What is a pension?
A pension pays you an income when you retire.
Types of pension plans
Canada Pension Plan (CPP) – This plan is available to nearly all workers in Canada and is operated by the Government of Canada. Typically, each pay period, money is contributed to this plan by you and your employer (this is a percentage of your earnings, after a basic exemption amount and up to a maximum annual amount). Retirement age is usually 65 but you can start your CPP pension as early as age 60 and as late as age 70. Your CPP pension will be reduced if you take it before age 65 and increased if you take it after age 65. Learn more about the Canada Pension Plan and how it’s funded.
Workplace Pension Plan – did you know you might be able to participate in a workplace pension plan? These plans receive and invest contributions from employers and in many cases, employees. In Ontario, there are two types of benefits offered by registered pension plans: defined benefit and defined contribution. A defined benefit plan provides a specified payment amount in retirement. A defined contribution plan invests contributions in funds and other securities over time to save for retirement.
Our Top Tips
Tip 1 – Find out what type of pension you have and how it works.
Tip 2 – If you’re starting a new job, ask your employer if they have a pension or another form of retirement benefits plan.
Tip 3 – Contribute as much as you can, as often as you can, and start early to give yourself the best chance of achieving the retirement you want.
Tip 4 – Find out if you can take steps to increase your pension.
Tip 5 – Stay connected with your plan. Always tell your plan administrator when your contact information changes.
Types of workplace pension plans
Defined benefit (DB) pension plan
Your plan will pay you an income when you retire. The income is for your lifetime, no matter how long you live. In many cases, a pension will be paid to your surviving spouse after your death.
Members do not make investment decisions in DB plans.
How much pension you receive is based on the pension benefit formula for your plan. In most plans this formula includes things like:
In addition to pension benefits paid monthly, a DB plan may provide annual increases to the pension, as well as: disability benefits, death benefits and early or postponed retirement options.
Defined contribution (DC) pension plan
Set contributions are made to the plan, usually by payroll deductions. The income available to you in retirement is based on several factors such as:
In many DC plans individual plan members make investment decisions from options their plan provides them.
Unlike DB plans, there is no guarantee that your pension monies will last for your lifetime – unless you buy an annuity from an insurer.
In some DC plans, you may have the option to select how much you contribute, and your employer may match some or all of your contributions. Be sure to ask how to maximize your employer’s contributions.
Joining your workplace pension plan
Joining your workplace pension plan is a great way to jumpstart your financial future. Even if you are part-time, you may be able to join and contribute now towards your retirement.
Ask your employer or human resources representative if/when you can join your workplace pension plan. Find out if it’s possible to join early to begin saving towards your retirement as soon as possible.
If you have a job offer, be sure to ask about whether there is a pension plan for you to join. Always consider the value of any pension that is offered (in addition to hourly wages or salary).
Questions to ask your employer
- Do you offer a pension plan?
- What type of plan is it?
- Are there any pension plan options or choices for me to consider?
- I have a pension plan from a previous employer, can I transfer my pension monies over and combine that one with the one you offer?
How is my pension invested?
Pension plans are responsible for making investment decisions to provide for your retirement that are in your best interest as members of the plan. For example, some DB plans consider environmental, social and governance (ESG) factors. If you’re in a DC plan, you may be able to pick investments that reflect ESG factors based on the options provided by your plan.
Contact your plan administrator or visit your plan’s website to find out more about their investment principles or investment options. When it comes to investment decisions, be sure to consider your entire financial picture and goals, and to get advice. You could also speak to a qualified financial advisor.
How do I learn more about my pension?
If you have questions about the specific terms of your pension and what you are entitled to, you should contact your plan administrator. If you are not sure who that is, use our Pension Plan Information database.
Are you a plan member?
Learn about your pension plan:
- review and understand your annual pension statement
- update key information – such as your spousal status, your beneficiaries and your contact information
- learn about any decisions that you must make, such as how much to contribute or what investment options you have
- get financial advice or use projection tools to find out if your retirement planning is on track
- ask questions - your employer, union or plan administrator can help