senrheadOpaqueWhen we retire, most of us rely on our pensions. In simple terms, a pension is a regular income that is paid to a person after they have retired, but it can also refer to the plan or scheme that is set up in order to provide this income and other retirement benefits. But where do pensions come from and how are they regulated? We've read up on pensions so that you can get the ball rolling on your own financial planning for the future.

Pension fund: A pension fund is the umbrella term to describe the assets built up in a pension plan. This can be shaped in a number of ways, including through your employer or by way of private pensions. The investment built up through the years is used at retirement to purchase a pension annuity.

Pension Annuity: Also known as a compulsory purchase annuity, or an immediate annuity.A  pension annuity is the expression for an insurance policy that pays your income during retirement. As explained above, your pension fund is what pays for this insurance policy.

Pensionable earnings: Your pension benefits and contributions are calculated on earnings, also known as pensionable earnings.

Pensionable service: These pensionable earnings are calculated from your pensionable service, the period of time you have spent with a company.

Pension transfers: As there are numerous ways to have a pension (as seen above in "pension fund") it is likely that at some point you may need to transfer the value of one pension plan scheme to another. This is done by reassigning the value directly from one employer/pension provider to another approved scheme.

Pensioner trustee: If you have your pension with a small self-administered scheme, it must have an independent and professionally recognised trustee to oversee processes.

Pensions Ombudsman: Those who are members of occupational and personal pension schemes can make disputes and complaints to the Pensions Ombudsman.

Their role is to investigate these claims, as well as investigating the complaints between trustees and employers, and between trustees.

There are two major branches of pension, Public and Private. Your public pension is the Canada Pension (CPP) or the Quebec Pension (QPP). Private Pension are pensions are plans sponsored by employers for the benefit of its employees. There is a third type which is a personal pension, otherwise referred to as an RRSP.

Private Pensions have two major approaches. The first approach is

1. Defined Benefit Plan. This plan was widely used by large employers decades ago where long tenor with a single employer or union was the norm. In tighter economic time this plan has lost favour with both employers and employees. Defined Benefit Plans typically start with a retirement benefit formula, (x% of salary) with full benefits commencing upon employee reaching a benchmark based on a formula like Age + yrs of service = 85. In this plan the employer takes on the investment risk which can be problematic in volatile markets and employers are often not savvy in investment matters. The other type is called

2. Defined Contribution Plan. This plan has become more popular with employers these days for a whole host of reasons. Some of the reasons are that its cleaner, more flexible and with a mobile labour force, portability is cleaner. In this plan the contribution by employer and employee are the driving elements. They will produce what they will produce and the investment risk falls on the employee.

3. Then there are executive pensions, designed for business owners and key executives.

Since most pensions are now portable, and employees are able to take over their pension dollars and manage it themselves if they leave their employers, either through early retirement or layoff.

We principally help employees manage their own pension funds and assist in the transfers. We can also facilitate the setting up of executive pensions.


Fairness and Equity:  Canada Revenue Agency has established a "model" retirement savings plan for all eligible Canadians to save on a tax favoured basis. All circumstances and plan structures are benchmarked against this "model" to provide fairness and equity. In a nutshell everyone is targeted to be allowed to save an equal amount on a tax favored basis regardless of the plan format.  Someone who is a member of a pension plan is allowed to save roughly as much as someone who has only RRSPs. It the pension plan rules are not as favorable as the "model", then the tax payer may augment the shortfall with an RRSP contribution in addition to the pension contribution.~

For a free consultation please feel free to contact us.


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