Also referred to as a money purchase plan, the defined contribution (DC) plan consists of both employee and employer contributions. Employee contributions are usually a percentage of earnings, which the employer then matches based on a specific ratio. The contributions are invested and earn income. When the employee retires, the amount that has accumulated is used to provide retirement income.
Read more on DC pension plans in the Save for Retirement section of this website.
Upon retirement or termination you may have the option of leaving the money in your employer’s plan until you wish to start drawing an income. Alternatively, if you do not wish to start an income stream immediately, you may purchase a deferred life annuity or transfer the account balance into a locked-in retirement account (LIRA) or locked-in RRSP (LRRSP). Read more on LIRAs.
Planning strategy: If you do not require an immediate income stream, consider leaving your DC pension in your employer's plan upon departure. You’ll continue to receive preferential rates on the investment funds (an administrative fee may be charged).