Demystifying pension plans: a guide to understanding your options

Demystifying pension plans: a guide to understanding your options

Many of us spend years dreaming of retirement — but retirement is more fluid than it used to be, especially for physicians. Retirement now includes the option of a gradual transition out of practice that can include part-time work. The finances of retirement have changed too: retiring physicians can take advantage of a wide variety of financial drawdown strategies, selecting the ones that best meet their needs and help them create a retirement that satisfies and fulfils them.

What defines a fulfilling retirement? Physical health, emotional and social fulfilment, personal autonomy — and, underlying and making possible all those pieces, financial security.

Whether your retirement plans include travel, volunteering, more time with family or part time work, retiring on your own terms when the time comes requires careful planning now. Whether you choose to work with an advisor or to invest on your own, the money you have in retirement will be the money you managed to put aside and grow during your working years.

Why physicians need a pension plan

The challenges physicians face and the opportunities available to them on their financial journeys are different from those of most professionals: their education and training take longer, so physicians begin their careers later, often with significant student loans to pay off. All this means a shorter time frame to save for retirement.

To add to the challenges, a physician's income can fluctuate from year to year, as most physicians in Canada are self-employed. Physicians often incorporate for a variety of reasons. Busy careers mean many don't have either the time or the inclination to take a hands-on approach to managing their investments, and without historical access to a pension plan, they have worked on their own or with a financial advisor to manage their retirement savings.

Individual investments, however prudently made, are always subject to market volatility: some part of the results will always be outside the investor's control. Pension plans help make up for this uncertainty by providing a predictable, reliable income that gives members the peace of mind that comes with knowing their standard of living will be protected. Until now, however, most physicians haven't had access to this type of pension plan.

This is the gap in physicians' retirement security the Medicus Pension Plan was created to fill. Established in 2022 and currently serving physicians in six provinces and across a wide range of medical specialities, Medicus is a defined benefit multi-employer pension plan tailored to physicians’ needs. It's designed exclusively for physicians, to make saving for retirement simpler and stress-free, while providing secure lifetime retirement income for members and valuable additional financial protection for family members.

A pension plan like Medicus that's tailored to physicians’ needs can help address some of the financial challenges physicians face by offering a safe, easy and hands-off means of planning for retirement. It's important to understand how your retirement savings plans work, so you can make the financial decisions that will meet your needs and those of your family. A pension plan, like Medicus, can simplify the process — and it includes features designed specifically for physicians.

Because they haven't typically had access to a pension plan, many physicians haven't needed to know how they work and what benefits they offer. To understand what makes Medicus so special, let's get into some details.

Understanding the role of pension plans

There are many ways to save for retirement and to drawdown those savings when you stop working. You may already be saving through registered investment vehicles such as registered retirement savings plans (RRSPs) or tax-free savings accounts (TFSAs), individually or through your professional corporation. You may also know roughly what income you can expect from government plans like the Canada Pension Plan (CPP). You may also have other non-tax-sheltered savings and investment accounts, and you likely own your own home and may own one or more investment properties.

In many cases, these sources can complement each other and can be used in combination when saving for retirement. A pension plan adds a secure and predictable layer of retirement income to the income you are drawing down from your other sources. For example, if you’re drawing down from an RRSP or a TFSA, these drawdowns are affected by market volatility, while a pension is generally unimpacted by fluctuations in the market. Similarly, a pension plan provides you with protection against outliving your assets, because you know it will be paid for life, which is protection that is generally not available from an RRSP or TFSA. With the security of a defined benefit pension plan, you may also choose to allocate a higher percentage of other assets to growth seeking investments.

How does the Medicus pension plan work?

Pension plans require an employer-employee relationship. With Medicus, incorporated physicians play a dual role: as the participating employer (through your own professional corporation) and also the plan member (as an employee of your corporation). Unincorporated physicians working for a participating employer are also eligible to become members.

As a Medicus member, your pension contributions are invested in a single trust fund with those of all other Medicus members, overseen by the Administrative Board that acts in the interests of plan members. This pooling of contributions not only allows for access to specialized investments, it also helps to lower risk due to the longer investment horizon. Your contributions are calculated at a rate of 18% of the year's capped pensionable earnings, which is $187,800 in 2025, meaning a maximum total annual contribution of $33,800.

The pension benefits you'll receive upon retirement are calculated based on a formula which assumes you'll start drawing your pension at the normal retirement age of 65. For each year you participate in the plan, you earn a pension benefit equal to 2% of the capped pensionable earnings you received from the corporation (or other participating employer) in that year.

For example, a physician who joined Medicus on January 1, 2025, and then contributed the maximum amount for 25 years will receive an annual benefit upon retirement of $137,020.

Life transitions and financial implications

Life changes as we move through our education, our careers, and our lives, and the decisions we make at 25 or 35 aren't always a good fit at 45 or 55. That's one reason to regularly revisit your financial and retirement plans.

When your life changes your finances often do as well: if you marry, you and your spouse will likely want a joint retirement plan rather than individual ones. If you have children, you'll want to save for their futures as well as your own. Buying a house, changing your career path or taking time off for caregiving or volunteering abroad can also mean a change in income that will affect how you save for retirement.

No matter what stage of life you're in, it's a good idea to review your retirement plan regularly to ensure you're still on track to meet your goals and make adjustments if you're not.

Reaching your retirement goals

When you start to practise retirement feels a long way away, but almost anyone over 65 will tell you it came faster than they expected. The key to being ready financially, so you can focus on your goals for your post-work life, is to start saving and planning as early as possible. Not only does it give your investments the maximum time to grow, but it also means you have some extra runway for emergencies — or for opportunities. Joining the Medicus Pension Plan now will provide you with a predictable monthly income when you retire — for the rest of your life.

Even when you get professional help with investment decisions, your retirement plan is still yours: you work with your financial advisor to ensure they understand your needs and situation and to craft your goals and the strategies that will get you there. But by joining a pension plan and letting the experts manage this aspect of your investments in the day-to-day, you save time and effort — and, in the long run, you might be saving yourself money.

If you're ready to set up a one-on-one discovery meeting to get you started with Medicus, where you can chat with one of our specialists and have all your questions answered, visit our website at www.medicuspensionplan.com.