A registered pension plan (RPP) is an employer-sponsored retirement savings program registered with the Canada Revenue Agency (CRA). RPPs allow employees to save for retirement through tax-deductible contributions directly from their paychecks.
A solid grasp of RPPs will help you maximize this valuable retirement savings tool that many employers offer. This guide outlines everything you need to know about RPPs, from RPP basics to key rules and requirements related to contributions and withdrawals.
What is a Registered Pension Plan (RPP)?
A Registered Pension Plan (RPP) is a structured, tax-assisted retirement savings plan arranged through an employer. Contributions are typically made through automatic payroll deductions, and employers may match employee contributions up to certain limits.
The money contributed is invested on behalf of the employee until retirement. At that point, the pension income can supplement Old Age Security (OAS) and Canada Pension Plan (CPP) benefits.
There are two main types of RPPs in Canada:
- Defined benefit pension plan (DB RPP): Sets a fixed formula for calculating the pension payment in retirement. The employer contributions needed to fund the promised benefit may vary over time.
- Defined contribution pension plan (DC RPP): Also known as a Money purchase plan. The retirement benefit varies based on the amount contributed and the performance of the investments. The contributions are fixed.
Here is an overview of how they differ:
| Defined Benefit (DB) Plan | Defined Contribution (DC) Plan | |
|---|---|---|
| Retirement Benefit | A pre-set formula | No fixed benefit – depends on account balance |
| Employer Contributions | Vary | Typically fixed |
| Investment Risk | Borne by employers | Borne by employees |
| Payment Flexibility | Limited options | More flexible with lump sums |
| Transferability | Usually not transferable between jobs | Can transfer account balance to another registered plan |
How Do RPPs Work?
RPPs have certain key characteristics relating to eligibility, contributions, investments, and withdrawals.
RPP Eligibility
RPPs are usually offered to full-time permanent employees. Eligibility may begin after a probationary period. Part-time and contract workers are sometimes eligible. Self-employed individuals cannot set up RPPs.
Enrollment often occurs automatically after meeting eligibility requirements. Employees can opt out if they do not wish to participate.
RPP Contributions
Employers are legally required to financially support RPPs. Employee contributions are usually optional, but may be mandatory under some plans. Contributions are made through automatic payroll deductions, providing forced savings discipline. The tax-deductible status provides an immediate tax break on the contributions.
RPPs have annual contribution limits that vary by plan type. This helps ensure tax-deferred benefits stay within reasonable levels.
For the 2025 tax year, the Defined Contribution Plan contribution limit is $33,810 total contribution room or 18% of salary, whichever is less. This matches the Registered Retirement Savings Plan (RRSP) dollar limit for 2026.
There is no annual contribution limit for Defined Benefit RPPs, but the CRA sets a limit on the pension you can earn in a year, which is $3,756.67 for 2025.
The limits are indexed each year, so they increase moderately over time. Unused contribution room can be carried forward indefinitely.
Exceeding the limits can result in large over-contribution penalties and complications, so it’s critical to stay within your allocated room.
Investment Options with an RPP
Employers choose the financial institution to manage the RPP investments. Employees often have limited control over how funds are invested.
RPPs pool contributions in investment funds typically managed by insurance companies, banks, or trust companies. The funds are conservatively invested in assets like bonds, mortgages, and equities.
RPPs have special tax-deferred status under federal laws, which requires them to be registered with the CRA. This provides beneficial tax treatment for contributions and investment earnings.
RPP Withdrawal Rules
RPP funds are locked in until retirement, providing discipline against accessing savings prematurely. Some exceptions exist in cases of financial hardship or emigration.:
- Financial hardship – Severe financial hardship due to circumstances like medical expenses or disability may qualify you to unlock RPP funds early.
- Non-residency – Temporary non-resident status can allow you to collapse your RPP.
- Small balance – If your RPP value is less than 20% of the Year’s Maximum Pensionable Earnings, you may be able to withdraw a lump sum.
- Shortened life expectancy – Having a terminal illness or disability, reducing life expectancy to less than 2 years, can unlock funds.
In retirement, funds can be taken as a lump sum or converted to an income stream. All withdrawals are taxed as regular income.
