Workplace pension plans: RPPs, DPSPs and PRPPs

Many employers help you save for retirement through a workplace plan: a registered pension plan (RPP), a deferred profit-sharing plan (DPSP) or a pooled registered pension plan (PRPP). Each generally shelters savings from tax until the money is paid out, and each uses up some of your RRSP room.

Registered pension plans

An RPP is set up by an employer or a union to pay retired employees a pension in regular payments. The Income Tax Act allows deductions for both your contributions and your employer’s, and contributions and investment earnings aren’t taxed until the pension starts being paid.

There are two basic designs, and some plans combine them:

• Defined benefit. The plan promises a set pension worked out by a formula, not by how much was contributed: for example, a percentage of your average earnings times your years of service, or a flat dollar amount for each year of service.
• Defined contribution (also called money purchase). Your employer’s contributions, and yours if the plan requires or allows them, go into an account in your name. Your pension depends on what’s in the account: contributions plus investment earnings.

Your contributions for the year, including any past-service contributions for 1990 or later, are shown in box 20 of your T4 slip. You deduct them on line 20700 of that year’s return and can’t deduct them in any other year. Past-service contributions for 1989 or earlier follow different rules, set out in the CRA’s Guide T4040.

Deferred profit-sharing plans

A DPSP is a plan registered by the CRA in which an employer shares business profits with all its employees or a chosen group. Only the employer pays in: members can’t contribute, although money can be transferred directly from one DPSP to another. The trust that holds the plan is generally exempt from tax, and what you receive from it is taxable income.

Amounts allocated to you must belong to you outright (vest) by the later of when they’re allocated and when you’ve been in the plan for 24 consecutive months. Vested amounts must become payable to you no later than 90 days after you stop working for the employer (or the plan ends), and no later than the end of the year you turn 71. If the plan allows, you can take them in instalments or use them to buy an annuity instead of a single payment. A lump sum from a DPSP can be transferred directly to an RPP, an RRSP, a RRIF, a PRPP or another DPSP without being taxed at the time.

Pooled registered pension plans

A PRPP is a pooled retirement plan designed for employees and self-employed people who don’t have a workplace pension, and it moves with you from job to job. You can join one if you work (or are self-employed) in Yukon, the Northwest Territories or Nunavut, work for a federally regulated employer that offers one, or live in a province with the required legislation. Your employer can enrol you, or you can go to a PRPP administrator yourself.

• Contributions from you and your employer together are limited by your RRSP deduction limit.
• You deduct only your own contributions. Your employer’s contributions aren’t included in your income and aren’t deductible; you report them on line 20810.
• You can’t contribute to a spouse’s PRPP, unlike an RRSP.
• The money is generally locked in. The CRA notes that, under the federal Pooled Registered Pension Plans Act, PRPP funds generally can’t be withdrawn before you retire from employment, and you can’t withdraw them for the Home Buyers’ Plan or Lifelong Learning Plan.

In Quebec: voluntary retirement savings plans

Quebec has voluntary retirement savings plans (VRSPs), registered with Retraite Québec, for workers whose employer doesn’t offer a group retirement savings plan. If your employer offers a VRSP and you’re eligible (18 or older, with one year of uninterrupted service), you’re enrolled unless you tell your employer you’re opting out within 60 days after the plan administrator sends you the statement of participation. Contributions are deductible and benefits are taxable. You can withdraw your own contributions (they’re taxed when you do), but your employer’s contributions are locked in and can’t be withdrawn before you turn 55.

How a workplace plan cuts your RRSP room

Your RRSP deduction limit for a year is generally the lesser of 18% of the previous year’s earned income and the annual dollar limit ($32,490 for 2025, $33,810 for 2026), minus your pension adjustment from the year before, plus any unused room. Three amounts link your workplace plan to that limit:

• Pension adjustment (PA). A measure of the value of the benefits you built up in the year under an RPP or DPSP, shown in box 52 of your T4 (or box 034 of a T4A). In a defined contribution plan, it’s generally the contributions you and your employer made for the year. In a defined benefit plan, it’s based on the pension you earned that year under the plan’s formula. Your employer usually has to report it even if the benefit hasn’t vested. It doesn’t change your income, but it reduces your RRSP limit for the next year.
• Pension adjustment reversal (PAR). If you leave an RPP or DPSP and what you take away is worth less than the PAs and PSPAs reported for you, your plan reports a PAR on a T10 slip, and the CRA adds it back to your RRSP limit for that year. In a DPSP or defined contribution plan, this happens only if you weren’t fully vested when you left. You don’t report it on your return.
• Past service pension adjustment (PSPA). If a defined benefit plan improves your benefits for past years (after 1989), or you buy back past service, a PSPA reduces your RRSP limit. For a buyback, the CRA usually has to certify the PSPA before you’re entitled to the benefits, and the Income Tax Act limits what it can certify. If yours is over the limit, the options the CRA lists include withdrawing money from your RRSP (and including it in your income) to get it certified, buying only as much service as your unused RRSP room plus an allowance for a shortfall would cover, or waiting until you have more room. Your plan may let you pay for a buyback with a direct transfer from your RRSP or certain other plans, which reduces the PSPA.

For how RRSP room works in general, see RRSPs: how contributions save tax.

When you leave a job

• RPP lump sums. In most cases, if you transfer a lump sum from your pension directly to another RPP, an RRSP, a RRIF or a PRPP, none of it is taxed at the time and you don’t deduct it. For a defined benefit pension, the law limits how much can be moved tax-free to an RRSP, RRIF, PRPP or money purchase plan. Any excess is income, shown on your T4A, but it’s treated as an RRSP contribution: you can deduct it up to your RRSP deduction limit and carry forward what you can’t, though the tax on excess RRSP contributions may apply while it stays in the plan.
• Locked-in money. Pension money transferred from an RPP may be held in a locked-in RRSP, which some provinces call a locked-in retirement account (LIRA). You generally can’t withdraw from it: it’s kept to buy a life annuity at retirement or, where provincial pension law allows, moved to a locked-in RRIF such as a life income fund (LIF). Rules vary by province, but the exceptions that may allow earlier access generally include a shortened life expectancy, unemployment or low income, becoming a non-resident, or a small balance. LIRAs and locked-in RRIFs are taxed like regular RRSPs and RRIFs.
• DPSPs: vested amounts become payable within 90 days of leaving, and a lump sum can be transferred directly. PRPPs stay with you.

Your employer or plan administrator can explain your options, including whether the money will be locked in. If your employer pays you severance, see losing your job.

When your pension starts

Pension payments are income on your return for the year you receive them, usually reported on a T4A slip. A lifetime pension from an RPP qualifies at any age for the federal pension income amount, a credit on up to $2,000 of eligible pension income, and for pension income splitting with your spouse or partner if you meet the conditions. PRPP payments qualify for both only from 65, or earlier if you receive them because your spouse or partner died. See pension income splitting and converting your RRSP to a RRIF.

What to do

1. Check your RRSP limit on your latest notice of assessment before contributing; it already reflects your pension adjustment. If a PAR or a certified PSPA changes it later, the CRA usually sends you a revised limit.
2. Before buying back past service, ask your administrator for the PSPA and compare it with your unused RRSP room.
3. When you leave a job, use direct transfers and ask whether the money will be locked in.
4. If you leave a plan, especially before you were fully vested, watch for a T10 slip: a PAR on it restores RRSP room.