A client, aged 35, has a defined benefit pension plan that will cover 70% of his pre-retirement income. He is saving for a down payment on a cottage in 5 years, requiring $150,000, and also for his child's university education in 15 years. How does the existence of his defined benefit pension influence his risk capacity for his non-pension investments?

Question: A client, aged 35, has a defined benefit pension plan that will cover 70% of his pre-retirement income. He is saving for a down payment on a cottage in 5 years, requiring $150,000, and also for his child's university education in 15 years. How does the existence of his defined benefit pension influence his risk capacity for his non-pension investments?

Answer options: ✅ It significantly increases his risk capacity by reducing reliance on personal savings for retirement.

• It decreases his risk capacity as he has less disposable income for other investments.
• It has no impact, as the pension is a separate asset.
• It shifts his risk capacity towards short-term liquidity needs only.

Correct answer: It significantly increases his risk capacity by reducing reliance on personal savings for retirement.

Explanation: The defined benefit pension plan provides a secure income stream in retirement, reducing the pressure on his personal savings to fund his retirement. This effectively increases his risk capacity for other investment goals, as he can afford to take more risk with those funds.