Aramark Food Services Pensions Pamphlet

Pensions: How They Work and Why You Need One

“When I was young, I thought that money was the most important thing in life; now that I am old, I know that it is.” – Oscar Wilde.

A pension is part of your total compensation package, but is a part that is reserved for your retirement. While there is money deducted from your paycheque for it, that money is matched by a contribution from your employer.

There are a lot of reasons why you should love a proper pension plan. It provides income security when you retire and perhaps cannot work anymore. The money you and your employer put in grows because of investment income. Pensions are more stable and secure than RRSPs. And investments in pension plans grow much more quickly than investments in RRSPs.

What is a pension?

A pension is deferred income. But it is more than that.

In a defined-benefit pension plan, the employer guarantees a certain monthly income upon your retirement, based on your years of service and how much you were earning before retirement.

The money you, your co-workers and your employer contribute all goes into one central fund. That money is invested and grows over time. In fact, most of your pension will come from investment income, not from your contributions. Defined-benefit pensions are secure and stable because they are guaranteed by the employer. They are also stable because the investments are pooled – the ups and downs of the investment market average out over time, so your retirement income won’t suffer if you retire when the markets aren’t doing well.

You and your employer would both be required to contribute to a pension plan.

What is an RRSP?

An RRSP is not a pension plan. Having an RRSP is not a bad thing, and getting employers to match contributions to an RRSP can sometimes be a step toward winning a proper pension plan. But an RRSP offers few of the benefits of a defined-benefit pension.

Employers today, especially in non-unionized workplaces, tend to offer employees some sort of RRSP matching scheme, typically around 5%. That is, the employer will match your contributions up to 5% of your earnings (the percentage is something that is negotiated).

Here’s how RRSPs work:

You, the employee, create your own RRSP (Need help? Contact us).
You pick what investments to participate in (watch out for predatory financial advisors).
You add funds to your RRSP.
If you submit proof to the Employer that the funds were deposited, they will match 5% of your deposit up to a maximum amount.

RRSP matching, while better than nothing, is NOT A PENSION. If you don’t invest, you don’t get anything from the Employer. That’s why Employers love these types of schemes.

Conversely, Defined Benefit Pension Plans are the Gold Standard of pensions and should be what every unionized workplace strives to achieve.

What are the downsides to RRSPs?

While RRSP matching schemes can be a useful tool for saving, they come with some problems.

-Investment Risk: With RRSPs, you bear the investment risk. If the market is performing badly when you retire, you will have less money to live on.

-Contribution Limits: RRSPs have annual contribution limits, which may not be sufficient to build an adequate retirement fund, especially for those who start saving later in their careers.

-Management Fees: Investment fees for RRSPs can erode returns over time. Even minor differences in fees can substantially impact the final amount available for retirement.

The defined-benefit pension plans available to CUPE members are safe, secure and provide better returns than RRSPs.

What is a defined-benefit (DB) pension plan?

A Defined Benefit (DB) pension plan promises a specified monthly benefit upon retirement, which is determined by a formula based on factors such as salary history and years of service.

This contrasts with an RRSP, where the payout depends on the investment’s performance. Here are a few compelling features that make DB pension plans far superior:

Predictability and Security: A DB plan provides a predictable income stream in retirement, which is not subject to market fluctuations. This ensures financial stability, allowing you to plan your future with confidence.
Longevity Protection: DB plans typically offer lifetime benefits, eliminating the risk of outliving your retirement savings. This is particularly important as life expectancy increases.
Professional Management: Pension funds are managed by professional investment managers, which often results in better investment returns compared to individual RRSPs managed by employees who may need more financial expertise.
Lower Management Fees: The cost of management is spread out in a DB plan, so much more investment income goes to paying retirement benefits than in an RRSP. The difference is dramatic.
Survivor and Disability Benefits: Many DB plans include provisions for spousal and survivor benefits, as well as disability pensions, providing additional layers of financial protection for your family.

A defined-benefit pension plan offers far greater security and stability for our retirement years.

Are all defined-benefit (DB) pension plans the same?

All DB plans have certain things in common – they all pool resources, require both workers and employers to contribute, and provide a guaranteed income upon retirement.

But there are differences. For example, some have a single workplace and some cover multiple workplaces (jointly sponsored pension plans or JSPPs), they have different contribution requirements and have different payouts upon retirement, they have different regulations around part-time employees.

