In a DC pension plan, the amounts that you and your employer contribute toward your pension are
defined – typically in terms of a percentage of your salary.These contributions are deducted and invested each pay period so you can accumulate pension funds that will become your income when you retire.A key characteristic of a DC plan is the investment decisions are yours to make – so it's up to you how you choose to allocate your contributions between
the Plan's four investment funds. This gives you options so that you can invest according to your own risk tolerance.
joined the Plan, your employer will start deducting pension contributions from your salary each pay period.How much your employer deducts depends on the matched contribution rate they set. The matched contribution rate is expressed as a percentage between 1% and 9% of your salary or compensation.Your employer matches your required contributions, dollar for dollar. So if you contribute 6%, your employer will contribute 6% each pay period.With matching contributions from your employer you have double the earning power – a key ingredient toward building a substantial retirement income stream.
To maximize growth, you have the option to make additional voluntary contributions (AVCs).Like required contributions, your employer deducts AVCs from your salary each pay period. Employers do not match AVCs.To set up AVCs, talk to your employer's payroll department.
Under a DC pension plan:
The combined amount you and your employer are allowed to contribute to the Plan is limited by the Canada Revenue Agency (CRA).
The maximum contribution limit set by CRA is the lesser of:
18% of your employment compensation for the current year, or
The money purchase (MP) limit for the current year (see the CRA website for the most recent
The total amount you and your employer contribute to the Plan each year cannot exceed this CRA limit.
This means that the total value of your pension funds always belongs to you.
Depending on how long your contributions are invested in the Plan, the rules that govern them can change.
The required contributions and investment earnings made by you and your employer become locked-in at some point.
Locked-in pension funds cannot be withdrawn as cash if you leave the Plan. These funds must be used to provide an
income for your retirement.
Pension laws determine the rules for locking-in, so your access to your locked-in funds may be restricted.
Unlike locked-in funds, non-locked-in funds do not have to be used to provide retirement income.
So once you are no longer working for an employer member of the Plan, you can:
Any additional voluntary contributions you make and their investment earnings are not locked-in, but they may not be withdrawn until you
terminate your employment.