This day and age, the economy is very uncertain. Pension legislation has proven to be an issue that people discuss quite frequently. Pensions help to ensure that people will have money when they retire, so naturally they would strike up a lot of controversy. There are a few myths about pensions that people should be aware of.
#1 – Spouses are entitled to the full pension if the worker dies before they retire
While this is the popular belief, it is simply not true. The benefits that a spouse receives before retirement are different than those received after retirement. The spouse may not even receive anything if the employer offers them life insurance. The best way to ensure that you know what your spouse would receive is by talking to the pension administrator about the rules and regulations.
#2 – A pension is always guaranteed
Generally, a pension program is something that is determined based on the financial stability of the business. If the company is not in a healthy financial state, then chances are the pension will be nonexistent. Another thing to consider is the fact that pension formulas are always changing. Some employers are switching from the final average earnings formula to a career average formula, which is less generous. This is why so many people are using other methods of investing for their future.
#3 – After remarriage, the new spouse gets the pension money after death
In the event of a divorce and remarriage, pensions can get a bit sticky. The ex-spouse may actually get the pension depending on the order from the courts. After remarriage, it is important to change the wording of your pension plan if you want to ensure that your new spouse is entitled to the money.
#4 – Defined benefit plans are the best option
People that stay with a company over the years will usually get more value out of a defined benefit plan, but when people switch employers often then they may find that a defined contribution plan is more flexible and better suits their needs. These plans are often easier to move from one employer to the next. A defined benefit plan is much more complicated.
#5 – The commuted values increase as time of service increases
Generally, this is thought to be true. While the length of time of service does relate to the commuted value, it is not the only factor. It is also affected by current interest rates. When the interest rates go down, the commuted values go up. Generally, the only thing you can have any control over is the length of time you are with your employer, and not over current interest rates.