My Employer Offers a Pension and RRSP Matching Should I Contribute?

If your employer offers a pension or RRSP matching program, you may be wondering whether it’s worth contributing. The short answer? Yes especially if it includes matching contributions. But let’s take a step back and unpack what’s really going on here.

Understanding the Two Types of Pension Plans in Canada

There are two primary types of employer-sponsored pension plans in Canada:

Defined Benefit (DB) Plans

These are less common today. In a DB plan, your employer promises to pay you a specific retirement income based on factors like your salary and years of service. The employer assumes all the investment risk and responsibility for delivering on that promise.

Defined Contribution (DC) Plans

This is what most employers offer today. With a DC plan, you and your employer contribute a set amount, usually a percentage of your salary, into an investment account. The final retirement value depends on investment performance. You assume the investment risk and decision-making.

Most group RRSP matching programs also function like defined contribution plans, even if they aren’t technically called a pension

How Employer Matching Works

A typical setup might look like this:

• Your employer offers to match your contributions up to 3–5% of your salary.
• If you contribute 5%, they’ll also contribute 5%.
• If you contribute less, they only match what you put in.

This is free money. If you’re not contributing enough to receive the full match, you’re essentially leaving part of your compensation on the table.

Where Is the Money Invested?

These plans are typically managed by large Canadian financial institutions like Sun Life, Manulife, or Canada Life. Within the plan, you’ll have a menu of investment options. These might include:

• Target-date funds (based on expected retirement age)
• Canadian, U.S., or international equity funds
• Bond or fixed income funds
• Money market funds
• Sometimes, balanced or asset allocation funds

Choosing the Right Investments

When selecting your investments, keep these two principles in mind:

Diversify Globally

A globally diversified portfolio spreads risk across markets and economies. This is especially important in defined-contribution plans where you bear all the investment risk.

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Align with Your Time Horizon and Risk Tolerance

• If you’re younger, you may want a higher equity allocation for long-term growth.
• If retirement is near, consider a more balanced approach with a blend of stocks and bonds to reduce volatility.

Where possible, gravitate toward low-cost investment options (like exchange traded funds or ETFs). Fees can quietly erode your returns over time, especially in long-term accounts like these. Lower investment options allow for guaranteed savings.

What Happens If You Leave Your Job?

Leaving a job doesn’t mean leaving your pension behind. But you do have options:

• Group RRSPs: You can transfer your account to your own RRSP, keeping your investments tax-sheltered.
• Defined Contribution Pensions: You can typically transfer the balance to a Locked-In Retirement Account (LIRA).
• Vesting rules: Be aware—some plans have a vesting period. If you leave before you're vested, you may not be entitled to your employer’s contributions.

It’s important to review your plan’s documents or speak to HR to understand what applies to you.

Maximize the Match, Then Consider Other Priorities

Even if you have the ability to max out your entire RRSP contribution room with your current pay, capturing the employer match first is usually the smartest move. After that, any extra cash flow can be directed toward:

• Your TFSA (Tax-Free Savings Account)
• Paying down high-interest debt
• Building an emergency fund
• Saving for other personal financial goals

Final Thoughts: Don’t Leave Free Money on the Table

If your employer offers a defined contribution pension or group RRSP with matching, contributing enough to get the full match should be a top priority. It’s a rare example of truly free money, and a powerful way to build long-term wealth—especially when combined with smart, low-cost investing strategies.

Want Personalized Advice?

If you're unsure how your group plan fits into your bigger financial picture or how to invest within your options book a call. We can help you make confident decisions that align with your long-term goals

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This information has been prepared by Brandt Butt who is an Investment Advisor and Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor and Portfolio Manager can open accounts only in the provinces in which they are registered.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and a business name under which iA Private Wealth Inc. operates.

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