Maximize Your Workplace Pension
Glory Gray unpacks the ins and outs of workplace pensions in Canada — what they are, how they work, and what happens when you leave your job.
In this first episode of a two-part series, she breaks down the difference between Defined Benefit and Defined Contribution plans (in plain English!) and explains what really happens when your pension money moves into a LIRA — a Locked-In Retirement Account. Spoiler: it’s not your backup savings account, no matter how tempting that lump sum looks.
From understanding your pension paperwork to knowing which province (or the federal government) regulates your plan, Glory shares the key steps you can take now to make the most of your workplace pension — and avoid costly surprises later.
If you’re a working Canadian woman curious about how your pension fits into your long-term financial picture, this episode is packed with clarity, confidence, and practical next steps to help you turn your workplace benefits into lasting retirement security.
Stay tuned for Part Two, where Glory dives into how to turn that pension into steady income once you’re ready to retire.
Maximize Your Workplace Pension in Canada
Table of Contents
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Maximize Your Workplace Pension in Canada
Today, we’re kicking off a two-part series on workplace pensions—from your working years to your retirement years.
Now, if you’re working, contributing to a pension plan, or thinking about your retirement future, you’re going to want to stick with us for both episodes. Because today, we’re starting at the very beginning of your journey, and it’s going to set you up for what’s coming next.
So grab your tea, maybe a notebook if you're a keener like me, and let’s walk through the first half of the journey—from your working years, to leaving your job, to figuring out what the heck a LIRA is. Yes, we are going there.
Pension Planning at Work: What to Decide and When
If you’re working for an employer with a pension plan—first of all, congratulations. That’s becoming more and more rare these days. You likely have one of two kinds of pensions: A Defined Benefit Plan or a Defined Contribution Plan.
You'll notice that nowhere did I mention the term ‘RRSP.’ An RRSP is a type of account, or basket, where you can put away money into investments in a tax-advantaged way to prepare for your retirement.
That's not what we're talking about today. Today we're talking about workplace pensions. They're a whole other animal, regulated in a different way. In Canada, some employers do offer both group RRSPS and workplace pensions. It's great when they do. But today we're just talking about pensions: either defined benefit plans or defined contribution plans.
Types of Workplace Pension Plans
Defined Benefit Plan
These plans promise you a certain amount of retirement income based on some sort of criteria, such as your salary and how long you’ve worked there. This can feel really comforting because you know exactly what you're getting when you retire.
With this type of pension plan, your employer contributes money into the pension plan for you. There are certain limits to how much they can contribute but we don't need to get into that here. You don't need to pay tax on the money that they contribute, which is a great benefit to you. But the amount they contribute does reduce the total amount you have available to deposit into your RRSP at the end of the year.
This amount that your employer deposits is deducted from your available RRSP contribution room is called a Pension Adjustment. It will be reported on your T4. So if you ever hear that term ‘pension adjustment' that's what they're talking about.
Now some defined benefit plans also allow or require you to contribute to the plan as well. You may have a choice about how much you can contribute. The amount you contribute will also show on your paycheck and T4 and that amount that you contribute is deductible from your taxes as long as you have RRSP contribution room.
Defined Contribution Plan
These are the types of plans where you and your employer contribute to an investment fund, and the amount you’ll have when you retire depends on how well those investments perform.
Your paycheque deductions and taxation for these Defined Contribution Plans work much the same way as Defined Benefit Plans. The biggest difference between the two types of plans is that with a Defined Contribution Plan, you don’t know what your retirement income is going to be. A financial planner can make some estimates for you based on your age and how much money is being deposited into the plan, but it will only be an estimate.
Which Plan Do You Have?
If you want to find out which type of pension plan you have, your employer's pension administrator will have all the documents you need. Start with your payroll department or HR benefits department and ask them how you get in touch with the pension administrator for your pension plan documents. If you work for a government or large union, there's probably a website available to you with all the information.
You’ve Left Your Job. Now What?
You’re working at your job, you're building your pension plan, things are going great, when suddenly, life happens. Maybe you got a great offer at another company or another province if you're working for the government. What happens to your pension now?
The choices you have will depend on the type of pension you have. If you have a defined benefit pension plan you'll want to refer to your pension documents to see what your options are.
You'll likely have one of three options:
1) If you've reached an age where the documents say you can start receiving a pension you can go ahead and start receiving your lifetime pension income. The amount you receive will likely be dependent on several factors but that will be explained in the documents.
2) The second option will be to keep the money in your old company's pension plan and let it grow until you retire and then take your retirement income. The risk to that is what happens if the company is not in existence many years from now? What happens if the pension runs out of money?
3) The 3rd option is the most common and that is to transfer the value of the pension plan into a special account that you own. The pension administrator will tell you what that lump sum value-–which is called the commuted value-–will be. You will then work with your financial advisor to have that lump sum deposited into a LIRA– a ‘Locked-in Retirement Account.’ We'll go over these in a bit.
What if you have a defined contribution plan? In that case you would turn again to your plan administrator to find out how much of a lump sum you are entitled to. Then depending on what your pension plan allows you will likely have the option to do one of two things: either purchase an annuity contract that starts paying you an income now or in the future. Or transfer that lump sum into a…you guessed it…a LIRA.
What’s a LIRA?
A LIRA stands for Locked-In Retirement Account. And the key word here is “locked-in.” When you leave a job that offers a defined benefit or defined contribution plan pension, and you decide to take a lump sum with you, that pension money has to go somewhere. And for most people, especially if you’re under a certain age, it gets transferred into a LIRA.
Now, here’s the important part: once it’s in a LIRA, you can’t just withdraw the money whenever you feel like it. That’s where the “locked-in” part comes from. It’s legally protected to make sure you’re using it for what it was originally intended for—retirement income.
So how is a LIRA different from, say, an RRSP?
Well, with an RRSP, you’re allowed to contribute to it every year, and while there are tax implications, you can technically withdraw money from it anytime. It’s flexible. You can grow it, you can use it, and you can plan around it.
A LIRA, on the other hand, is a different beast. You can’t contribute more money to it—it’s a one-time deposit from your pension plan. You can invest the funds inside it, and ideally, you want those investments to grow over time. But you can’t add to it, and you can’t take money out until you reach a specific age.
And even then, you don’t just cash it out. You’ll usually convert it into a LIF, or ‘Life Income Fund,’ or possibly a life annuity, which then starts paying you regular retirement income.
So, if you’re thinking of taking time off work, or retiring early, and you’re eyeing that LIRA like it’s a backup savings account—hold that thought. It’s not accessible for short-term needs. It’s meant to be part of your long-term retirement plan.
Now, here’s a little teaser for the next episode: there are some special circumstances where a LIRA can be unlocked early. Things like financial hardship, a very small account balance, or shortened life expectancy. And yes—those rules can vary depending on your pension plan and what province has jurisdiction over that plan.
Here’s What You Can Do Now While You’re Still Working
Find out what pension plans are available to you and how much you can contribute to them in addition to your employer's contributions. If it's a defined contribution pension plan, research the investments available to make sure you get the return on investment you want.
Check your pension paperwork. Does your plan offer a commuted value option? Can it be transferred to a LIRA?
Find out what province has jurisdiction over your pension plan. Sometimes it’s not a province at all, it’s the Federal Government. This information will be in your pension documents and it’s going to be important in determining what choices you’ll have when you leave your job and when you start receiving income.
Start planning early. If you’re in your 50s, this is the time to start thinking about how and when you want to access this money. Again your pension documents will be very important here.
And above all, get professional advice. A financial planner who understands locked-in pensions can walk you through the best options for you, your retirement timeline, and your tax situation.
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