3 ways to make the most of your workplace pension plan

There are multiple types of employee pension plans. The two main types are: defined benefit plans and defined contribution plans. Regardless of the plan, “the great thing about them is the financial contribution your employer adds,  boosts how much you can save for retirement every year,” explains Jean-Michel Lavoie, Sun Life Vice-President, Strategy & Market Development, Group Retirement Services. A bonus, he adds, is that management fees are often lower because of the size of the plan. Plus, you may have access to certain types of investments that tend to be usually restricted to fund managers. In short, contributing to an employee pension plan helps you invest more. Why? Because your employer makes contributions, and you have access to funds that aren’t available to the general public. 

Here are three ways to get the most out of your workplace pension plan.

Step 1: Stay informed

First check to see if your employer offers a workplace pension plan. The best place to start is to contact your Human Resources department or your manager. They can also give you the information you need about how to join the plan.

For example, some employers have an intranet for their employees. You can access it and look up any information about your plan and, in some cases, to change your contributions online. 

As a general rule, employers will offer a variety of mutual funds. Some employers will even have default funds. It’s often possible, and a good idea, to choose the funds that suit you best. “Choosing your investments wisely is crucial because you could potentially double your returns for your retirement,” Jean-Michel adds.

Step 2: Compare the rates of return

For each dollar the employee contributes, the employer normally matches it 1 to 1 or sometimes 1 to 2. That’s a guaranteed return of:

• 50% (1 to 2)
• 100% (1 to 1)

And that’s even before you get into the stock market or start combining employer contributions with your investments.

As well as returns, you should also look at the fund management fees. The money you set aside through your workplace plan versus your individual savings (RRSP, TFSA, etc.) – could end up generating a big difference. This is important both while you’re saving money and once you retire.

Some studies show the increase could be as much as 25%. 

Step 3: Maximize your plan's potential

1. Look at your pension plan booklet and your employee class. Then, maximize your plan’s potential. 

2. Are there a lot of options? Does it seem complicated? Ask the resource people handling your company’s plan for advice. 

3. Enrol as early as possible! By contributing as soon as you start your job, you’ll maximize your potential retirement savings.

For example, if you save $5,000 every year (less than $100 a week), you’ll have saved $150,000 towards your retirement. But through the magic of interest (assuming the return on your investments is 5%, for example), you’ll have saved a grand total of $354,000. The interest alone would generate $200,000 in savings! And if your employer contributes the same as you every year, your total jackpot would add up to $708,000 after 30 years. 

4. Set a retirement goal. Having a goal will motivate you to learn more, really commit, and make higher contributions. In fact, plan members with a defined retirement goal generally have 25% higher savings.

Don’t have a workplace pension plan?

Meet with a Sun Life advisor to create your own retirement savings plan.