What Is A Pension?

The Basics Of Pensions

A pension is a retirement income plan that provides regular payments to individuals after they stop working. It's designed to offer financial security in retirement by replacing a portion of your pre-retirement income.

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In Canada, pensions come in several forms — through government programs, employer-sponsored plans, or personal savings.

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Types of Pensions in Canada

1. Government Pensions

These are publicly funded programs that most Canadians are eligible for:

• Canada Pension Plan (CPP): Based on how much you earn and contribute during your working years. Paid monthly starting as early as age 60.
  
  
• Old Age Security (OAS): A monthly benefit available to most Canadians 65+, based on residency, not work history.
  
  
• Guaranteed Income Supplement (GIS): An additional income for low-income seniors receiving OAS.
  
  

2. Employer-Sponsored Pensions

Many workplaces offer pension plans as part of their employee benefits:

• Defined Benefit (DB) Plans: Guarantee a set monthly income based on your salary and years of service.
  
  
• Defined Contribution (DC) Plans: You and your employer contribute to an investment account, and your retirement income depends on how the investments perform.
  
  

3. Individual Retirement Savings

You can also create your own pension-like income with:

• Registered Retirement Savings Plans (RRSPs)
  
  
• Tax-Free Savings Accounts (TFSAs)
  
  
• Annuities or other personal investments
  
  

How Pensions Work

• You or your employer contribute to the pension during your working years
  
  
• Funds grow through contributions and investment returns
  
  
• You receive income during retirement, either as monthly payments or lump sums, depending on the plan

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Why Pensions Matter

Pensions help ensure a steady income after retirement, especially as people live longer and costs continue to rise. They’re a key part of long-term financial planning and can reduce the need to rely solely on personal savings.

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Key Takeaways

• Pensions provide income in retirement and can come from government, employers, or personal savings.
  
  
• In Canada, CPP and OAS are the main public pensions, while many employers also offer private plans.
  
  
• Understanding your pension options helps you prepare for a more secure financial future.

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Common Questions

Q: Do all workers get a pension?
A: Most Canadians qualify for CPP and OAS, but employer pensions vary by job and industry.

Q: Can I have more than one pension?
A: Yes. You can receive government pensions, employer pensions, and draw from personal savings at the same time.

Q: What happens to my pension if I change jobs?
A: It depends on the type of plan. Defined benefit plans may have vesting rules; defined contribution plans can often be transferred to a locked-in retirement account (LIRA).