What's a government
pension really worth?
Public-sector employees get defined-benefit pensions — the retirement gold standard. Estimate the annual income and the private savings you'd need to replicate it.
How DB pensions work
A defined-benefit (DB) pension pays a guaranteed income for life, calculated from a formula rather than investment returns: years of service × accrual rate × average salary. Most Canadian public-sector plans accrue around 2% per year, so 30 years of service replaces roughly 60% of your salary, indexed for inflation and payable for life.
The lump-sum equivalent
To value a pension against private savings, we use the 4% rule: a portfolio can sustainably pay out about 4% per year. So a $58,500 annual pension is worth roughly $1.46 million in RRSP savings — the amount you'd need to generate the same income yourself. That's why a public-sector job at a lower salary often beats a higher private-sector salary with no pension.
Important caveats
This is an estimate. Real plans (OMERS, Teachers', OPSEU, HOOPP) have bridge benefits to 65, YMPE-split accrual rates, early-retirement reductions, and inflation indexing that this simplified model doesn't capture. Use it for ballpark comparison, then check your plan's own estimator.
Common questions
Is a public sector pension worth it?
Usually yes. A defined-benefit pension that pays $50,000/year for life is worth roughly $1.25M in private savings (at a 4% withdrawal rate). That guaranteed, inflation-indexed income often outweighs a higher private-sector salary with no pension.
How is a defined-benefit pension calculated?
Years of service × accrual rate (about 2% in most public plans) × your average salary. 30 years at 2% replaces about 60% of salary for life.
What is the lump-sum value of a pension?
Divide the annual pension by 0.04 (the 4% safe-withdrawal rule). A $40,000 pension ≈ $1,000,000 in savings needed to replicate it.
Which Ontario pension plans are defined-benefit?
OMERS (municipal), the Ontario Teachers' Pension Plan, OPSEU/OPTrust (provincial), HOOPP (healthcare), and CAAT (colleges) are all DB plans.