Plan participation and your RRSP

Your RRSP contribution room is reduced if you participate in a pension plan or deferred profit sharing plan.

The government wants to provide everyone with an equal opportunity for taxTax A fee the government charges on income, property, and sales. The money goes to finance government programs and other costs.+ read full definition-sheltered retirement savings. So if you are in a defined benefitBenefit Money, goods, or services that you get from your workplace or from a government program such as the Canada Pension Plan.+ read full definition (DB) plan, a defined contributionContribution Money that you put into a savings or investment plan.+ read full definition (DC) plan or a deferred profit sharing plan (DPSP)Deferred profit sharing plan (DPSP) A plan that employers use to build a retirement fund for employees. The company pays a share of its profits into the fund. The money grows inside the plan tax-free. Note: employees cannot put their own money into a DPSP.+ read full definition, you won’t be able to contribute as much to your RRSPRRSP See Registered Retirement Savings Plan.+ read full definition.

Pension adjustment

The reduction in your RRSP contribution roomContribution room The amount you can put into a savings plan like a Registered Retirement Savings Plan (RRSP). If you do not put the full amount into the plan each year, you will have extra, unused contribution room that you can use in later years. Example: Let’s say you can contribute $12,000 to your RRSP this year,…+ read full definition is known as a pension adjustment or PA.

  • Under a DB plan, your PA is an amount that approximates the value of the pensionPension A steady income you get after you retire. Some pensions pay you a fixed amount for life. Others save up money for you while you are working. You use that money to create income after you retire.+ read full definition benefit you earned in the previous year.
  • Under a DC or DPSP, your PA is the amount that you and your employer contributed to your plan accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition in the previous year.

Key point

Your pension adjustment is reported on your T4 tax slip each year.

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