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Defined Contribution Pension Plan Characteristics

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Financial Planning   ->   Pensions   ->   Registered Pension Plans (RPPs) -> Defined Contribution Pension Plan Characteristics

Characteristics of Defined Contribution Pension Plans (Money Purchase RPPs)

bulletPensionable age is specified by the pension plan and can vary from plan to plan.
bulletPension payments cannot be split between spouses, except in the case of a court ordered split, due to separation or divorce.  Due to the pension income splitting available on the tax return, this is less important.
bullet The pension adjustment (PA, reported on the T4) reduces the amount that the employee can contribute to an RRSP.
bullet Employer or plan sponsor contributions are not taxable to employees.
bullet Pension benefits will be paid out (usually in monthly payments) over the lifetime of the employee after retirement. 
bullet If there is a spouse, then the plan must be set up to continue payments to the spouse upon death of the member, unless the spouse has signed a waiver.
bullet The amounts to be contributed to the plan are specified in the plan contract.
bullet The retirement income of the employee will depend upon how much has been contributed to the plan, and how well the investments in the plan have done.
bullet The maximum amount of contributions to the plan for each employee is restricted by the Income Tax Act.
bullet Employee contributions are tax deductible.
bullet Many plans allow members to choose their own investments.
bullet Contract negotiations could reduce future contributions, but won't change the amount already in the plan for each employee.

Revised: September 20, 2017

 

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