans Underserving their Clients

I have written about the pensioners I once had as clients, and how it took some ingenuity on my part to ensure many of them received their pension cheques during postal strikes. What I wanted to touch on in this post was the lack of clear guidance to those same pensioners and spouses provided by many pension plans, large and small.

Being a conscientious individual, when someone complains that a mistake has been made, I normally take them at their word and start to investigate how I or my firm let them down so the error can be rectified. While serving as the pension clerk at a large trust company, I began to hear complaints about pension cheques not being received. All too often, this was accompanied by tears and words of frustration from an elderly recipient dependant upon the timely deposit of these funds. What I learned, however, was that misdirected pension cheques were rarely the reason for these complaints. Far more often, and much sadder, the reason for the missed cheques was that the original pensioner had passed away and not chosen an on-going joint and last survivor option for their company pension. It was left to me to explain this reality to a grieving and cash strapped widow or widower.

I faced this situation many times as a pension clerk, and again as a service representative in a financial institution. We often received complaints that the financial institution had lost their money, when in fact it had never been sent.

As sad as this was, even worse was the situation where a surviving spouse delayed advising the pension plan of the death of the original pensioner. Often they would receive one or two pension payments before notification was made, and the financial institution had to reverse the payments, debit the account of the surviving spouse (occasionally putting them into overdraft) and repay the pension plan.

Why is it that pension plan do not shoulder the responsibility of keeping their members up to date on the pension options chosen. and the consequences upon the death of the original pensioner? It could be as simple as a message on each and every pension statement alerting the pensioner to the limitations of the option they chose. Even though the pension option was made by the pensioner originally, situations change, people divorce and remarry (even after retirement), people's memory fades and spouses may live with incorrect assumptions about the continuation of the pension plan.

For example: a life only pension option should provide a monthly or yearly statement that clearly says "This pension will cease upon the death of the original pensioner." A pension started today with a 10 year guaranteed period should provide a monthly or yearly reminder "This pension provides lifetime payments to XXXX as the original annuitant, but, upon his/her death, will only provide payments to the year 2017 to the named beneficiary. If XXXX dies after 2017, this pension will cease.

As a financial planner, obviously I am biased here, but I believe every pension plan should employ an independent financial planner to provide mandatory retirement and investment seminars for both employees and retirees. These seminars are an additional tool to educate and remind retirees on the consequences of their chosen pension option. Pensioner and spouses should attend whenever possible. This would go a long way to preventing the frustration and financial hardship faced by many who must cope not only with the death of a spouse, but also the end of the pension payments they have come to depend upon.