How to manage employee pensions

Over years of employment, your employees will build up a monetary fund which they’ll receive when they choose to retire. This fund is known globally as a pension.

Over their working lives, many Canadians contribute to retirement income programs, such as the Canada Pension Plan (CPP) or employer-sponsored pension plans. These provide income in retirement.

In this guide, we’ll discuss what pensions are, how they work and what your obligations are as an employer.

What is a pension?

A pension is a retirement plan that provides income after an employee stops working. Pension contributions are typically deducted from salary, with the benefit amount depending on the type of pension plan, salary history, and years of contributions.

It is a legal requirement for employers and employees to contribute to the CPP (excluding Québec). However, offering an additional, separate workplace pension plan is optional.

How pensions work in Canada

In Canada, retirement income can come from several sources, including:

• Public pensions: The Canada Pension Plan (CPP), Old Age Security (OAS), and the Guaranteed Income Supplement (GIS)

• Employer pension plans: Defined benefit or defined contribution plans offered by some employers

• Personal savings: Such as Registered Retirement Savings Plans (RRSPs)

What is the Canadian Pension Plan?

Employers are legally required to contribute to the Canada Pension Plan (CPP) for all eligible employees. Both the employer and employee share the contribution, which is automatically deducted from payroll.

Beyond the basic deduction, employers have several key responsibilities when it comes to the CPP:

• Register and set up payroll correctly: Ensure your business is registered with the CRA, so contributions can be processed properly.

• Deduct and remit contributions: Withhold the correct employee portion and match it with the employer contribution, then supply both to the government on time.

• Track and maintain records: Keep accurate payroll records of contributions, earnings, and remittance for each employee.

• Communicate clearly with employees: Make sure employees understand deductions, contribution rates, and how their CPP benefits are built.

• Stay current on rules: Contribution rates, maximums, and thresholds change annually; it’s the employer’s responsibility to apply them correctly.

Meeting these obligations helps protect your business from penalties and ensures employees receive their entitled benefits.

Additional employee pension benefits

In addition to CPP, employers can choose to offer a separate workplace pension plan. These plans will be additional to CPP contributions, and do not replace them. These plans can take different forms:

Defined benefit (DB) plans

Promise a specific retirement income based on salary and years of service. The employer typically bears most of the investment risk.

Defined contribution (DC) plans

Contributions are fixed, usually a percentage of salary. Retirement income depends on the investment performance of those contributions.

Registered Retirement Savings Plans (RRSPs)

Employers may also support employees in saving for retirement through RRSP programs:

Group RRSPs

Employers can facilitate contributions directly from payroll and may choose to match employee contributions.

Individual RRSPs

Employees contribute on their own; employers may provide education or financial planning support.

Get help your employee pensions today with BrightHR

Our HR Document Storage will help you to manage document your employees progress with their pension for when they come to retire, and we offer 24/7 expert HR advice for any employee relations questions you may have.

Book a free demo today to find out how BrightHR can help your business with your employee benefits and more!