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What is a pension plan?



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A pension plan, can provide a steady income after you retire – either by paying a fixed amount for life or helping you save money while you are working. There are government, employer and individual pension plans. The Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) gives a monthly income starting as early as your 60th birthday. There are two main types of employer pension plans:
1. Defined benefit (DB) plan
– Pays a certain amount of retirement income for life which is based on a formula that includes your earnings and years of service with your employer
– Typically, both you and your employer contribute. Your employer is responsible for investing the contributions to ensure there’s enough money to pay the future pensions of all plan members.

2. Defined contribution plan
– Contributions are guaranteed, but retirement income is not. Usually, both you and your employer contribute to the plan. Your employer may match some contributions you make
–  You are responsible for directing investing all contributions to grow your savings. In this way, it is similar to a Registered Retirement Savings Plan (RRSP) and retirement funds depend on total contributions and returns on investments.
Find out more about pensions and ways you can plan for retirement.

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