Two readers ask financial experts how to handle a defined contribution (DC) pension when retiring. Below are practical, plain-language answers about options, costs and what to consider before moving funds out of an employer plan.
What to do with a DC plan when you’re about to retire
Ask MoneySense
My husband has a DC Registered Pension Plan (RPP) held by an insurance company and he will retire within a year. This is his only workplace pension, although we also have non-registered investments. We expect to receive roughly $25,000 a year from this pension.
We’re unsure who should manage the money after he retires: keep it with the insurance company, move it to our advisor at a large bank who charges 1.25% in management fees, or manage it ourselves in a self-directed account using mostly GICs (which may only be a short-term approach).
There’s plenty of information about converting to a LIF, but not much about the ongoing money-management decision. Is leaving the DC pension with the insurance company a reasonable default?
— Pam
What do you do with a DC plan when you retire?
Pam, any of the options you mention — staying with the plan provider, moving to your financial advisor, or going self-directed — can be appropriate depending on what you and your husband need. The right choice depends on the level of investment support, cost, and convenience you want.
Below is a concise overview of how DC pensions work, the typical transfer path on retirement, key fee considerations, and the practical reasons to stay with or move away from the pension provider.
The types of employee pensions
There are two common types of employer pensions: defined benefit (DB) plans and defined contribution (DC) plans. In a DB plan the employer guarantees a specific retirement income and manages the investments. In a DC plan, the employer contributes to an account for the employee, and the employee bears the investment risk and responsibility for managing the funds—similar to an RRSP.
Pam’s husband has a DC plan, so he’ll be responsible after retirement for how the accumulated funds are invested and converted into retirement income.
How to leave a pension plan
When an employee retires, funds from a DC plan typically transfer into a locked-in retirement account (LIRA) if they are not paid out directly. From the LIRA, when income withdrawals begin, the account is usually converted to a life income fund (LIF). A LIF resembles a RRIF but includes annual maximum withdrawal limits and locking rules tied to pension regulations.
Unlike a DB pension, a DC pension does not guarantee a fixed annual payment—unless you use some or all of the balance to buy a life annuity. If you are estimating $25,000 per year, that figure is not guaranteed unless it comes from an annuity. More often, the estimate is based on assumed investment returns and life expectancy.
Before deciding where the funds should sit, reflect on your withdrawal strategy, tolerance for investment risk, and whether you want a steady guaranteed income or flexible withdrawals. Your answers will guide whether to stay with the insurer, transfer to a trusted advisor, or self-manage at a discount broker.
What to do with a DC pension when you retire
Key questions to ask about the pension provider: Are you satisfied with the investment options they offer? Do they provide GICs, index funds or mutual funds you like? Is their customer service helpful? Is the online platform easy to use? If the answers are yes, staying with the plan provider is a reasonable choice—provided fees stay competitive after the plan is converted to a LIRA or LIF.
Staying with the DC pension plan provider
Remaining with the existing provider often provides convenience and continuity. However, watch for fee changes: management fees and MERs may increase when the account is moved out of the active DC plan into a LIRA or similar wrapper, even with the same company. Confirm the total cost you’ll pay in the retirement account compared with the active plan.
Moving onto an advisor
If you’re considering transferring to a bank advisor who charges a 1.25% fee, compare total all-in costs rather than the advisor fee alone. Combine the advisor fee and the MERs of the funds they recommend and compare that to the MERs and fees at the current pension provider. Sometimes a paid advisor’s combined cost can be similar to, or even lower than, the plan provider’s fees—especially if the provider charges high MERs.
Also evaluate whether the advisor offers additional services that matter to you—retirement income planning, tax-coaching, or ongoing financial planning. If those services add value, paying an advisor may be worthwhile. If not, you might prefer to stay with the plan or go self-directed.
Transferring to an online broker
Self-directed management makes sense if you and your husband are comfortable selecting investments and monitoring withdrawals. A discount brokerage often gives access to low-cost index funds and ETFs, which can reduce MERs substantially. But DIY investing requires discipline: maintaining diversification, avoiding impulsive trading, and understanding each product you buy.
If you prefer a coach or someone who will proactively help you shape and meet retirement goals, a financial planner may be a better fit. If you’re confident in your plan, comfortable with change, and want the lowest ongoing fees, moving to a discount broker could be the right solution.
— Allan Norman, MSc, CFP, CIM
Should you transfer your DC pension plan to a discount brokerage?
Ask MoneySense
I’ve been with the same employer nearly 20 years and have participated in the company’s DC RPP. I moved most personal accounts (RRSP, TFSA and non-registered) to a discount brokerage and want to move the RPP to save fees, lowering MERs from roughly 1% to about 0.2%. Is that possible while I’m still employed?
— Shawn
Can you withdraw or transfer funds from an RPP?
Shawn, DIY investing can lower costs, but pensions have rules. When you move funds out of a DC pension plan they typically must go to another pension vehicle or to a locked-in RRSP or LIRA. Locked-in accounts restrict withdrawals to align with pension rules—no withdrawals before age 55 in most cases, limits on annual withdrawals, and few exceptions.
Most workplace DC pension plans do not allow transfers while you are still an active employee. Plans commonly permit transfers only when you leave the employer or retire. Group RRSPs operate differently and sometimes allow transfers while still employed, but DC RPPs generally do not. So you will likely have to wait until you leave or retire to move those funds.
How much should you pay in mutual fund fees (MERs)?
Paying around 1% in MERs is reasonable given that average mutual fund MERs have historically been higher—many retail funds have MERs closer to 2%. Some workplace DC plans and group RRSPs offer more competitive fees in the 0.5% range, particularly if low-cost index funds are available.
To manage total costs efficiently, coordinate portfolio construction across accounts. For example, if you hold individual North American stocks inside a discount brokerage, consider overweighting global or U.S. index exposure within the workplace plan if low-cost options are offered there. This reduces duplication and can improve tax and fee efficiency.
If fees are a concern, raise the issue with your employer; they may be willing to negotiate lower plan fees or switch to more competitive investment options for the group. In the short term, ensure you contribute enough to get any employer matching contributions. If you make additional, unmatched contributions, consider directing those to lower-cost personal accounts until you can transfer the workplace funds.
— Jason Heath, CFP