Get to Know the Pension Plans

Whether retirement is around the corner for you or still far away, learning about your pension should be a priority. Your income after retirement can come from different investments like your employee pension plan, government pension plans, or from your retirement savings.  

There are two types of pension plans - Defined Benefit and Defined Contribution.  

Defined Benefit Plan, which is the traditional pension plan, provides a specific and defined income amount at retirement. It’s essentially guaranteed income for life. The income is based on a formula which includes your salary, years of service, and potentially your age.   

Defined Contribution Plan establishes a set amount that both you and your employer will contribute yearly. These types of plans don’t guarantee what your income will be at retirement, it’ll be based on how well your plan is managed. These plans will also require you to collapse the plan by the end of the year you turn 71.   

Now what happens if you change employers? With a defined benefit plan, you can transfer your pension to your new employer’s plan (however not all employers will let you transfer so always confirm with them first), leave it where it is, or take it and invest elsewhere like a Locked-In Retirement Account (LIRA). If your pension plan is in a defined contribution plan, you can take your money and invest elsewhere, leave it where it is, or buy an annuity. Talking to an Advisor during this time can make your decision much easier and ensure you’re getting the most of your money.   

Other sources of retirement income to consider in your planning are:  

Old Age Security (OAS) is a monthly payment for citizens older than 65. Most people will get this automatically once turning 65 however there are cases where you’ll have to apply for it. You can still receive OAS if you’re still working or have never worked.   

Canadian Pension Plan (CPP) is a monthly, taxable benefit that replaces your income at retirement. CPP payments are not made automatic. You need to apply and should do so sooner to ensure you receive payments when your pension starts, visit the Government of Canada to find out how to apply. Although there are factors like health and varying financial situations that require you to start your pension earlier, talking with an Advisor can ensure you’re making the right decision for your retirement future.

Guaranteed Income Supplement is a monthly payment that is available for low-income Old Age Security pensioners. The government will advise you if you qualify usually by letter after you turn 64, however there are additional requirements to qualify for this. Visit the Government of Canada website to learn more.  

It's best to start planning for retirement sooner than later. It's okay to ask for advice on where to begin, book an appointment with an expert Advisor today.