A pension fund is not a retirement plan. Here’s why.
Many people believe that having a pension plan (or retirement plan) means they don’t need to create a formal retirement plan. After all, if their employer guarantees them an income in retirement, why worry? This logic may seem reassuring, but it overlooks many important issues. In reality, the pension plan is just one piece of the puzzle—not the entire puzzle.
Creating a retirement plan, even when you have a pension plan, helps answer key questions: At what age can I retire? What will my actual net income be? How can I efficiently draw down my other assets? What are the optimal tax choices?
1. A pension plan is not a guarantee of sufficient income
A pension plan, whether defined benefit (DB) or defined contribution (DC), generally covers only part of your retirement needs. Several studies, including one by the IQPF, estimate that the combination of public plans (QPP + OAS) and private plans covers between 50% and 70% of the income required to maintain your standard of living.
Without a personalized retirement plan, you don’t know:
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whether that income will truly cover your long-term expenses;
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whether you should contribute more to your TFSA or RRSP;
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whether voluntarily deferring your QPP or OAS benefits would be advantageous for you.
A retirement plan allows you to precisely calculate the gap to be filled and adjust your strategy well before retirement.
2. The retirement plan takes your personal goals into account
A pension plan knows nothing about you. It doesn’t know:
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your travel plans;
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your intention to help your children or grandchildren;
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your desire to take a phased retirement;
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your health condition or your family life expectancy;
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your desire to leave an inheritance.
A retirement plan, on the other hand, incorporates your concrete life goals, variable expenses (leisure, renovations, future care), and risk profile to create a realistic, personalized, and human financial picture.
Even with a good pension plan, you likely have:
A retirement plan helps determine the optimal order in which to draw down these assets, in order to:
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minimize your total lifetime tax burden;
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avoid income spikes that reduce OAS or tax credits;
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smooth your net income and make the most of your public pensions.
Even in defined benefit plans, you will have to make choices at the time of retirement:
- Type of annuity (with or without guarantee, joint or single);
- Retirement age (early, normal, or deferred);
- Integration with the QPP or not (in public plans).
Without an overall plan, these decisions are often made without understanding their long-term impacts, particularly on net income or the surviving spouse. Moreover, defined contribution plans require you to manage investment and longevity risk yourself—hence the importance of having a structured plan.
Creating a retirement plan also means asking yourself deeper questions:
- When am I ready to stop working?
- Will my assets be sufficient if I live to age 90… or beyond?
- Is my partner as well protected as I am?
- Am I prepared for unexpected events (care needs, disability, high inflation)?
The plan offers peace of mind because it is not based on assumptions, but on solid, personalized projections.
Having a pension plan is a fantastic starting point. But it’s not a retirement plan. The plan is what connects your income, your goals, your assets, and your tax reality. It’s what transforms a collection of financial elements into a clear, secure, and life-aligned path.
In short, the pension plan is the brick. The plan is the house.
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Retraite Québec, Retirement Pension and Coordination with Other Sources of Income, 2023
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Statistics Canada, Retirement Incomes of Canadians, 2022
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Government of Canada, Your Pension and Retirement Planning, 2022