What are The Benefits of RPPs?
There are 7 valuable advantages that make RPPs a worthwhile retirement savings tool:
- Forced savings discipline – Contributions automatically come off your pay, which makes saving much easier.
- Employer contributions – Extra free money from employer matches can significantly increase the size of your nest egg.
- Tax-deductible contributions – The immediate tax break increases how much you can invest each year.
- Tax-deferred growth – All capital gains and income accrue tax-free for decades, compounding faster.
- Professional management – Access to institutional-scale investing expertise.
- Low fees – Large RPPs can negotiate reduced investment management fees.
- Peace of mind – Knowing employer-sponsored pension experts are managing your retirement investments.
The powerful combination of pre-tax contributions, tax-deferred growth, and employer support results in substantially larger potential savings than individual plans.
Potential Drawbacks of RPPs
However, participating in RPPs also comes with 6 drawbacks to consider:
- Lack of investment control – Employees usually can’t select their own investments.
- Limited flexibility – Locked-in funds cannot be accessed easily before retirement.
- Job change risks – Switching employers may force the transfer or winding down of the RPP.
- Plan risks – Your employer going bankrupt could put pensions in jeopardy.
- Inflation risk – Most RPPs have limited inflation protection. Your purchasing power is eroded over time.
- Survivor benefits – RPP death benefits for survivors may be less advantageous than personally held plans.
While these risks are manageable, they should be factored in by individuals considering participating in an employer’s pension plan.
How RPPs Compare to Other Retirement Savings Plans?
RPPs differ from individual plans like RRSPs and TFSAs in key ways:
- Access to RPPs depends on an employer offering one.
- RPPs benefit from employer contributions that are often not available with individual plans.
- RPPs have limited investment control versus complete control with plans like RRSPs.
- Funds cannot be accessed before retirement without penalties.
- RPPs have annual contribution limits that differ from plans like RRSPs.
Key differences are outlined below:
| RPP | RRSP | TFSA | |
|---|---|---|---|
| Type of Plan | Employer-based | Individual | Individual |
| Employer Contributions? | Often Yes | No | No |
| Employee Contributions? | Sometimes Mandatory | Discretionary | Discretionary |
| Tax Treatment | Pre-Tax Contributions & Tax-Deferred Growth | Pre-Tax Contributions & Tax-Deferred Growth | After-Tax Contributions & Tax-Free Growth |
| Withdrawal Flexibility | Locked In | Unrestricted | Unrestricted |
| Contribution Limits | Yes – See Below | Yes – 18% of Earned Income | Yes – $7,000 for 2025 |
In summary, RPPs offer unique advantages like employer contributions but have less flexibility until retirement.
Planning for your retirement? Our guides can help!
- Pooled Registered Pension Plan (PRPP)
- What Happens to Your RRIF When You Die
- Locked-in Retirement Fund (LRIF)
- Insured Retirement Plan (IRP)
FAQs about Registered Pension Plans RPPs in Canada
Below are answers to common questions about RPP rules and features:
What happens to my RPP if I leave my employer before retirement age?
You have options: 1) Leave funds in the RPP if permitted, 2) Transfer to a Locked-in Retirement Account, or 3) Transfer to your new employer's plan if allowed.
Can I have both an RPP and a personal RRSP?
Yes, you can contribute to both types of plans, but your RRSP room will be reduced by your RPP contributions.
What recourse do I have if my RPP is underfunded when I retire?
Federal pension laws provide protections against underfunding and guarantee minimum levels of benefits.
How are RPPs taxed in retirement?
Any withdrawals or income received will be fully taxed as regular income at your marginal tax rate. Taxes aren't deferred further.
The Bottom Line
RPPs can form an integral pillar of retirement savings for employees whose workplace provides such plans. Leveraging both employer contributions and beneficial tax treatment makes participating advantageous. However, be sure to understand how your company’s version of an RPP operates specifically. The account balances, flexibility, and security provisions can vary widely between providers.
Overall, used strategically, RPPs can boost the growth of your nest egg substantially. Combining an RPP with personal savings plans can put you on the path to a comfortable and secure retirement.
