Are Defined-Benefit Pension Plans Going Away?

“Defined-benefit,” means a defined, specific benefit payment deposit is made to the employee each month while you are retired. That puts the employer in the position to pay that benefit to the employee for their lifetime.

“Defined-contribution,” means a specific and predictable contribution where part of your paycheck is put towards your pension. For example, your employer could say if you put 5% of your salary towards a retirement plan, we (the employer) will match that and put 5% into a personal pension plan. Every time you get paid, 10% is then being put into a plan.

With defined-contribution plans, an outside insurance company typically manages the plan. This is beneficial for you because it’s flexible. When you quit or retire, that money is yours, and you move it to a personal retirement plan.

The industry has generally moved to defined-contribution plans because it puts the onus on the employee to contribute enough and make sure it’s properly managed.

In a defined-contribution plan, the employer has no obligation to provide the employee with an income upon retirement.

In the case of government pensions, it’s guaranteed by the tax payer.

Have questions about your company pension? The team at Pension Solutions Canada is here to help. We specialize in helping individuals prepare for retirement. Let us assess and review your pension, commuted value, and help you with retirement planning. Call us at 1-888-554-6661.

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