A defined benefit (DB) pension is a retirement savings vehicle designed to provide secure, predictable income in retirement – for life. A key feature of a DB pension is that the pension income a retiree receives each month is calculated using a formula that is based on their salary and service during their working years.

How do DB pensions work?

Both the employer and employee typically make contributions to the pension plan. The employee’s contributions are automatically deducted from their pay. The money contributed from employers and employees is then managed and invested by professionals and used to pay pension income to retirees.

There are also other ways to save for retirement. To get a better understanding, let’s compare the options:

  Defined Benefit (DB) Defined Contribution (DC) or Group RRSP
Philosophy To provide members with retirement income for life To help individuals accumulate retirement savings
What is Defined? The benefit members will receive in retirement is defined by a formula Only the contribution level is defined, the benefit is not
Investment Decisions Contributions are invested by a team of investment professionals Individuals are normally responsible for their own investment decisions
Income in Retirement Members receive secure, predictable income in retirement for life - members won’t outlive their pension Benefit will vary, depending on the success of individual investments and market conditions at retirement

 

The key advantage of a DB pension is that it helps provide retirement income certainty. This is because you know in advance how much income you will receive each month in retirement. And a DB pension is now available for Ontario’s nonprofit, charitable and broader public sector organizations – it’s called OPTrust Select.

An OPTrust Select pension, combined with personal savings, and government programs such as CPP and OAS, provides a simple way to invest in your financial future.

How can you get a DB pension?

To be eligible for a DB pension, you must work for an employer that offers one. To learn more about OPTrust Select and your eligibility to join, please contact us.