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What's the benefit?


How significant is it to have an employer sponsored pension plan? If you are a young adult you may not have given this much thought – after all, the government provides income at retirement, plus those years are still a long way off. However, retirement will arrive faster than you think, and a government pension alone may not allow you to live the lifestyle that you expect, so it is an important consideration even at a young age.
 
A pension plan is like a savings plan for your retirement years
 
Your employer-sponsored pension plan will be one of your most important sources of retirement income. Knowing how it works will help ensure you have the finances to fulfill your retirement dreams.
 
There are two basic types of registered employersponsored pension plans, regulated by government:
 
Defined benefit (DB) pension plan – Typically available for employees in the public sector and those who work in unionized workplaces, the DB plan provides a guaranteed payout for the duration of your retirement. The amount of your DB pension benefit is set according to your age, length of service and salary.
 
Defined contribution (DC) pension plan – With a DC plan, your contributions are combined with your employer’s contributions, and usually you decide where to invest it based on a selection of investment alternatives.What you get back at retirement is determined by accumulated contributions and the investment returns earned by these contributions. This amount is either used to purchase a life annuity contract, or (in some provinces) is transferred to a locked-in plan such as a LIRA, LIF, LRIF, or PRIF.
 
What decisions do I have to make when I join a plan?
 
When you are considering joining an employer-sponsored pension plan, be sure to read the plan details in your employee booklet thoroughly. You will also go through a detailed application process that your employer or pension plan provider can assist you with.
 
Some facts to keep in mind:
 
• In both DB and DC plans, the amount of your contribution is predetermined, usually as a percentage of salary.
• Both plans create a pension adjustment on your yearly tax return, reducing your personal RRSP contribution limit for the next tax year.
•Benefits from a DB or DC plan cannot be accessed until you leave your employer. The assets cannot be seized by creditors.
• In a DC plan, you may be required to choose your pension plan’s investments. Discuss this very important decision with us, as it could directly affect the amount of your benefits.
 
If you think you are too young to be thinking of retirement, think again. It’s a valuable part of your total compensation and it’s in your best financial interests to start planning early, and adjust as you grow older and your circumstances change. Your Investors Group Consultant can help you with questions concerning your plan or assist in selecting funds, if required.
 
 

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