Pension dilemma

Question: As of Jan.1, 2000 I became part of a defined benefit contribution pension fund. Currently, I am contributing to my RRSP monthly, but the top option in the pension leaves me without any RRSP room. The middle option leaves me with some, but obviously the payout isn’t as good. Should I go with the highest level and open a non-RRSP account to continue to invest or should I go with the middle so I have some RRSP room?


First, be sure you understand exactly what type of pension plan you have. You refer to a “defined benefit contribution pension fund”. There is no such thing. Your plan is either:

1) Defined benefit. This means that you are guaranteed to receive a specific pension when you retire. The formula is usually based on a combination of your income and years of service. If this is the kind of plan you have, find out if the pension will be indexed to inflation.

2) Defined contribution. In this case, there is probably no guarantee of the amount of your pension. It will depend on how well the money you invest in the plan performs over time. It is the less desirable type of plan.

If you have a defined benefit pla,you should opt for the maximum level of contribution. The advantage of a defined benefit plan is that you know what to expect at retirement, regardless of what happens to the markets.

If it is a defined contribution plan, find out if your employer is contributing to it as well  perhaps matching your own contributions. If so, again choose the top level. You’ll build your pension capital a lot faster with your employer’s help than you will on your on with an RRSP.

Your idea of starting to build a non-registered portfolio to supplement your pension income is an excellent one. Be sure to concentrate those investments in areas that are subject to a low rate of tax. Avoid interest-bearing securities and concentrate on those that produce dividends and capital gains.