DB pension estimator: what your formula pays

The three formula families

A defined benefit (DB) plan promises an income, and a formula in the plan text sets it. Almost every Canadian DB formula belongs to one of three families.

• Best (or final) average earnings. Accrual rate × your average earnings over your best or last few years (often five) × your years of service. Late-career raises lift the whole pension, which makes this the richest family.
• Career average earnings. The same shape, but the average covers every year you were in the plan. Early low-paid years pull the average down, so plans often "update" past earnings to catch up. Enter your average across all your years, which is usually well below your final salary.
• Flat benefit. A fixed dollar amount per month for each year of service, with no link to your pay. It is common in unionized workplaces, where the dollar rate is bargained.

What CPP integration means

Many plans are integrated with the Canada Pension Plan. They accrue a lower rate on earnings up to the YMPE and a higher rate above it. The logic is that CPP already replaces part of your income on earnings up to that ceiling, so the plan pays less there and leaves room for CPP.

The amber slice is the difference: the upper rate minus the lower rate, times the earnings up to the YMPE, times your years of service. It is a design choice inside your plan, not a CPP estimate. Your actual CPP pension follows its own rules and depends on your whole contribution history.

For a career average plan, the plan usually applies each year's own YMPE to that year's earnings. This tool uses one average YMPE across all years as a simplification.

The Income Tax Act ceiling

A registered pension plan cannot pay more than a set amount per year of service. For 2026 that limit is $3,932.22, one ninth of the $35,390 money purchase limit, and it is indexed every year. The rules also cap the pension at 2% of your highest three-year average pay for each year of service, so an accrual rate above 2% trips the cap well before the dollar limit does. When a formula would pay more, some employers top up the excess through a separate supplementary plan; many do not. Check your plan text.

What this estimator leaves out

• Early retirement reductions, bridge benefits to age 65, and the unreduced retirement date.
• Indexing after retirement, survivor options and guarantee periods, which can change the monthly amount.
• Caps on pensionable earnings, service limits and any past-service buybacks.

Your plan text defines "pensionable earnings", the averaging years, the integration rates and every reduction. Your annual pension statement shows the pension you have already earned. Ask your plan administrator when anything is unclear.