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Defined contribution pension plans
✔ In a defined contribution pension plan, you know how much you will pay into the plan but not how much you will get when you retire.
Usually you and your employer pay a defined amount into your pension plan each year.
✔ The money in your defined contribution pension is invested in one or more products on your behalf. You may be able to choose how your money is invested. The amount you get when you retire will depend on how your plan is managed and how these investments perform.
✔ You will usually have to choose where to put the money in your defined contribution pension plan when you retire.
✔ Your options will often be to put your money in:
👀 an annuity
👀 a locked-in registered retirement savings plan or locked-in registered retirement income fund
👀 a combination of these two options
✔ You may be able to take the money from your pension plan in cash if it is below a specific amount. Depending on your age and the terms of your pension plan, you may also be able to reinvest some of this money in another financial plan, such as a Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF) that is not locked-in.
✔ Your pension plan administrator will usually tell you your options when you retire. You may want to consider speaking with a financial advisor for help deciding how to manage the money from your defined contribution pension plan.
Learn more about defined contribution pension plans with this member guide.

Employer-sponsored pension plans

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Disclaimer:
I am a Financial Professional, however, the content of this video is for education and entertainment ONLY! This information should not be constructed as legal or financial advice. It is your responsibility to do your own due diligence. Your money, your decisions 😊.

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A defined contribution pension plan is a type of retirement savings plan that is commonly used in Canada. In this type of plan, both the employer and the employee make regular contributions to the employee’s retirement savings account. The amount of money that the employee receives upon retirement depends on the total amount of contributions made, as well as the investment performance of the funds in the account.

One of the main benefits of a defined contribution pension plan is that it allows individuals to have more control over their retirement savings. The employee has the freedom to choose how their contributions are invested, which can potentially lead to higher returns over time. Additionally, if the employee decides to change jobs, they can take their retirement savings with them, unlike with a defined benefit pension plan where the funds are typically tied to the employer.

Another advantage of defined contribution pension plans is that they are often more flexible. Employees can contribute additional funds to their retirement savings account, and some employers may offer matching contributions, which can help boost the overall savings. Furthermore, the funds in the account can usually be accessed in the event of an emergency or financial hardship, although there may be tax implications for early withdrawals.

However, there are also downsides to defined contribution pension plans. One of the main concerns is that the amount of money that an individual receives in retirement is not guaranteed. Unlike with a defined benefit pension plan, where the employer promises a specific amount of income upon retirement, the value of a defined contribution pension plan can fluctuate based on investment performance. This means that there is a level of uncertainty when it comes to retirement income.

Additionally, individuals are responsible for managing their retirement savings, which can be daunting for those who are not familiar with investment strategies. There is also the risk of market volatility affecting the value of the retirement savings, especially during economic downturns.

In terms of contributions, both the employer and the employee typically make regular contributions to the defined contribution pension plan. The specific amount that each party contributes can vary depending on the terms of the plan and the employer’s policies. It is important for employees to understand the contribution structure of their plan and take advantage of any matching contributions offered by their employer.

In conclusion, defined contribution pension plans offer individuals more control and flexibility over their retirement savings, but they also come with risks and uncertainties. It is important for individuals to carefully consider their investment options and regularly monitor their retirement savings to ensure that they are on track to meet their financial goals. Seeking professional financial advice can also be beneficial for those who are navigating the complexities of saving for retirement in a defined contribution pension plan.