Should I contribute to a defined contribution (DC) pension plan?
Many employers in Canada offer their employees a defined benefit (DB) pension plan, where the size of their pension benefit is determined by a formula that takes into account their years of service and their salary or wage. However, an increasing number of employers have established a defined contribution (DC) pension plan for their employees. In a DC pension plan, the employee and employer make contributions to a pension fund, and the amount of the pension benefit is based on the amount of money in the fund when the employee retires.
There are pros and cons to both types of pension plans. DB pension plans are more secure, because the benefit is guaranteed no matter how the stock market performs. However, DB pension plans are also more expensive for employers to maintain and employees contribute at a higher rate, and are less flexible than DC pension plans.
DC pension plans have become more popular in recent years, in part because employers know exactly how much they will contribute each year, and they offer more flexibility for employees. For example, employees can choose how their contributions are invested, and you can see how much your pension is worth. However, DC pension plans are not as secure as DB pension plans, because the benefit is not guaranteed and you typically have to purchase an annuity to generate income for your self during retirement.
You may enjoy these other articles
What do I need to know about Locked-In Retirement Funds (LIFs)?
Locked-In Retirement Funds (LIFs) are a type of retirement savings account that is offered by financial institutions in Canada. They are similar to Registered Retirement Savings Plans (RRSPs), but have some key differences.
If I am changing jobs, should I consider working for an employer with a pension plan?
If you are changing jobs, you should definitely consider working for an employer with a pension plan. A pension plan is a retirement savings plan that is sponsored by an employer. There are many benefits to having a pension plan that we'll explore here.