Can Your Employer Save With you?

The answer is yes, absolutely! If you have a job that offers you the opportunity to save for retirement, do it! It is advantageous because most of the time, your employer saves for you too, which makes it easier for you. Retirement may be far off, but it will come. As we saw in What are the best ways to save for your projects or retirement?, when you start saving early, your money works for you thanks to compound interest.

Under certain workplace pension plans, your employer contributes the same amount as you, up to a certain maximum. Contributing means that your employer puts money into the plan. Under other workplace pension plans, your employer contributes less than you, but puts money toward your retirement. This can really pay off in the long term. Not taking advantage of it is a bit like refusing money that has been given to you.

Another advantage of contributing to your workplace pension plan is that contributions are automatically deducted from your pay. It makes saving much easier. It has even been proven that people save more when they do not have to transfer money themselves from their bank account to a retirement savings plan. Your contributions decrease the income on which you pay taxes, except contributions made to a tax-free savings account (TFSA). Your income accumulates tax-free! This is what a registered retirement savings plan (RRSP) is all about, as we saw in TFSA, FHSA or RRSP: why do you need one?

Furthermore, management fees of group retirement savings plans are usually much lower than the fees for individual plans.

A workplace pension plan is a real advantage when you are employed. It may not be as enjoyable in the short term as other benefits, but it pays off in the future, so it is worth taking into account in your total salary.

Furthermore, your employer also contributes to the Québec Pension Plan (QPP). You can consult your Statement of Participation under the QPP in My Account. You will see how much you have contributed and how much you will be able to receive when you retire if your income remains the same.

What are the different types of workplace pension plans?

There are several types of pension plans, so it is normal to get lost in all of this sometimes! If you are a member of your workplace pension plan, consult the statement you receive. It is the tool that helps you understand what you can expect to receive in retirement and that allows you to plan accordingly.

Defined-benefit pension plan or defined-contribution pension plan

You may be a member of a supplemental pension plan (often called pension fund). If that is your case, it is possible that it is a defined-benefit pension plan. Under that type of plan, the amount of the retirement pension you will receive is set in advance. You know exactly how much you will receive in retirement. Usually, the retirement pension you will receive will not decrease if the plan's investments do not generate good returns.

You may have access to a defined-contribution pension plan instead. This is a plan under which contributions are set in advance, but retirement income is not known in advance. Therefore, your income will vary based on the amounts that have been accrued. You know how much you are paying, but you do not know how much you will receive. The pension you could receive will depend on various factors, such as interest and life expectancy, and you will only know the amount when you retire.

Voluntary retirement savings plan

Your pension plan may also be a voluntary retirement savings plan (VRSP). Its goal is to allow every person who works to have a pension plan, including self-employed workers. In Québec, businesses of a certain size are required to offer a VRSP or another type of plan to their employees. If you choose to be a member of a VRSP, you determine your own contributions. However, your employer is not required to contribute any money.

Contributing to a pension plan

If contributing to your workplace pension plan is not mandatory, we still recommend that you contribute as soon as possible to make the most of it! If you can choose how much to contribute, choose the highest contribution possible, while respecting your budget, of course.

If your employer does not offer a pension plan, you can ask to set one up, such as a VRSP or another type of plan. Do not hesitate to ask. Your future self will thank you! Consult the Workers and VRSPs web page for more information.