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. 

Read our latest articles

Always seek advice from your financial planner. If you are a member of one of the BC Public Sector Pensions plans, you can see what the Pension Corporation says about your situation. Their pages provide a detailed summary of your options.