Your elected leaders have been looking at three plans: The University Pension Plan (UPP), the Colleges of Applied Arts and Technology pension plan (CAAT) and the Multi-Sector Pension Plan (MSPP). UPP and CAAT are both defined-benefit plans, whereas MSPP is a “target-benefit” plan that offers many of the benefits of a defined-benefit plan, but your retirement income is not guaranteed in the same way.

	MSPP	CAAT DBPlus	UPP
Type of plan	Target Benefit	Defined Benefit	Defined Benefit
Contribution rates	Collectively bargained Total between 4-10.5% Employer must pay at least half	Collectively bargained Total between 10-18% Employer must pay at least half	Pre-determined 9.2% up to YMPE 11.5% above YMPE Employer matches employee contributions
Eligibility	Employees on date we join, then new hires after 500 hours (or per collective agreement)	Employer decides which classes are eligible	All full-time continuous, and for others when you earn at least 35% of YMPE (about $23,800 in 2024) or work at least 700 hours in a year
Benefit formula	$1.55 monthly pension per $100 contributed	Base guaranteed pension = 8.5% x contributions	Best average earnings up to aYMPE x 1.6% times pensionable service
Indexation	None currently	Non-guaranteed @75% of CPI	Conditional indexation @ 75% of CPI
Reduction if retiring before 65	6%/year	3-5%/year	5%/year
Can I retire before 65 without a reduction?	No	No	Yes, any time after age 60 if age + years of pensionable service = 80
Benefit guarantee?	No	Yes, on some benefits	Yes, on some benefits

Note: There is more detail in the presentation.

How will a pension affect my take-home pay?

Right now, you have deductions for your RRSP matching program. It is important to remember that deductions for a pension are dollars that you still get when you retire, but with a lot more added from the investments.

Right now, a member earning $22/hr and working 37.5 hours a week has $50.77 deducted bi-weekly (i.e. from each paycheque) for the RRSP matching program (if they are choosing to make the maximum contribution rate of 5%).

That same worker will pay $50.77 biweekly for an RRSP, $50.77-$91.38 for CAAT, or $93.42 for UPP.

What will my pension look like?

Using that same full-time worker making $22/hr as a model, the chart below shows what your annual pension would be after working for 25 years.

When this worker retires, their RRSP would give them about $3000 a year. CAAT at the same contribution rate would be just over $10,000 a year and around $12,500 a year at the 9% rate (CAAT allows a range of contribution rates, but the more you put in the more you get out). UPP will pay around $16,000 a year at a 9.2% contribution rate.

But look at what happens after you’ve been retired for a while. Because of indexing your annual income will go up with a defined-benefit pension!

I’m close to retirement, will I benefit?

Yes. But even if you only contribute to the pension for three years, you could see your annual retirement income more than double from what you’d get with the RRSP program.

We want to hear from you! Do you have questions, comments, or concerns? Give us a shout.

Phone: James Adams Moore 613 453 7803

Email: Cynthia Plante Pensiontalk@hotmail.com

What about CPP and OAS?

Publicly Funded Pensions and Income Supplements

In addition to employer-provided pension plans, several publicly funded pensions and income supplements are available in Ontario, which include the Canada Pension Plan (CPP) and Old Age Security (OAS).

These public pensions are meant to be a part of your retirement income plan. They may not cover all your day-to-day expenses. This is why unions like CUPE fight so hard for additional benefits.

Canada Pension Plan (CPP)

Overview: CPP is a contributory, earnings-related social insurance program. It provides benefits to contributors and their families in the event of retirement, disability, or death.
Contributions: Employees and employers both contribute equally to CPP, with self-employed individuals contributing both portions.
Benefits: The amount received depends on your contributions during your working years. The average monthly retirement pension for new beneficiaries in 2024 was approximately $817, but this can vary widely.

Old Age Security (OAS)

Overview: OAS is a non-contributory, residence-based program funded by general tax revenues. It provides a monthly payment to eligible seniors aged 65 and older.
Eligibility: Eligibility is based on the number of years lived in Canada after age 18. The maximum OAS benefit in 2024 is about $718 per month.
Supplement: The Guaranteed Income Supplement (GIS) is available to low-income OAS recipients, providing additional financial support.

Aramark Food Services Pensions Pamphlet

Pensions: How They Work and Why You Need One

What about CPP and OAS?

Further Reading & Resources