Employer-sponsored pension plans
Employer pension plan basics
An employer pension plan is a registered plan that provides you with a source of income during your retirement. Under these plans, you and your employer (or just your employer) regularly contribute money to the plan. When you retire, you’ll receive an income from the plan.
There are two main types of employer pension plans:
- defined contribution plans
- defined benefit plans
Speak to a human resources adviser or pension plan manager to find out how your employer-sponsored pension plan works.
If you switched jobs during your career, you may have two or more pensions from different employers. You may be able to transfer your old pension to your new plan. Talk to a financial planner or representative at your financial institution or your human resources representative to understand what choices you have.
Defined contribution pension plans
In a defined contribution pension plan, you know how much you will pay into the plan but not how much you will get when you retire.
Usually you and your employer pay a defined amount into your pension plan each year.
The money in your defined contribution pension is invested in one or more products on your behalf. You may be able to choose how your money is invested. The amount you get when you retire will depend on how your plan is managed and how these investments perform.
You will usually have to choose where to put the money in your defined contribution pension plan when you retire.
Your options will often be to put your money in:
- an annuity
- a locked-in registered retirement savings plan or locked-in registered retirement income fund
- a combination of these two options
You may be able to take the money from your pension plan in cash if it is below a specific amount. Depending on your age and the terms of your pension plan, you may also be able to reinvest some of this money in another financial plan, such as a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) that is not locked-in.
Your pension plan administrator will usually tell you your options when you retire. You may want to consider speaking with a financial advisor for help deciding how to manage the money from your defined contribution pension plan.
Defined benefit pension plans
In a defined benefit pension plan, your employer promises to pay you a regular income after you retire.
Usually both you and your employer contribute to the plan. Your contributions are pooled into a fund. Your employer or a pension plan administrator invests and manages the fund. You don’t have to make any investment choices.
The income you get when you retire is usually calculated based on your salary and the number of years you contributed to the plan. It's a set amount that does not depend on how well the investments perform.
The amount you get may be increased on a regular basis to help you cover your living expenses while the overall cost of living increases. This is often called an indexed pension. Speak with a human resources advisor or your pension plan administrator to figure out if you will receive an indexed pension when you retire.
Group Registered Retirement Savings Plans (Group RRSPs)
A group Registered Retirement Savings Plan (group RRSP) is a retirement savings plan sponsored by your employer.
You open an individual RRSP but pay into it through your employer. You contribute through regular deductions from your paycheque. Your employer may also contribute to your RRSP on your behalf.
The details of group RRSPs vary by employer. For more information on your Group RRSP, talk to your human resources or pension plan representative.
Pooled registered pension plans (PRPPs)
Pooled Registered Pension Plans (PRPPs) are mainly for people who don’t normally get a workplace pension, such as employees of small-sized and medium-sized businesses and people who are self-employed.
PRPPs are similar to defined contribution pension plans. In defined contribution plans, your employer (and you, in some cases) contribute a set amount to your pension each year. However, with PRPPs your employer does not have to add money to the plan. You can ask not to be part of your employer’s PRPP.
The money in your PRPP is invested in one or more products on your behalf. The amount you get when you retire will depend on how these investments perform.
Voluntary Retirement Savings Plan
If you work in Quebec, you may be eligible to join a Voluntary Retirement Savings Plan if your employer doesn’t offer a PRPP. These savings plans are similar to PRPPs. They're generally available for employees who don’t have access to a workplace pension and to people who are self-employed.
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