Employer pension plans
Employer pension plan basics
A registered plan is a savings plan that is registered by the federal government and that helps you save. These plans help you grow your money while offering tax benefits.
An employer pension plan is a registered plan that provides you with a source of income during your retirement. It is also called employer-sponsored pension plan. Under these plans, your employer or you and your employer regularly contribute money to the plan. When you retire, you’ll receive an income from the plan.
There are 2 main types of employer pension plans:
- defined contribution plans
- defined benefit plans
Speak to a human resources advisor or pension plan manager to find out how your employer pension plan works.
If you switched jobs during your career, you may have 2 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 your human resources representative to understand the options you have.
Defined contribution pension plans
In a defined contribution pension plan, you know how much you’ll pay into the plan. However, you don’t how much you’ll 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 financial products on your behalf. You may be able to choose how your money is invested. The amount you get when you retire depends on how your plan is managed and how the investments perform.
You’ll 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 (RRSP) or locked-in registered retirement income fund (RRIF)
- a combination of these 2 options
You may be able to take the money from your plan in cash if it’s below a specific amount. You may also be able to reinvest some of this money in another financial plan. That will depend on your age and the terms of your plan. For example, you may be able to reinvest in an RRSP or a RRIF that is not locked-in.
Your pension plan administrator will usually tell you your options when you retire. When that time comes, you may want to consider speaking with a financial advisor. They can help you decide how to manage the money from your defined contribution pension plan.
Learn more about defined contribution pension plans with this member guide.
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 certain elements. That includes your salary and the number of years you contributed to the plan. It's a set amount that doesn’t depend on how well the investments perform.
Your amount may be increased to help you cover your living expenses while the rate of inflation increases. This is often called an indexed pension.
Speak with a human resources advisor or your pension plan administrator. They can help you figure out if you’ll receive an indexed pension when you retire.
Learn more about defined benefit pension plans.
Group Registered Retirement Savings Plans
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.
Learn more about setting up an individual Registered Retirement Savings Plan.
Pooled registered pension plans
Pooled Registered Pension Plans (PRPPs) are mainly for people who don’t normally get a workplace pension. For example, employees of small-sized and medium-sized businesses and people who are self-employed.
PRPPs are similar to defined contribution pension plans where you and your employer can contribute to your pension. However, with PRPPs, your employer doesn’t have to add money to the plan, it’s on a voluntary basis. 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 depends on how the investments perform.
Find out if you are eligible to join a pooled registered pension plan.
Voluntary Retirement Savings Plans
If you work in Quebec, you may be eligible to join a Voluntary Retirement Savings Plan. 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.
Find out if you're eligible to join a Voluntary Retirement Savings Plan.
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