Having pension benefits that you can take with you is important in today's work world. People change jobs more often than they did in the past. So what happens to your pension or savings plan if you leave your workplace before retiring? The income that you will get from your pension when you retire depends on two main things:
- The kind of plan you have.
- How long you have been with your company.
What will I get from my defined contribution plan or Group Registered Retirement Savings Plan (Group RRSP)?
With these plans, you don't know for sure what you'll get when you retire. It depends on how much money you save in your plan and how much it grows over the years.
Estimating a defined contribution pension: Tony's story
Tony's company saves 3% of his salary each year. To see how much income he gets when he retires, read Tony's story .
Estimating a Group RRSP pension: Brenda's story
Brenda contributes 5% of her salary to her Group RRSP. To see how much income she gets when she retires, read Brenda's story .
What will I get from my defined benefit pension plan?
Before you retire, you will know exactly what you'll get each month. Your plan administrator can help you figure it out. The formula is in your pension plan booklet. It may be one of these common types:
- Final average earnings: This plan bases your pension on how much you made over your last few years with the company. Often it's the last five years. Some plans take the best five years out of the last 10. The best plans take the best three years out of your last 10.
- Career average earnings: This plan bases your pension on your average income over your years in the plan. For instance, your pension may equal 1.5% of what you earned on average.
- Flat benefit plan: Union workers on short-term contracts often have these plans. Your employer works out with the union how much pension you get for each hour on the job. The money goes into a pension fund where a board of trustees oversees the investments. The unions also negotiate updates to protect the value of their members' pensions.
Who gets more?
Winnie and Winston both have defined benefit plans. But their formulas are different. See who gets the bigger pension. Read Winnie and Winston's story.
Remember: Your choices can really affect the income you get
For example, you have to choose how you will invest and create income from a defined contribution plan or Group RRSP. Even defined benefit plans offer certain choices when you retire, like providing money to your spouse after your death. This can change your pension payments.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.