Pensions provide steady income but limit access to lump sums

Almost 75% of Canadians lack a workplace pension, while defined-benefit plans provide lifetime monthly income but do not act like savings for large one-time expenses.

Pensions and retirement savings are the focus of a recent column that highlights a common trade-off. Almost 75 per cent of Canadians do not have a workplace pension, while about 25 per cent do. Defined-benefit (DB) plans pay a set monthly amount for life and offer predictable income. The article notes that DB pensions are not the same as savings that can be drawn down in a single large amount. Key facts: - About 25.7 per cent of workers were covered by DB plans in 2023, down from 31.9 per cent in 2003, according to Statistics Canada. - DB pensions provide regular lifetime income and reduce exposure to market and political changes, as described in the article. - DB pensions are income rather than savings, so they may not cover large, unexpected costs such as major home repairs or lump-sum needs. - Commuting a DB pension can convert future payments into a lump sum placed in a locked-in account, but it transfers longevity risk to the retiree. - The column notes that many retirees also hold TFSAs, RRSPs, or non-registered accounts to provide more flexible access to funds. Summary: Falling DB coverage means most workers do not have a workplace pension, and the article highlights the trade-off between steady monthly income and access to large, flexible sums. It also notes that commuting a pension changes who bears the risk of outliving savings. Undetermined at this time.