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What’s the difference between a workplace pension plan and a savings plan?

Thinking of retirement? Maybe you just entered the workforce, and your employer is asking if you want to contribute to a workplace pension or savings plan. Having a retirement plan in place helps you build a healthy financial future. But what exactly is the difference between a pension plan and a savings plan?  

What is a pension plan?

In Canada, there are different types of pension plans. The federal government offers the Canada Pension Plan, which most working Canadians contribute to. Several organizations also offer workplace, or employer-sponsored, pensions plans. Workplace pension plans are an important source of retirement income for many New Brunswickers. 

In New Brunswick, there are different types of registered pension plans. The most common registered pension plans are:

  • Defined benefit plans (DB plans)
  • Defined contribution plans (DC plans)
  • Shared risk plans (SRPs) 

All these plans have one goal: to provide members with a retirement income.  

Here are a few key things to know about pension plans:

  • Joining a workplace pension plan may be optional or mandatory for employees. 
  • The plan may be contributory (you and your employer contribute to the plan), or non-contributory (only your employer contributes to the plan). 
  • The formula under a DB plan or an SRP determines the benefit (amount of income) you will receive in retirement. Under a DC plan, the amount of contributions and investment earnings will determine the amount of retirement income you will receive.
  • Contributions made to a registered pension plan are tax deductible and the benefit (money) is only taxable when it is received.  

Workplace pension plans are specifically meant to provide you with a retirement income. You may begin to receive this income after a certain age, typically from age 55 onward. If you leave your employment and end your membership in a pension plan before retirement, you will be informed of the options available to you. Typically, the funds will remain locked-in to provide you with a future retirement income. 

Learn more about Pension Transfers and Withdrawals.

What is a workplace savings plan? 

Some organizations offer savings plans instead of, or in addition to, pension plans as an employee benefit. Employers will often match the amount you contribute to the savings plan, up to a certain percentage or amount. However, contrary to a pension plan, employers may not be required to contribute to the savings plan.

There are a few key things to know about a workplace savings plan: 

  • Contributing to a workplace savings plan may be optional for both the employer and the employee. 
  • Contributions to a savings plan may be used for anything – not just retirement. 
  • Typically, you can access your savings plan funds at any age; however, this may vary based on the plan terms.  
  • Savings plans may be federally regulated plans such as:
    • A registered retirement savings plan (RRSP)
    • A tax-free savings account (TFSA)
    • A registered education savings plan (RESP)
  • Savings plans are subject to different taxation rules than workplace pension plans. It’s important to understand how your savings plan works and any tax implications that apply.

The benefits of planning ahead 

Retirement may seem a long way away, until it isn’t. If your workplace doesn’t offer a pension or savings plan, you should consider alternative ways to save for your retirement—such as private RRSPs or other investments.

It’s important to make a plan for your future. Financial planning will help you figure out your current money situation and how to get where you need or want to be financially when it’s time to retire. Visit Working with an Advisor to learn more about how to develop an investment plan and download free tools and resources to help you make smart and safe investment decisions.