TaxTips.ca
Canadian Tax and
Financial Information
What are Defined Contribution Pension Plans?

Ads keep this website free for you.
TaxTips.ca does not research or endorse any product or service appearing in ads on this site.  Before making a major financial decision you  should consult a qualified professional.

Looking for US tax information?
See
USTaxTips.net

Need an accounting, tax or financial advisor? Look in our Directory.      Stay Connected with TaxTips.ca!

Home
What's New
Calculators
Personal Tax
Business
Sales Taxes
Free in 30!
Financial Planning
RRSP RRIF TFSA
Real Estate
Stocks Bonds etc.
Seniors
Disabilities
Canada
Alberta
British Columbia
Manitoba
Ontario
Quebec
Saskatchewan
Atlantic Provinces
Territories
Federal Budget
Provincial Budgets
Statistics etc.
Glossary
Site Map
Directory
Advertise With Us
Contact Us/About Us
Links & Resources



Financial Planning   ->   Pensions   ->   Registered Pension Plans (RPPs)   ->   Defined Contribution Pension Plans - What are they?

Defined Contribution Pension Plan

Registered pension plans (RPPs), which are regulated by either federal or provincial legislation, are either Defined Benefit Pension Plans or Defined Contribution Pension Plans.

With a defined contribution plan, also known as a Money Purchase RPP, the employees do not know in advance what their pension will be when they retire, but they do have some control over how their pension funds are invested.  The company makes contributions to the plan usually based on a percentage of the employee's wages.  Often the employee can also contribute, which may result in a higher contribution by the employer.  The plan funds are invested in individual accounts for each employee.  The employee usually has a choice of types of securities in which to invest their funds.

With defined contribution pension plans the risk to the employee is that the investments may perform poorly.  However, the upside is that if the investments perform well, all profit increases go to the employee.  If the company becomes insolvent the employee will not lose any of the pension, because the funds are in the employee's name.

If an employee leaves their job prior to retirement, they will be able to transfer the assets in their pension plan to a locked-in RRSP, also known as a Locked-in Retirement Account (LIRA).  This differs from a Group RRSP, where any assets transferred to an RRSP would not be locked in.

See Characteristics of a Defined Contribution Pension Plan.

Revised: September 20, 2017

 

Copyright © 2002 - 2017 Boat Harbour Investments Ltd. All Rights Reserved  See Reproduction of information from TaxTips.ca

Facebook  | Twitter  |  Google + |  Monthly Newsletter Sign-up  What’s New E-mail Notification RSS News Feed
The information on this site is not intended to be a substitute for professional advice.  Each person's situation differs, and a professional advisor can assist you in using the information on this web site to your best advantage. 
Please see our legal disclaimer regarding the use of information on our site, and our Privacy Policy regarding information that may be collected from visitors to our site.