A defined benefit (DB) pension is a workplace pension plan that promises a specific monthly income in retirement based on your years of service and average salary. The employer bears the investment risk and ensures the plan can pay the promised benefit.
How a DB Pension Works
Your annual DB pension is typically: years of service multiplied by the accrual rate (often 1.5 to 2 percent) multiplied by average salary. For example, 30 years at 2 percent with an $80,000 average salary produces $48,000 per year. Most DB pensions include inflation indexing, survivor benefits, and early retirement options.
Why It Matters in Retirement
A DB pension changes almost every other retirement planning decision. It reduces your dependence on investment returns and shifts the optimal timing for CPP and OAS. Common Canadian DB plans include OMERS, HOOPP, OTPP, and PSPP.
Related Resources
This article provides general financial education for Canadians. It is not personalized financial advice. For guidance specific to your situation, consider speaking with a CFP professional.