Company Pension Plan vs. RRSP: Which Works Best for You?

Retirement savings is something most people should start planning for once they begin earning a steady paycheck. Many companies offer group savings plans for their employees, which helps employees plan for the future and shows that they care about their well-being. Depending on the plan, employer retirement funds can offer extra features like employer contributions and stock options.

What is a Company Group Savings Plan?

A group savings plan is a plan that an employer offers for its employees. The employer deducts pre-tax funds at source, prior to the employee actually getting paid.  Often, the employer then matches these funds in order to create more savings for the plan members. to help their investment grow quickly. When the employee retires, this group savings plan provides an income source during retirement.

With company savings plans, the employer chooses the product and financial institution. Different plans have different features, which we will look at below.  Lastly, if an employee leaves a place of employment prior to retiring, they will be provided with the option of transferring their group plan to their own individual savings plan.

What is a Registered Retirement Savings Plan (RRSP)?

A Registered Retirement Savings Plan (RRSP) is a pre-tax plan that grows with deferred taxation.  RRSPs can be held individually or through a group plan.  While quite similar, there are some differences that will be outlined below.

Group RRSP vs. Individual

Group RRSPs often times can’t be accessed while employed, and if they are accessible, there is usually a nominal fee to get access.  Please note if withdrawals are allowed, members will be required to pay tax in order to do so. While most group RRSPs are inaccessible for withdrawal, they are available for the Homebuyer Plan and Lifetime Learning Plan.  

Unlike group RRSPs, individual RRSPs usually don’t have withdrawal fees. However, it is important to note that when funds are withdrawn, individuals will be required to pay tax on the withdrawal amount.  

In both group and individual RRSPs, members are required to select the investments used.  The available options are quite broad, but include including bonds, trusts, equities and mutual funds.

When used for retirement, both options will need to be converted to either an annuity or a Registered Retirement Income Fund (RRIF).  Annuities are more rigid, providing a pre-defined income, often guaranteed for life, while RRIFs provide for flexibility in terms of access to the funds, but most often are not guaranteed for life. 

Group RRSP vs. Defined Contribution

Another option for a group savings is a Defined Contribution Pension Plan. While quite similar to group RRSPs, there are a few differences.  Notably, these are not available for the Lifetime Learning Plan, or the Homebuyer Plan, and are not accessible in any circumstances while employed.  Additionally, unlike RRSPs which can by fully redeemed at any time, a Defined Contribution Pension Plan can only be accessed in specific increments, and unless the individual is experiencing financial hardship, needs to be used for retirement purposes only.  

Invest in Benefits for Your Employees

Strong benefits plans improve your employees’ satisfaction levels and increase your retention rate. Happy employees mean more sales, satisfied customers and a positive working environment. This reduces stress levels on your part and puts you ahead of the competition.

Plan for your employees’ future with group retirement plans from David Burns & Associates. Our team offers health, travel, accidental death, life and critical illness insurance as well as retirement funds, wealth management and wellness programs. Get a free benefit audit, then talk to us about enhancing your employees’ benefits.

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