30 Nov What does it mean to have a pension in Canada?
You may have just come to the end of your employment contract and anticipating pension funds from your employer, or you may be wanting to find out how you can eventually receive a pension plan in the future. Either way, you need to further understand how pension plans work.
A pension plan is a form of retirement plan that can be provided and organized by the employer. Upon retirement, the employee will receive payments from their employer (sometimes with contributions from the employee) on an annuity basis, which means they will be paid at fixed periods consistently over time. Normally, the fixed period will be monthly payments made to the retired employee. If the funds are from both the employer and employee, most of the funds will be provided by the employer.
Types of Benefit Plans
There are two most common types of benefit plans. The employee can be scheduled to receive a defined benefit plan or a defined contribution plan. The defined benefit plan is a pension plan that is guaranteed because it is money that is being saved by both the employer and employee over time. This plan is defined by a combination of the number of years the employee has worked, their salary, and their age.
The defined contribution plan is formulated by either a percentage of the employee’s salary, or a gathering of payments that the employer has made over time. The amount of funds allocated to the employee upon retirement is dependent on how much the employee and employer invest in the plan, and how much the investment increases over the employment relationship. The amount the employer and employee need to invest each year is determined, but the payment upon retirement can still vary because the money is coming from an investment account like a stock or a bond. There is a chance the investment can struggle, and maintaining the investment is prioritized over providing the employee with a pension.
If you have questions about your pension plan, please contact KCY at LAW by filling in an online consultation request or contact us by phone at 905-639-0999 to book your consultation today.