Why Become a Member of Your Workplace Pension Plan?
Saving for retirement requires discipline and can sometimes require making choices. Therefore, if you can get help to do so, take advantage of it! Do you have a workplace pension plan? Are you contributing to it? Here are some advantages!
Employer contribution
Often, your employer will also contribute to your savings. When an employer participates in a pension plan, it means that it contributes, that is, it puts money into the plan. Therefore, you are not alone in putting money aside for your retirement. Your employer's contribution means that you will likely have less to save to reach your retirement income goals. Not participating in the pension plan when you can is a bit like refusing money that is being given to you.
The employer contribution varies a lot from one type of pension plan to another:
- In certain plans, if you contribute, your contribution will be fixed and your employer will finance the rest of the pension you will receive in retirement.
- In other plans, the employer will contribute the same amount as you, which means it will match your contribution. Your employer may also contribute more or less than you.
If your employer contributes to your pension plan, your employer's portion of contributions increases your total actual salary.
Compound interest
All the contributions will accrue and generate interest so that you can have a retirement income. This can really pay off in the long term. Since you have many years left before retirement, your money will work for you. This is called compound interest. We talk about it on the
5 tips to save efficiently web page.
Automatic contributions
Another advantage of becoming a member of your workplace pension is that your contributions are deducted automatically from your pay. Since it is automatic, it makes saving much easier. It has even been proven that people save more when they do not have to transfer money from their account to a retirement savings plan.
If you can choose the amount or percentage of your contribution to the plan, think about it: the higher it is, the more it pays off for you!
Impact of contributions on income tax
Your contributions also decrease the income on which you pay income tax, except if they are made into a
TFSA. In addition, the plan's investment income accrues tax-free, just like for TFSAs and RRSPs.
Low management fees
Management fees of group retirement savings plans are usually much lower than the fees for individual plans. You save there too.
Therefore, a workplace pension plan is certainly a great advantage at work, and it pays off in the future.