Defined Benefit Pension Plan

Here, we record more information about a defined benefit plan. Your information should be in your pension booklet.
  • The guaranteed period in years. Many pension plans offer a guarantee, where benefits will be paid at 100%, usually for 5-15 years, even if you die. If the pensioner has a spouse, that will be paid to them as a continuing pension; otherwise, it is paid to the estate. If there are children but no eligible living spouse, it can be paid out to them as a pension, but it can also be paid out as a lump sum. The TIME MACHINE will pay it out as a lump sum to the estate if there is no spouse (or the spouse pre-deceased the pensioner).
  • After the guarantee period, most pensions will continue to an eligible spouse; the default is usually 60%. You can get more pension if you do not have a spouse or if the spouse signs off on the pension.
  • If the pension was for a previous employment and you are no longer contributing, leave “Contributing to this Defined Benefit pension plan?” unchecked. The contribution and linked-employment fields can remain at zero or “Not contributing.” Otherwise, you still need to enter your yearly contribution amount to the pension plan (don't include employer contributions). You can get that information from your last pay slip (just annualize the amount). You must also enter the income source that the pension is linked to. That job should have been entered in INCOMES previously, so you can select it.
  • Percent of salary-accrued benefit per year. This is used by the CRA to calculate your Pension Adjustment (PA), which reduces your RRSP room. It comes from your pension formula, and refers to the percentage of your salary, added for every year of service, that you will receive at retirement. If you don't know that, just use the default 2%.
  • Gender of the pensioner and years of service up to the pension statement date are required only to perform commuted value calculations. These will be done if you set the source income to end before the pension begins, or if you set the death of the pensioner before the start of the pension in the TIME MACHINE.

If you leave your job, you might be able to transfer your pension to your new employer, or you might be able to take the commuted value of the pension as a lump sum rather than stay with your current employer's pension plan. There are also less frequently used options. Please discuss your options with your pension plan provider(s) and independent professional advisors before taking any action on your pension. The rules for taking the commuted value, and the amount calculated, differ substantially between pension plans. You must look at the pension plan’s provisions since a commuted value is not always available.

We will nevertheless attempt to get you a gross estimate of the commuted value of the pension now or in the future, along with the transferable portion and the taxable portion. You can enter a present or future date if you would like an illustrative commuted-value estimate after saving. An estimate can be produced only when the pension is linked to a salary paid in Canadian dollars and the estimate date is no earlier than today and no later than the pension’s end date. To calculate the estimates, we first adjust the amount of the pension by reducing the years of service. The interest rate we use in the calculation is the inflation rate at the date set (which should be close to the average 5-year personal deposit rate used by major banks, and therefore by many pension plans). We use the Annuity 2000 Basic mortality table for the actuarial calculation. We consider whether the pension is indexed, but do not consider the value of any survivor guarantees or other features of the pension. The transferable portion is the maximum transfer value imposed by the Income Tax Act. It takes into account the plan member’s age. Anything above the maximum transfer value is taxable as regular income in the year it is received.

Our estimates could be way off. They are only for illustration, so do not rely on them. We do not guarantee them. You can instead ask your pension plan provider for that information. The information will be provided, in any case, when your job ends. At that time, you can use the MoneyReady App to crunch the different scenarios.


See the eBook for details on setting up and comparing the following scenarios:

  • Keeping the pension or transferring it to a new employer’s pension plan.
  • Taking the commuted value and transferring the eligible portion to a locked-in account.
  • Using the commuted value to purchase a copycat annuity.
  • Transferring the pension to an Individual Pension Plan, when eligible.