Defined benefit vs. defined contribution

What’s the difference?

PSPP defined benefit	Defined contribution
You have guaranteed income for the rest of your life. Your pension is guaranteed by the Government of Ontario.	You may outlive your pension. Your pension stops when your savings are depleted, unless you buy a life annuity.
Your pension is managed by a team of investment experts.	You make your own investment decisions. You are responsible for investing your own contributions and take on all associated risks.
You know how much your pension will be to a fair degree of accuracy. The PSPP uses a pre-set formula to determine how much you’ll get when you retire.	The value of your pension depends on the full amount you have at retirement, which in turn depends on factors such as investment returns.
Your pension is protected against inflation.	No inflation protection guarantee.
Your dependents may be eligible for survivor benefits.	You may designate a loved one to be the beneficiary in the event of your death, but a DC plan does not necessarily include disability provisions or health, dental and medical benefits.

Key terms

Normal retirement date is your 65th birthday. You can continue to work and earn pension credit past age 65, but under the federal Income Tax Act (ITA) you must start receiving your PSPP pension by the end of the year in which you turn 71.

Pension credit is the number of years and months that you (or your employer on your behalf) have contributed to the Plan. If you hold a regular part-time position, the pension credit you receive will be pro-rated, based on the regular full-time hours for your position. Pension credit also includes any credit you've purchased or transferred into the PSPP from another pension plan.

Pension formula is how we calculate your annual pension: (2% × average annual salary) × pension credit.

An early retirement bridge benefit is paid until you reach age 65 (the normal retirement age). Then your pension will be reduced for CPP integration.