Insights & advice
What is a defined benefits pension plan?

There are 2 main types of pension plans in Canada: defined contribution plans, and defined benefit plans. Depending on which type your employer or sponsor offers, your retirement income plan might look a little different.
Canada Life only offers defined contribution plans, but you may have a defined benefit plan from another provider or an older plan. Defined benefit plans can be complicated, but here are the basics.
Complex formula, consistent results
With a defined benefit plan, your retirement income is decided by a formula. It considers how much you and your employer have contributed, how well the investments have done, and your average income in your top-earning years.
A formula might look something like this:
- (2% of your total years of service) multiplied by your average income for your best five years = pension benefit
How is that different from a defined contribution plan?
In a defined contribution plan, your income depends on how much you and your employer have contributed and how well its investments have done.
So, unlike a defined contribution plan, the retirement income that you receive from a defined benefits plan is guaranteed to a certain extent.
You’ve got options
Regardless of which type of pension plan you have, you may want to supplement it with savings of your own – either to give you more control over your savings and investments, or to make sure you have money available for other long-term expenses if you need it.