How much money do you need to save in order to retire? It’s a challenging question to answer for most Canadian employees. This is especially true for those with a Defined Contribution (DC) pension plan. For the ICPP Administrator, setting proper pension targets is the first priority.

Within typical DC plans, members concentrate on making contributions to accumulate assets. Full stop. Unfortunately, it is often unclear whether these accumulated assets will be sufficient to support their lifetime retirement needs. As such, many DC plan members struggle with determining when they can retire and how much to spend once they do.

The ICPP provides clarity where other DC plans do not. Our members receive lifetime pensions from the ICPP with built-in expected pension increases to mitigate the effects of expected inflation. They are also never required to manage their pension.

The ICPP’s Benefit Targets also help eliminate any guesswork. In a nutshell, our Benefit Targets set clear-cut, easy-to-understand savings goalposts.

The Ideal Benefit is mandatory and the core Benefit Target under the ICPP. It is designed to provide a pension that will be sufficient for most employees of a Participating Employer. Contributions made on behalf of a career Member of the ICPP are set so that they are expected to fully fund the Ideal Benefit at retirement.

Let’s use an example:

Meera is 35 years old and has worked for a Participating Employer of the ICPP for five years. She earns $55,000 per year. She has accumulated $40,000 within her ICPP accounts.

Meera’s employer selected her default Ideal Benefit to be 50% of her earnings up to the Canada Pension Plan base earnings limit (i.e. the YMPE). Meera contributes 6% of her earnings to the ICPP though regular payroll deductions. Meera’s employer also contributes 6% of her earnings to the ICPP.

As illustrated above, Meera has currently funded about 2% of her targeted Ideal Benefit. But, by the time she reaches her expected retirement date, she can anticipate that she will have funded her entire target Ideal Benefit, with a little extra annual retirement income.

Meera is provided with similar illustrations by the ICPP Plan Actuary regularly so that she can see how her funded pension actually grows and so that she can monitor whether she continues to be on track to receive her targeted retirement income at her expected retirement date.

In addition to the Ideal Benefit, the ICPP offers three other discretionary Benefit Targets. These targets provide pensions, in addition to the Ideal Benefit, that some employees may want. They include the Ideal Benefit – Plus, Insured Extra Benefit, and the Ideal Early Benefit. A full description of each of these Benefit Targets is available here.

The ICPP was created, in part, to address the shortcomings of conventional DC pension plans. One of the biggest problems DC plan members face is not knowing how much to save to provide for their retirement needs. Our Benefit Targets make retirement planning simple. More importantly, they empower our members to retire on schedule, with confidence.