Need-to-know facts about workplace pensions

Workplaces now offer many different retirement packages for employees, but they might not be right for you. Here's how to find a plan that works for you.

Need-to-know facts about workplace pensions

Working for your pension

  • Most retirements plans have compulsory membership as soon as you start work, but some are voluntary for the first few years. If you have a choice, join as soon as you start the job.
  • The overall size of the fund may end up determining if you can retire at a younger age.
  • In most cases you can transfer your pension to your new employer, or to a locked-in retirement account if you stop working before you're eligible for retirement benefits to kick in. Check with any potential new employer.
  • If you have a pension plan in the public sector, you'll be required to contribute a percentage of your earnings toward your pension.
  • If your company is struggling, consider making extra provision to your pension by contributing to a RRSP. Don't rely on a single retirement savings vehicle.

Know your plans

Pension plans come in many different varieties, each with their own benefits and drawbacks. Here are the most common types of pension plans:

  • Defined benefit plans: The more traditional type of plan where, at retirement, you receive a set yearly income from the pension fund for the rest of your life. The amount you receive is based on a number of factors, including salary level and how long you worked for the company.
  • Flat benefit plans: Unions often negotiate flat benefit plans, where the length of time you worked is the important factor, and not the amount of your wages. You will get a flat dollar amount for each year of service.
  • Defined contribution plans: Less common and often offered by smaller companies, these plans do not have a predictable payout. Instead, you and your employer contribute a percentage of your earnings. When you retire, you receive the amount that has accumulated in your name, usually in a lump sum.
  • Deferred profit sharing plans (DPSPs): With a DPSP, the employer is the only one who makes contributions, often tied to profits, and the amount they put in varies from year to year. When you retire, you can take your benefit as one lump sum or you can request instalments to be spread over 10 years.

What to do now about your future pension

  • Determine whether there's a pension plan and what kind before deciding to accept a job offer.
  • You may lose earned pension benefits if you move to a new job before working two years at your old one.
  • Read the annual reports and audited statements of your pension plan.
  • Know your pension is calculated when you will be eligible for full retirement benefits, and how much your pension will be reduced if you decide to retire early.
  • Contact your pension administrator for an estimate of how much you will be receiving.

Even if a pension plan looks great on paper, it may not be right for you. But if you know about the different plans, and how they work for you and your employer, you can learn about which pension plan can work for you.

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